My Turn: U.S. should lift ban on crude-oil exports
If you recall, it was a very bad time: 1979 was the year of the Iranian revolution, when the shah was deposed and Ayatollah Khomeini took power.
This set off a giant tidal wave of political turmoil. Americans in the U.S. embassy were taken hostage. Oil shortages ensued, and rising prices threatened the world economy with recession and even depression. Here in the United States, motorists waited in line to fill their tanks, while the price of gasoline skyrocketed.
Today all of it seems like a distant memory. Instead of energy scarcity, there is now an abundant supply of oil. A boom in U.S. shale-oil production, centered largely in Texas and North Dakota, along with less demand for oil due to improved gasoline mileage in vehicles, has produced a sea change in America’s energy outlook, with broad economic significance for the nation’s economy.
According to the Energy Information Administration, in 2012, U.S. oil production grew more than in any year in the history of the domestic oil industry, delivering nearly $1 billion per day in benefits to the economy.
Thanks to the surge in shale production and improvements in energy efficiency, oil imports have dropped to 33 percent of consumption, from 60 percent in 2005. The rise in U.S. oil production has helped to keep world oil prices down.
Energy experts say that shale resources are enormous and that energy companies have barely made a dent. In the next few years, U.S. oil production is expected to grow by hundreds of billions of additional barrels. By 2020, the value to the economy of shale energy production will be between $380 billion and $690 billion per year, according to a study by McKinsey & Company.
North America is expected to be self-sufficient in crude oil by the end of this decade. The International Energy Agency projects the United States could even leap frog Saudi Arabia to become the world’s largest oil producer in a few years.
During the past decade, exports of petroleum products, including gasoline and diesel, have nearly tripled. The sale of domestically-produced liquefied natural gas to markets in Europe, Asia and elsewhere in the world is expected to begin within two years. So far four companies have received permits to export LNG, and other companies are awaiting approval.
Yet the U.S. government still maintains a prohibition on the export of crude oil that dates back to the Export Administration Act, which was amended in 1979 to restrict the export of crude oil. The ban no longer serves a useful purpose, since the United States today is producing more oil than many of our refineries can handle. The reality is that domestic oil production is guided by a series of energy markets, with greatly different rates of oil production, tied together by pipelines and railroads that connect these regions. So economic logic says that some regions will continue to be oil importers, while others become oil exporters.
It’s difficult to overstate the shale oil revolution’s profound contributions to the nation’s economy. The United States needs to lift its ban on crude-oil exports. Allowing oil producers to sell some of their crude oil to markets overseas would stimulate U.S. oil production on land and offshore, energize the economy, create tens of thousands of jobs in the energy sector, and reduce the trade deficit. Why don’t we?
(V.K. Mathur is professor emeritus at the University of New Hampshire Department of Chemical Engineering.)