Late last year Secretary of Energy Ernest Moniz stirred media interest in crude oil export policy by indicating that the U.S. government should revisit the conversation on these restrictions. Senate Energy and Natural Resource Committee Ranking Member Lisa Murkowski (R, AK) has been vocal on the topic and has called for Obama to use the existing powers of the president to lift the ban. The committee is holding a hearing on the subject tomorrow. As discussions on the possibility of revising crude oil export restrictions intensify, here are two major considerations worth serious thought:
1) Let the markets work
In 2013, the U.S. unconventional energy production boom led to a 15% surge in oil production—the highest increase seen in 20 years—and is projected by 2019 to reach approximately 9.6 million barrels per day by 2019, compared to 7.5 million last year. However, production growth may be stifled by the crude-oil export ban. According to the International Energy Agency’s Monthly Oil Market Report for January, “the growing volumes of light tight crude oil that cannot leave North America are increasingly posing a challenge to the industry…how long this can continue is open to debate.” U.S. refinery capacity has worked hard to keep up with increased production, but most Gulf Coast refineries are best suited for heavy sour crude rather than the light sweet crude being produced from shale formations. With crude output projected to increase by 780,000 barrels per day in 2014, this mismatch in crude type and refining capacity will continue to grow. The IEA has warned of the U.S. oil output growth hitting a “production wall.” Lifting the export ban can help ensure that U.S. crude is able to reach a viable market, and thus lift some of the present obstacles to further production growth.
2) Improve oil market stability and supply
Over the past few years, a combination of factors, including political violence and the imposition of international sanctions on Iran, have led to significant oil production outages, particularly in the Middle East and Africa. However, increased production of oil in the United States and from other producers, namely Saudi Arabia, has helped to moderate international oil prices. This increased stability is not only a boon to the U.S., but also to the energy security of other countries, which are equally susceptible to fluctuations in global oil prices. The export of U.S. crude would only enhance this stability, by adding extra supply to the global market and helping to moderate global oil prices. With the U.S. entering the crude export market in a more significant way, it would add to the diversity of global supply. The OPEC World Oil Outlook for 2013 projects that OPEC’s share in global liquids supply will fall somewhat for the remainder of this decade, due mainly to increases in U.S. tight oil production. This shift in supply would only be accentuated by crude exports, and would help support secure energy supplies to the global market.
It is in the interest of the U.S. to invest in well-supplied and stable global energy markets. Rolling back the crude oil export ban is a step in this direction, and in addition to the well-stated economic advantages, the United States would gain traction on diplomatic and trade issues, as well.