Affordable Gas Prices May Depend On Export Regulation
There’s a heated debate over a legal right happening in the U.S. There are several, aren’t there? I’m not referring to the pro-life/pro-choice abortion debate. Nor same-sex marriage. I’m not even talking about legalizing marijuana. The debate I’m talking about will likely affect every average American personally while the average American probably has no idea the debate is even happening.
To export or not to export? That is the question.
The debate is whether or not lift the ban on the exporting of U.S. oil. Hanging in the balance of this debate is how much you pay for gas.
A Brief History
NPR has a nice article which goes into this history with a bit more detail. But I’ll be quick here.
-In 1973, the Organization of the Petroleum Exporting Countries (OPEC)–whose founding members are Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela–start an embargo stopping oil shipments to the United States.
-Oil, and therefore gas, prices dramatically increase.
-In 1975, Congress enacts the Energy Policy and Conservation Act which bans the export of American produced oil with the goal of creating energy independence for the U.S.
The world oil situation, especially as it pertains to the U.S., has changed since the 70’s, hasn’t it? Should the U.S. ban on exporting oil from the 70’s be lifted? Is lifting the ban in the nation’s best interest?
Last week there was a Senate hearing on this topic. You can watch a video of the hearing here (but you should skip about 40 minutes into the video for it to start).
Will Lifting the Export Ban Increase Gas Prices?
Right at the center of this debate is how much you and I will pay at the gas pumps if the ban on oil exports is lifted. There are extremely different views on whether lifting the ban will cause higher gas prices.
The biggest argument against lifting the ban is the concern that it will increase gas prices in the U.S.
Sen. Cantwell, very concerned over gas prices, made a statement at the hearing last week and said, “When a congressional research gave an informal back of the envelope estimate about this particular issue on exports, it’s saying consumers could pay as much as 5 to 10 cents per gallon if the ban is lifted.”
Many are concerned that gas increases could be much higher with oil companies able to sell to the world market at much higher prices than they currently can domestically and dependence on foreign oil will increase but could be severely affected by conflicts and natural disasters.
Mr. Daniel J. Weiss, Senior Fellow and Director of Climate Strategy brought up what appears to be the closest thing to a case study to support lifting the ban could increase gas prices:
The only experience we’ve had in the United States of lifting export prohibition occurred during the 1996 removal of a ban on Alaskan oil exports. During the ban, much Alaskan oil was shipped to the West Coast. A congressional research service analysis found that lifting the oil ban tripled the already existing price difference between West Coast and national gasoline prices. CRS concluded that “when Alaskan exports ceased, the gasoline price differential between the west coast and the national average did decline.” Lifting the nationwide crude oil export ban could similarly raise gasoline prices.
But on the other hand, there are those who argue lifting the ban could actually lower gas prices.
Bloomberg has an opinion article titled Want Cheaper Gas? Lift the U.S. Oil Export Ban by Mary Duenwald.
In it, Duenwald brings up the basis for the argument that gas prices will rise by removing the ban. She says, “This argument is largely based on the price of U.S. crude, now about $10 a barrel lower than the global oil price.”
Then Duenwald refutes the argument with:
…U.S. refiners can take advantage of lower U.S. oil prices, but they don’t necessarily pass along their savings to American consumers.
After all, even though U.S. oil producers are confined to the North American market, U.S. refiners do business around the world. They sell diesel to Europe and South America, and gasoline to China. Thus, refined products in the U.S. are still heavily influenced by global prices.
Duenwald goes so far as to say “there is no reason to expect [lifting the ban] would raise consumer prices in the long term. In fact, it might even lower them — by removing a barrier to the global oil trade.”
To support lifting the ban would actually lower gas prices in the long run, Duenwald quotes Amy Myers Jaffee, an energy expert at the University of California at Davis, who says, “The less bottlenecks in a market, the less distortions there are. And generally the less distortions, the lower the price.”
Why Export Ban Debate is Heating Up Now
Sen. Landrieu said at the hearing last week, “We are witnessing an energy revolution in the country today, producing more energy at home here today than we have in decades.” She cited an EIA prediction that this year 8.5 million barrels of oil will be produced per day, which is 1 million more barrels a day than in 2013 and said this is nearing the record of 9.6 million barrels a day that was last reached back in 1970.
Sen. Landrieu went on to say that this 8.5 million per day number could be increased substantially by new technologies and opportunities.
We’re seeing something of a boom in U.S. oil. Allowing American oil companies to enter the global market would certainly be extremely profitable for them. It could also create jobs and give a boost to the U.S. economy.
But would that be at the cost of higher fuel prices and less energy security? And will this debate turn into a big government vs. big business argument.
Most of our readers are international shippers, whether exporters or importers, and know the benefits of international business. Do you think crude oil companies should be allowed to take advantage of the world market place?