8-Track Tapes & Other Relics of the 1970s
The crude oil export ban, a harmful and outdated energy law, is finally receiving some attention. Many are unaware it is illegal to export crude oil without special permission from the Bureau of Industry and Security. With the exception of exports to Canada, permission is rarely granted. In a country that calls for free trade and is in the midst of an energy renaissance, why does this ban still exist? Especially when it is perfectly legal to export refined oil?
This relic of the 1970s was conceived to protect domestic oil reserves and ensure America was not at the mercy of geopolitical foes. While other remnants of the oil embargo and ensuing crisis faded, such as the 55 mile per hour national speed limit, the oil export ban has proven difficult to end.
Under current law, crude oil exports can only occur if they are "consistent with the national interest and the purposes of the Energy Policy and Conservation Act." This standard is vague, but more importantly, a few unelected bureaucrats at an obscure government agency cannot know what is in the national interest.
In addition to geopolitical changes, the outlook for American energy is vastly different from the 1970s.
Nonproducing reserves of crude oil have been rapidly increasing over the past five years. In 2011 (the latest data available), the Energy Information Administration reported 9 billion barrels of identified, but nonproducing reserves-a 260 percent increase from 1996, and a 175 percent increase from 2006. Limits on where this oil can be refined due to the export ban have led crude production to fall far short of the increase in identified reserves. From 1996 to 2011, crude oil production actually fell 13 percent, and has only risen 11 percent since 2006.
U.S. refineries are operating near capacity and are unable refine more crude oil. This causes the price of U.S. crude to be lower than otherwise due to artificially low demand. Refineries are the beneficiaries of the protectionist export regulation since they can buy U.S. crude at discount, and then sell refined oil at the international rate.
When crude oil prices are too low, there is little motivation to discover innovative new methods to extract it. While this may not be detrimental in itself, when the price of crude is distorted by an antiquated export ban, there are decreased exploration incentives without lower costs for consumers.
Additionally, when production growth is slowed, the United States increases its dependence on foreign oil. It is ironic that supporters of the oil export ban cite the dangers of dependence on foreign oil as justification.
Defenders of the crude oil export ban have been increasing their efforts recently as the once-sacrosanct law has finally begun to show signs of cracking. Surprisingly, some refiners support ending the ban based on free-market principles even though doing so would lower their revenues. Two trade associations supported by refiners, the American Petroleum Institute and the American Fuels and Petrochemical Manufacturers, are also in favor of lifting the ban.
Still, there are U.S. refiners such as Valero that publically advocate for the ban by using the same argument politicians love: that keeping crude oil in the United States is good for the country since it reduces dependence on foreign oil.
Policy makers are not buying this argument anymore. In December, Energy Secretary Ernest Moniz said, "There are a lot of issues in the energy space that deserve some new analysis and examination in the context of what is now an energy world that looks nothing like the 1970s."
Alaskan Republican Senator Lisa Murkowski, ranking member of the Energy and Natural Resources Committee, has been leading a push to bring the ban up for a congressional vote if President Obama refuses to end its enforcement, which he has the executive authority to do.
On January 30 the Senate held its first hearing in 25 years on the crude oil export ban. At the hearing Harold Hamm, chairman and CEO of Continental Resources, stated, "By imposing trade restrictions on a single segment of the energy industry, namely domestically produced crude, our government is arbitrarily subsidizing some U.S. refineries - many of which are foreign-owned - by giving them the ability to source American oil at prices well below the world market price, while at the same time giving them the "green light" to sell petroleum products into higher-priced international markets... This effectively raises prices for consumers in the U.S. and all around the world."
At that same hearing, Graeme Burnett, Senior VP of Delta Air Lines, based most of his testimony in support of the export ban on how U.S. refiners would be harmed. It is no secret that refiners, not consumers, stand to lose if this protectionist ban were ended.
Consumers would not be made worse-off if the oil export ban were lifted. The price of American crude oil would likely rise, but this increase would be offset by falling profit margins for oil refineries-leaving the price of a barrel of refined oil relatively unchanged. There would also be greater international competition if producers were free to ship crude to other countries for refining.
Increased production to meet international demand would help stimulate economic growth and generate much-needed tax revenue. Additionally, since the crude oil export ban does not apply to refined oil, there would be little to no change in the price consumers pay at the pump.
It is time for the antiquated, protectionist crude oil export ban to end. There are promising signs that this could finally happen. It is not worth keeping the refining of U.S. crude in America if doing so lowers the economic progress the country needs to start growing again.
This piece originally appeared in RealClearEnergy
This piece originally appeared in RealClearEnergy