U.S. must lift ban on crude oil exports

With America’s oil production increasing steadily, it is time to lift a ban on exports of crude oil. Only then will we be able to deal with the growing demand for oil and the economic and security challenges of the post-OPEC world.

The need for action by the administration and Congress is mounting. An outdated 1975 statute prohibits the export of domestically produced crude oil unless a company obtains a permit from the Commerce Department. But getting a permit is time-consuming and difficult. Besides, the rule is absurd. Very light petroleum can be exported if it comes from a natural gas well. But if the same material comes out of an oil well, it can’t be exported without special permission.

Because an important market for oil is basically off-limits, U.S. companies have resorted to storing much of the oil they produce. Alternatively, the oil is left in the ground.

The administration and Congress can do nothing — or they can assert leadership.

At another turning point — after the 1973 Arab oil embargo — Washington provided such leadership. Energy security became paramount. Today, more than 40 years later, America cannot — and should not — close itself off to free trade. The United States is the world’s largest producer of crude oil, larger than either Russia or even Saudi Arabia. As a result, dependence on imported oil is down from more than 60 percent a decade ago to less than 30 percent of consumption.

The price Americans pay for keeping domestically produced crude oil off the international market is huge. Because there is no outlet for much of the shale oil being produced, there is less investment in new drilling, rigs have shut down and thousands of oil workers have been laid off.

If the ban remains in place, oil production will decline, diminishing the great benefits of the shale revolution.

By overturning the ban on crude oil exports, some 394,000 to 859,000 new jobs would be created annually from 2016 through 2030, according to a report by the research firm IHS. Interestingly, only 10 percent of the jobs would be created in actual oil production, while 30 percent would come from industries that support drilling and others in the supply chain, and 60 percent would come from the broader economy.

Since the supply chain extends across the United States, many jobs would be created in Maryland, Virginia and other states not known for oil production.

Members of Congress who have been reluctant to overturn the ban worry that allowing crude oil exports might lead to a spike in gasoline prices. But the Brookings Institution, a widely-respected Washington think tank, says gasoline prices would fall by up to 12 cents a gallon and, with the export market opened up, there would be greater investment in domestic oil production, providing oil producers with an incentive to continue drilling and thereby create jobs.

Some maintain that total energy independence should be achieved before the government allows the export of crude oil. But there’s a limit to how much domestic oil U.S. refineries can handle; many are configured to run on imports of heavier crude oil coming from Canada and Venezuela rather than the light crude produced from shale fields in North Dakota and Texas.

It’s time for the United States to act like the energy super power it is. To ensure the economic and political benefits of full oil production, we should recognize the importance of crude-oil exports — and that they are strategic insurance against an uncertain future in the 2020s and beyond.

Dan Ervin is a professor of finance at Salisbury University’s Perdue School of Business.