Key facts about lifting the US crude oil export ban

A recent report by the Brookings Institution explains that the skyrocketing growth of unconventional oil and natural gas production in the US has ignited an intense debate on the impact of energy exports on US energy and economic security and its foreign policy.

Charles Ebinger and Heather Greenley of the Institution have worked with the National Economic Research Associates (NERA) to examine the economic and national security impacts of lifting the ban on crude oil exports. Several key facts about US crude oil production, taken from these findings, are outlined below:

US economic benefits

Lifting the ban on crude oil exports from the US will boost US economic growth, wages, employment, trade and overall welfare. For example, present discounted value of GDP is the high oil and gas resource (HOGR) case through 2039 is between US$ 600 billion and US$ 1.8 trillion, depending on how soon and how completely the ban is lifted.

In all three cases – delaying lifting the ban until 2015, lifting the ban only on condensates, or lifting the ban entirely – there are positive percentage change impacts on GDP throughout the model horizon.

In the reference case lifting the ban entirely in 2015 will result in a 0.14% change in welfare compared to 0.05% if lifting the ban were delayed to 2020.

Lifting the ban by 2015 reduces unemployment at an average annual reduction of 200 00 from 2015 – 2020, according to the reference case.

US crude oil production

Benefits are greatest if the US lifts the ban in 2015 for all types of crude. Delaying or allowing only condensate exports lowers benefits by 60% relative to a complete and immediate removal of the ban. If oil and gas supplies are more abundant than expected, allowing only condensate exports lowers the benefits by 75% relative to completely lifting the ban. The chief reason for this is the greatest increase in light tight oil (LTO) production comes in 2015. Therefore a delay would forego significant benefits. In addition, according to the US Energy Information Administration (EIA) data, the volume of condensate is smaller than LTO and it is discounted less comparatively so exempting it entirely adds fewer benefits than removing the ban on all crude oil.

Gasoline prices

Lifting the ban actually lowers gasoline prices by increasing the total amount of crude supply. In the reference case, the decrease in gasoline price is estimated to be US$ 0.09/gal in 2015. If oil supplies are more abundant than currently expected, the decline in gasoline prices will be larger (US$ 0.07 – US$ 0.12/gal.) and will continue throughout the model horizon (2015 – 2035).

OPEC reaction

It is unlikely that US oil exports will be a major calculus in the Organization of the Petroleum Exporting Countries’ (OPEC) behaviour. In the HOGR case, the US would be able to increase exports by 2.8 million bpd in 2015 and 5.7 million bpd in 2035 decides to maintain the price of oil and cut crude exports.

US foreign policy and energy security

Permitting the export of crude oil will enhance US global power in several ways, including: reinforcing the credibility of US free and open market advocacy; allowing for the establishment of secure supply relationships between American producers and foreign consumers; increasing flexibility to export crude to others to address supply disruptions; empowering another non-OPEC nation to meet the growing energy demand from countries in Asia, as well as other rapidly developing nations; shifting oil rents to the US from less reliable suppliers; and providing the hemisphere with a competitive source of crude supply. Most importantly, allowing crude oil exports will increase revenues to domestic producers helping to maximise the scope of the production boom, boosting American economic power that undergirds US national power and global influence.

Conclusion

The overall view of the report is that increasing crude oil exports in any fashion will have positive economic effects for both the US and the world oil market. At the same time, world energy security will be enhanced by increasing the diversification of oil supply available globally, while also increasing US energy security. Brookings holds that ‘it is time the US commits to its position on free trade markets as a true member of the OECD and global community and allows US crude oil to flow.

Adapted from a report by Emma McAleavey

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/10092014/lifting-the-us-crude-export-ban-1266/