Report

Yergin: Crude Exports Would be a Win-Win

Yergin: Crude Exports Would be a Win-Win

Allowing U.S. companies to export oil would require changing the law but would be a big win for consumers, oil producers, the government and the economy as a whole, according to an extensive study published Thursday by energy consultants IHS.

The study comes as the gusher of U.S. oil production has suddenly made the question of oil exports a hot topic in Washington. Top lawmakers, including big voices on the Senate energy panel, want to deep-six the the nearly 40-year-old ban on U.S. oil exports-one of the last vestiges of command-and-control energy rules put into place in the 1970s. The restrictions, which seem unsuited for the world’s crude-oil production growth leader, are under review, Energy Secretary Ernest Moniz said earlier this month.

The U.S. oil boom unleashed by the hydraulic fracturing revolution-better known as fracking-has the country awash in sweet, light crude oil. Oil production has grown about 50 percent in the last five years and is now at the highest level since the late 1980s.

The problem is that the U.S. refining sector is geared to process an entirely different kind of oil, creating a mismatch. Given that the law essentially forbids exporting crude oil, U.S. oil trades at a discount on the global market. What’s more, the self-imposed export ban means the United States is leaving billions of dollars on the table.

"We have this one last vestige of old energy policies that didn’t matter for decades because everyone thought the U.S. was finished as an oil producer," said Daniel Yergin, vice chairman of IHS and the report’s lead author. "But lo-and-behold, you have this great production revival, and now we have this big traffic jam, and it’s creating a really big distortion," he said.

According to the 120-page study, supplying U.S. crude to the export market would push global oil prices down slightly, which would shave about 8 cents off a gallon of gasoline for U.S. consumers through 2030. (U.S. gasoline prices reflect global, not national, crude oil prices.)

It would also incentivize further oil production, the report found, because U.S. crude wouldn’t be penalized with a price discount compared to its global peers. Average U.S. crude-oil production through 2030 would jump to 10.7 million barrels daily, compared with 9.5 million barrels a day if the export ban stayed in place, the study estimated. That boost would drive U.S. GDP higher–by as much as 0.7 percent in 2018–and add $1.3 trillion to federal coffers, thanks to higher tax receipts.

Companies such as Chevron, Exxon Mobil, ConocoPhillips and others in the industry that would benefit from lifting the export ban sponsored the report. IHS says that it is "solely responsible" for the analysis and study conclusions, which largely echo similar recent analyses.

One major industry sector is leery of lifting the ban: Refiners. Other petroleum products-gasoline, diesel, jet fuel and the like-may be exported; but not oil itself. Those exports are soaring, totaling more than 4 million barrels daily. Access to relatively cheap oil, and being able to export it as a product, benefits U.S. refiners.

One of the biggest, Valero, supports the export ban and is investing hundreds of millions of dollars to upgrade refineries to better handle the glut of U.S. oil, said spokesman Bill Day.

The ban dates back to the early 1970s, when Washington enacted a flurry of oil-price controls. It was further codified in the wake of the 1973 OPEC oil embargo, which horrified U.S. consumers and policymakers with the specter of energy shortages. But most of the era’s energy restrictions were lifted by the early 1980s, with the exception of the ban on oil exports.

Russia’s incursion into Ukraine has elevated the export debate. U.S. lawmakers and many European politicians called for the United States to expedite the export of natural gas to Europe to help break Russia’s energy stranglehold over the continent. But crude-oil exports, which don’t require infrastructure upgrades, could materialize much faster and deal a blow to Russia much more quickly, Yergin said.

"If we see 500,000 barrels a day of U.S. crude exports to Europe, that would be taking market share away from West Africa and Russia. And this would be a message the United States could send tomorrow," he said.