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    Untitled Document

    Ease export restrictions on US crude

    Don Stowers Editor - OGFJ

    Is it just me or is everyone talking about lifting the ban on US crude oil exports? I haven't had a conversation with an oil producer, investment banker, analyst, or consultant recently where the subject didn't come up.

    Everyone I have spoken with, both in the petroleum business and non-industry people as well, supports easing or repealing the restrictions and allowing the US oil industry to begin exporting crude to energy-hungry countries. With so little apparent opposition, it would seem to be a no-brainer. The benefits are enormous, and the downside…well, there's not much of a downside.

    Indeed, the US Department of Commerce recently allowed two companies to begin exporting condensate with minimal processing. Although this was hailed in the Wall Street Journal as a breakthrough, it really wasn't. This was a very narrow decision, and besides – condensate isn't crude. However, it did serve to focus the spotlight on the issue of allowing the US to become a crude oil exporter.

    The ban on crude oil exports was put in place in a very different time. It was the 1970s, and US oil production was waning and the country had just suffered through long lines at the pump to buy gasoline as a result of the Arab Oil Embargo. Our energy future looked bleak and a policy of keeping American oil for America seemed to be appropriate at the time. However, it makes little sense today during a time of abundant oil.

    IHS recently completed a comprehensive study assessing the economic impact of repealing the current export ban. Here's what that organization says: "Lifting the 1970s-era restrictions on US crude oil exports would lead to further increases in domestic oil production, resulting in lower gasoline prices while supporting nearly one million additional jobs at the peak…Doing away with export restrictions would also benefit US household income, gross domestic product, and government revenues. The resulting increase in domestic oil production would be so great that it would cut the US oil import bill by an average of $67 billion per year."

    The Colorado-based research and information firm adds that making US oil available to global markets would unlock the current supply and refining gridlock in the US and would lead to a total of $746 billion in additional investment during the study period (2016-2030) and an average of 1.2 million barrels per day more of oil production per year.

    The additional crude oil supply would lower gasoline prices by an annual average of 8 cents per gallon, the study says. The combined savings for US motorists during the 2016-2030 period would translate to $265 billion compared to a situation where the restrictive trade policy remains in place.

    The study continues: "The increased economic activity resulting from the rise in crude production would support an average of 394,000 additional US jobs with highs of 811,000 additional jobs supported in 2017 and a peak of 964,000 jobs in 2018.

    The IPAA also says the time has come to expand oil exports.

    In a press release dated Jan. 10 of this year, the IPAA concluded: "Allowing American crude oil to reach both domestic and international demand is critical to making the American economy more competitive. On the other hand, trying to artificially cap exports will hurt American independent producers, who drill 95% of US wells. It will end up shutting in production and shutting down development. This will in turn stunt the amazing job creation and vast economic stimulus brought to communities around the nation.

    "Furthermore, the kind of oil that is produced from the many active shale formations is a light, sweet variety of crude oil. The US Gulf Coast refineries, built before the era of abundant shale oil, were engineered to handle a heavier, sourer variety of crude, the kind of crude the US imports from Canada, Latin America, and Saudi Arabia. Giving oil producers the opportunity to sell their lighter, sweeter crude to buyers on both the domestic and international market makes the most economic sense, as there is strong international demand for US light, sweet crude."

    Daniel Yergin, IHS vice chairman and author of The Quest, recently commented on the issue of oil exports. "The 1970s-era policy of restricting crude oil exports – a vestige from a price controls system that ended in 1981 – is a remnant from another time. It does not reflect the dramatic turnaround in domestic oil production, led by tight oil, which has reversed the United States' oil position so significantly. The [US] has cut its dependence on foreign oil in half since 2005, and its production gains have exceeded that of the rest of the world in recent years. The economic contributions of this turnaround have been substantial. Allowing the free trade of oil would expand those gains for consumers and the wider economy."

    We agree with IHS, the IPAA, and Daniel Yergin. The time has come to lift the oil export ban.

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