Report: Exporting US oil would be economic boon

WASHINGTON — The United States would attain broad economic benefits, including lower gasoline prices and new jobs, by ending a 39-year-old ban on exporting crude, according to an analysis released Thursday.

The assessment, conducted by IHS for more than a dozen oil companies, is the first of several expected reports examining the issue, as domestic producers implore Obama administration officials to end the 1970s-era restrictions they say threaten to throttle U.S. crude production.

It also is aimed at skeptical policymakers in the nation’s capital who are concerned consumers would be hurt by lifting the ban on selling U.S. crude overseas and are wary of industry’s claims that changes are urgently needed to sustain record-setting domestic oil production. Most notably, Energy Secretary Ernest Moniz told industry leaders in March that they had not “clearly and concisely” stated the case for exports.

The IHS report, commissioned a month before Moniz’s remarks, delivers a raft of economic evidence that lifting the ban would be good for consumers and the country — predicting virtually no financial downside.

“Overall, the benefits to the U.S. economy — and not just the oil-producing states, but across the country — are quite considerable,” said IHS Vice Chairman Daniel Yergin in an interview with the Houston Chronicle.

The report finds that lifting the ban would:

  • trigger $746 billion in investment from 2016 to 2030, causing domestic oil production to climb 1.2 million barrels per day more than if the trade restrictions remained intact.
  • lower gasoline prices by 8 cents per gallon on average, as U.S. crude hits the world market and adds to supplies used by refiners around the globe.
  • support an additional 394,000 direct and indirect jobs per year on average through 2030, as a result of the increased economic activity tied to the rise in crude production.

Most of the changes would unfold quickly, IHS predicts, rapidly resolving a growing mismatch between the light, sweet crude increasingly flowing from U.S. wells and the nation’s 133 refineries, mostly geared toward processing heavier, less desirable alternatives.

That dynamic results in light domestic crude that is cheaper than the international oil benchmark, Brent. Without trade policy changes, IHS predicts, the discount could reach $25 for some North Dakota crude as early as 2015.

In the short run, that helps some domestic refiners, which have been able to take advantage of discounted raw materials and sell the resulting gasoline at world prices that are effectively set by competitors buying more expensive European oil. Unlike oil, exports of gasoline and other finished petroleum products have been permitted for three decades.

Capitol Hill: Republican lawmakers divided on oil exports

Some refiners have lobbied lawmakers and administration officials to keep the existing oil export ban in place. They argue that oil is not a free market internationally and gasoline prices could indeed climb if U.S. crude goes overseas.

But IHS warns that ultimately, the discounts on domestic crude will discourage oil development in the United States, eventually shutting in some production by making some tight oil plays uneconomic.

“Any actual or anticipated reduction in U.S. crude prices because of export restrictions will prompt producers to reduce drilling in higher-cost, unconventional plays, resulting in lower production rates,” IHS says.

Rebutting the argument that keeping oil inside U.S. borders holds down gasoline prices, Yergin and report co-author Kurt Barrow noted that international crude prices play the main role affecting what motorists pay at the pump. If more oil hits the world market — from the U.S. or other sources — international crude prices fall and gasoline prices do too, they said.

“In a better-supplied world oil market, which would result from exporting U.S. crude, prices would be lower than in a tighter market,” the IHS analysis says.

The crude export ban is the last vestige of trade restrictions imposed after the 1973 embargo by the Organization of the Petroleum Exporting Countries and price controls abolished in 1981, said Yergin.

“For decades, the U.S. has gone around the world lecturing other oil producing countries about the importance of the free market, and free trade and not restricting supplies and so forth, and whoops, it turns out that we have this restriction that probably most people didn’t think about or really know we had,” Yergin said. “It’s this leftover from another era … an artificial ban that leads to these strange market distortions.”

Yergin noted that the landscape has changed dramatically since the 1970s, and not just because of the rapid rise in domestic oil production driven by hydraulic fracturing and horizontal drilling techniques that extract crude from dense rock.

Report: US oil growth having limited effect on energy security

In the past four decades, U.S. refiners have invested more than $100 billion to process heavy oils. Price controls and import quotas on oils have long since disappeared.

On Capitol Hill, some lawmakers have suggested it would make more sense for the U.S. to keep the oil export ban in place, effectively encouraging domestic refiners to revamp facilities to process more light U.S. crude instead of heavier supplies frequently imported from Canada and Venezuela.

But Barrow sad that would mean “downgrading the world-class refining system” in the United States. “Now we’re going to turn around and undo that to get at light, tight oil?” he asked.

Investment in upstream production also could yield greater economic activity rippling down the supply chain, he said, versus changes in domestic refining capacity.

Companies supporting the research included Baker Hughes, ConocoPhillips, Exxon Mobil, Halliburton and Noble Energy, among others.

Other major studies on the topic are in the works from Rice and Stanford universities.

Also on FuelFix:

40 years later: Foreign oil dependence has soared since the embargo