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5 Myths About the Crude Oil Export Ban

5 Myths About the Crude Oil Export Ban

Exporting crude oil won't raise gas prices here, but it will raise the fortunes of U.S. manufacturing.

In October the U.S. House of Representatives passed H.R. 702 to lift the 40-year-old ban on U.S. crude oil exports. While the Senate may do the same, President Obama has threatened to veto the bill. Opponents of lifting the ban have come up with multiple reasons for keeping the status quo -- all of which are based on dubious logic or faulty economic analysis.

Following are five of the most common myths on the subject.

1. Lifting the ban is a giveaway to "Big Oil."
Oil companies of all sizes would gain from lifting the ban. Most of the companies that are involved in the hydraulic fracturing that led to the dramatic increase of production since 2008 are small and medium-sized firms. The MAPI Foundation and the Aspen Institute issued their own joint study, using econometric models to show how U.S. manufacturing would especially benefit from such a policy change. By providing new incentives to invest in development, a continued shale boom would benefit manufacturers by creating new "induced" demand for products indirectly related and even unrelated to the oil field supply chain. This in turn benefits other business sectors upstream and downstream from manufacturers.

2. Exporting domestic crude oil overseas will result in higher gas prices for Americans.
According to the Energy Information Administration, shipping U.S. crude oil overseas should not lead to higher retail gasoline prices. That's because exports would incentivize oil producers to further increase expenditures for new exploration and production. As a related benefit, increased investment would raise the demand for new equipment made in this country -- drilling pipes, pumps, drilling rigs, earth-moving equipment and motor vehicles.

3. We shouldn't export crude oil if we also have to continue importing it.
Rep. Jan Schakowsky, D-Ill., reflected some legislators' views when she said, "Every barrel exported by this bill will have to be replaced by a barrel of imported oil." This may be true for some commodities, but not oil. Most of our refinery capacity is built to process the heavier (sour) crude oil that flows from Canada, Mexico and Venezuela. That's why we import from those countries.

Today, the United States ranks alongside Saudi Arabia and Russia as among the largest oil producers.

Most of the increase in oil production since 2008 is lighter (sweet) crude oil, which European and Asian refineries are designed for. While light oil sells for a discount in the U.S. (because most refineries here cannot efficiently process it), it sells for a premium abroad. This premium provides the incentive for increased development. With billions of dollars invested over the years to configure current refining capacity for heavier crude oil slates, it will take years before this capacity can be reconfigured to process light oil. Meanwhile, our trading partners in Europe and Asia would welcome access to our lighter crude oil.

4. Lifting the ban threatens our national security.
This argument seemingly made sense 40 years ago. At the time, OPEC's ability to cripple our economy was demonstrated through its oil embargo of 1973-74.

Following the Arab oil embargo, our dependence on foreign oil continued to increase and by 2005 imports tripled to 10.1 million barrels per day. Total imports of foreign oil and petroleum products had risen from 36% of total consumption to 66%.

That's all changed. Today, the United States ranks alongside Saudi Arabia and Russia as among the largest oil producers. As Rep. Ed Royce, R-Calif., has observed, lifting the export ban "improves U.S. national security by giving our allies the option to purchase crude oil from the U.S. instead of being forced to buy from countries like Russia, Iran, and Venezuela."

5. The decision to lift the ban rests with the Commerce Department. White House spokesman Josh Earnest has stated, "[T]he reason that we oppose the bill is because this is a decision that actually can be made and should be made … by the Commerce Department." Considering Congress is given authority in Article 1 of the Constitution to regulate commerce with foreign nations, and that it was Congress that enacted the Energy Policy and Conservation Act in 1975, this argument rings hollow.

Currently only 10% of energy consumption in this country derives from renewable resources. Congress does not have the clout to transition the economy quickly and substantially away from fossil fuel reliance; its primary mission today should be to jump-start the U.S. economy. To accomplish this, legislators should takes steps to keep energy prices low, improve this nation's imbalance in trade and incentivize new capital investments throughout the energy sector, not just in renewables.

It can do that by lifting the crude oil export ban.

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