One of the year’s most urgent policy questions—whether or not the U.S. should export oil–is finally garnering attention in Washington as both sides of the U.S. oil export debate make their case.
The United States began safeguarding domestically produced oil after the 1973 Arab oil embargo, which caused supply disruptions and price spikes in the U.S. In retaliation for American support of Israel during a volatile time in the Middle East, the Organization of the Petroleum Exporting Countries (OPEC) used oil as a political weapon, making the U.S. economy thirst for energy. Since then, U.S. lawmakers have taken measures, such as the export ban, the creation of a national reserve, and more-efficient vehicle quotas, to protect the country from future disruptions.
The decades after the embargo trended towards higher U.S. imports and less production. However, midway through the first decade of the 21st century, new technologies, such as horizontal drilling and hydraulic fracturing, allowed drillers to tap into large oil reserves, particularly in North Dakota and Texan shale fields.
EIA’s annual U.S. crude oil production and imports (Photo: Gary Kavanagh via Flickr).Now, President Richard Nixon’s promise of energy independence in 1974, and a goal of most presidents ever since, has never seemed closer to reality. Domestic drilling has led to a production increase from 5 million barrels per day (mbd) in 2005 to 8 million in 2013. Meanwhile, oil imports total around 10 million barrels a day. Only 20 percent of imports come from Persian Gulf nations; 22.6 percent are from North American neighbors Canada and Mexico.
According to the U.S. Energy Information Administration, oil production in the U.S. is predicted to increase to 14.6 million barrels per day in 2019, before leveling off.
While the U.S. is enjoying a period of abundant energy, some are cautioning to take the long view. “Because EIA predicts that the current surge in domestic oil production is temporary, crude oil export policy should not be based on the assumption of an endlessly growing domestic oil supply fuels,” Senior Fellow and Director of Climate Strategy at the Center for American Progress Dan Weiss said.
Another concern for shipping U.S. oil overseas is the effect it will have on the price at the pump for consumers at home.
Some say lifting the ban will spur gasoline price increases because the cost of domestic oil will mirror the more-expensive global market.
“Crude oil exports could raise the U.S. oil price to the world price set by the OPEC cartel, which is projected to average $12/bbl (barrel) higher in 2014, and domestic oil exported overseas would still be replaced by more-expensive imported oil, which could then be reflected in higher gasoline prices,” Weiss said.
In a Reuters poll published in December 2013, close to 70 percent of U.S. respondents opposed exporting oil if it meant a raise in gas prices.
Right now, oil bought in the U.S. is cheaper for companies at home than buying from a foreign supply. U.S. oil recently fell to around $80 a barrel, while European Brent, a type of crude oil that serves as a benchmark for oil prices worldwide, cost about $107.79 a barrel.
While testifying to Congress on January 30, Weiss outlined “the only real-world experience of lifting an oil export prohibition.” When an Alaskan export ban was removed in 1996, West Coast oil prices rose 15 cents per gallon higher than the national average. After the ban was reinstated, the difference between gasoline prices on the West Coast and across the nation decreased.
The U.S. oil industry’s argument to lift the ban claims the opposite will happen to gasoline prices if oil is traded internationally. Yale energy economist Bill Nordhaus says today’s market operates like “a global bathtub of oil.”
“The idea is you have this big, huge pool of oil,” Nordhaus told NPR. “And you have these spigots going into it that are from different places.”
According to Nordhaus, adding U.S. oil to the global mix should bring down prices across the board.
“And the thing about the oil bathtub is that it doesn’t really matter who the spigots and who the drains are. It’s really the total amount coming in and the amount coming out that determines world oil prices,” Nordhaus said.
Sen. Ed Markey and Sen. Lisa Murkowski (Photos via Flickr).Thanks to less restrictive trade measures, U.S. oil producers say a large amount of its product is making its way overseas anyways as refined petroleum product. Oil companies say their profits are being compromised because U.S. refineries are buying their oil at discounted home prices, and then shipping gasoline and diesel all over the world at record amounts.
Some have called to ease the ban because selling oil abroad could help balance the trade deficit, as well as encourage job creation from increased production.
As policymakers in Washington listen to the debate, one Senator likely to be leading the argument against exporting is Ed Markey of Massachusetts, a Democrat.
“With the U.S. still getting nearly half of the oil it imports every day from OPEC, we should ensure that the oil we produce here stays here to reduce our dependence on unstable regions and protect consumers and our economy,” Sen. Markey told Foreign Policy.
On the other side of the debate in Washington is Alaska’s Republican senator, Lisa Murkowski.
“There will come a time, however, when we will have an unsustainable glut of this light crude. It may be next year. It may be sooner than that,” Sen. Murkowski said at a January speech at the Brookings Institute. “Lifting the ban will send a strong signal to the energy markets that as a nation we’re serious — we are serious as a country — about our emerging role as a major hydrocarbon producer.”
