Changing Markets: Economic Opportunities from Lifting the U.S. Ban on Crude Oil Exports

With the skyrocketing growth of unconventional oil and natural gas production in the U.S., an intense debate on the impact of energy exports on U.S. consumers, the nation’s energy and economic security and foreign policy has become a major topic of interest. Throughout its history, the United States has attempted to ensure energy security by regulating the price of oil, controlling the imports of oil and restricting the exports of oil. In each case, powerful market forces, the rise and fall of demand or discontinuities between U.S. and international prices have overwhelmed the policy of the day. The Brookings Institution’s Energy Security Initiative has compiled a comprehensive report examining the economic and energy security opportunities from lifting the ban on U.S. crude oil exports. Our analysis shows categorically that the crude oil export ban does not, and for some time has not, advanced U.S. energy security. Despite these policies (not because of them), the U.S. has swung from an abundance of oil supply, to scarcity and, today, back to abundance.

A Changing U.S. Energy Market

The U.S. energy market has changed, and for the better, as technological developments of three- and four- dimensional seismic technology, horizontal drilling and the fracking of unconventional oil and natural gas has allowed dramatic production growth. One of the major issues surrounding the debate is when the capacity of the U.S. refining system to process the entire volume of light tight oil will end and what will happen if the crude oil export ban remains in place. The absence of logistics systems for many of these new crude oil sources has forced domestic producers to discount prices in order to get them to refineries, while at the same time having to endure higher-cost rail, barge and truck transportation networks in the absence of pipelines. We also raise the policy question of why crude oil exports are treated differently than petroleum products, coal, gas, petrochemicals and electric power. Our legal analysis shows that the president has the power to act at any time to lift the ban, by declaring exports to be in the national interest under the provisions of the Energy Policy and Conservation Act of 1975 (EPCA). Barring presidential action, Congress could act to lift the ban by amending the EPCA.

Next Steps for the U.S.

Based on our analysis we recommend that the U.S. reconsider and modernize its energy policy by lifting the ban on crude oil exports entirely and immediately. It is evident to us — based on our policy deliberations, the extensive macroeconomic modeling of the U.S. economy and the global oil market research we have commissioned — that the greater U.S. exports of crude oil, the greater the economic and energy security benefit to the country. In addition to the parochial benefits to the nation, as a leader in world trade circles, where the U.S. is a consistent advocate for open markets and transparency, continued restrictions on crude oil exports have the potential to tarnish the U.S.’ global standing and hinder its pursuit of strengthening energy security.

Lifting the ban significantly enhances U.S. energy security in several ways. Allowing U.S. producers to connect to global price signals will generate expansion of U.S. oil production, securing self-sufficiency in light grades of oil. By encouraging this production of light grades of oil, the U.S. increases global diversity of oil supply, while reducing the volatility of global crude oil prices. The U.S. has the opportunity to create a source of diversification to the global oil supply and create a more competitive oil market which will not only lower the global price of crude, but also enhances U.S. energy security.

The report’s analysis shows categorically that the crude oil export ban does not, and for some time has not, advanced U.S. energy security. To the contrary, our analysis demonstrates that lifting the ban will increase U.S. oil production, diversify global supply, reduce U.S. gasoline prices and provide net benefits to the U.S. economy. An export option is indispensable to sustaining domestic production; absent the price support that exposure to international markets provides, U.S. production will not reach its full potential. Keeping the ban in place will forgo these benefits and likely lead to reduced production and by implication less national income, employment and security. We find that it would be unwise to base national policy on protecting a small subset of U.S. refiners and question how sustainable a business model based on artificially suppressed input prices can be.

Lifting the ban generates paramount foreign policy benefits, increases U.S. GDP and welfare and reduces unemployment. 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.