D. Dowd Muska

 

America Should Join the Global Oil Market

January 15, 2015

Can we export oil now?

Gasoline prices that at one time seemed unimaginably low are a reality, and thoroughly demolishing the keep-our-crude-here crew’s most effective populist appeal. The ban on shipping unrefined black gold abroad never made much sense to begin with, but it’s downright stupid to maintain it when the nation has returned to its former role as a hydrocarbon titan.

Field production of U.S. crude has nearly doubled since the autumn of 2008. More is on the way, as fracking gets cheaper, yields greater volumes, and is better regulated. Oil imports from non-North American sources will likely vanish within the decade, and “energy security” -- not a desirable goal, but go with it -- will be achieved. (China now imports more petroleum than America.)

But it’s not merely a supply phenomenon. Demand is sputtering. The birth rate is low. Hybrid and diesel vehicles boost efficiency. Millennials aren’t driving as much as previous generations. The country is aging, and millions are shifting to sidewalk-strolling and golf-cart-motoring. Advances in telecommunications eliminate commutes and reduce business travel. And natural gas is replacing heating oil in the Northeast.

Add it all up, and it’s difficult to offer an intellectually sound justification to forbid drillers from selling on the global market. They’ve been kept from doing so for more than four decades. In the initial iteration of the ban, enacted in 1973, Washington blocked all domestically produced oil unless the president issued “an express finding that such exports will not diminish the total quantity or quality of petroleum available to the United States and are in national interest and in accordance with the Export Administration Act of 1969.” Subsequent legislation maintained the chief executive’s sole authority to determine the appropriateness of exports.

The ban was silly and emotion-driven -- fedpols of the 1970s at their ignorant worst, embracing “resource nationalism.” The consensus is centuries old: Free trade always helps consumers. As the Institute for Energy Research’s Robert P. Murphy explained, “it makes no economic sense for the government to favor exporters or importers. Basic economics shows that when governments around the world lower barriers and allow their businesses and citizens to trade with other nations, resources are allocated to their most efficient uses.”

The fracking revolution has made a failed strategy even costlier. Much of the new crude deposits being tapped in places such as the Bakken and Eagle Ford is “light” and “sweet,” in contrast to the “heavier” and high-sulfur type that is frequently imported. The transition has refiners in the Midwest and along the Gulf Coast suffering from a glut of unwanted oil. The result, according to the consulting firm IHS, is a “mismatch between the rapid growth of light tight oil and the inability of the … refining system to economically process these growing volumes.”

Eco-shriekers oppose exports. Nothing new there; they fight anything on the lobbying agenda of “Big Oil,” are are petrified about additional emissions of “greenhouse gases.” But support for ending the ban reaches far beyond conservatives and libertarians:

• Charles K. Ebinger and Heather Greenley, of the establishment-left Brookings Institution: “It is time the United States commits to its position on free trade markets as a true member of the Organization for Economic Cooperation and Development and global community and allows U.S. crude oil to flow.”

The Washington Post’s liberal-ish editorial page: “If anything, the United States’ continuing export restrictions diminish the country’s credibility when it asks other nations to adopt rational policies that rankle economic nationalists. Congress should let the country participate fully in the international oil market.”

• Steven Rattner, former counselor to the Obama Treasury Department: “America’s renewed hydrocarbon boom could be even more robust if we eased outdated restrictions on shipping both crude oil and liquefied natural gas overseas.”

• Centrist economics columnist Robert J. Samuelson: “If U.S. producers could … sell abroad, they would have a vast market for their oil. Not all oil would go overseas. But the world market’s availability would, assuming no major price collapse, justify continued exploration for new supplies.”

• IHS’s Daniel Yergin and Kurt Barrow: “We estimate that removing the export ban, combined with continuing innovation in production technologies, would lead to as much as 2.3 million barrels per day of additional production over the next 15 years, and new investment approaching $1 trillion.”

Every fact-based projection concludes that hydrocarbons will supply at least three-quarters of global energy demand for decades to come. Not long ago, America as an oil exporter was a ridiculous concept. Conditions have changed. So should policy.

D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.

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