The US government could add more than US$1tn to its coffers if it reverses a 40-year-old ban on oil exports, a new report has claimed.
IHS Global Insight’s report also claims that a reversal of the ban would also trim fuel prices, add an average of more than 300,000 jobs a year, and stimulate the economy.
In the report, US Crude Oil Export Decision – Assessing the Impact of the Export Ban and Free Trade on the US Economy, IHS states that if the ban was lifted the potential cumulative government revenue, in the period 2016 to 2030, could be US$1.3tn.
US exports of crude oil have been banned since 1975 as part of a law enforced by Congress in the aftermath of the 1973 OPEC oil embargo to guard domestic reserves and protect US energy security.
The world oil market is an entirely different animal today and has changed since the 1970s-era policy banning oil exports was initially introduced. IHS reports that there is a mismatch between the rapid growth of shale oil and the inability of the US refining system to economically process these growing volumes.
US crude oil production was in a mess, falling by half between 1970 and 2008. However, from 2008 to March 2014, US crude oil output increased 64%, which helped to reduce global oil prices. This increase in US output, 3.2mn barrels per day, is the fastest in the nation’s history and has exceeded the combined production gains from the rest of the world.
Net US dependence on imported oil shrunk from 60% of demand in 2005 to less than 30% in early 2014.
The “unconventional” revolution in oil and gas has also been one of the major contributors to the US economic recovery, estimated by IHS to have added nearly 1% to US GDP in each of the past two years.
U-turn on banning oil exports
Permitting US exports of crude oil would put additional supply onto the world market, lowering international crude prices and international gasoline prices.
In turn, US refiners would be able to supply both the domestic and export product markets.
According to IHS, boosting global oil supplies will result in lower global oil prices, with predicted savings for motorists of US$265bn over the 2016-30 period.
A move to free trade in crude oil would help the United States realise its growth potential for crude oil production. If this became a reality, US domestic crude oil prices would be linked to the global market, forcing the price to go down.
The strengthened US oil production will create at its peak 1 million jobs, increase GDP by US$135bn, and increase per household income by US$391.
The economic benefits from the consequences of free trade in exports would flow through to the economy – and to every state – measured in additional GDP (US$86bn annually, on average) and nearly 1 million additional peak annual jobs.
Ultimately, lifting the ban supports the economic activity across all states.
What will happen if the ban isn’t lifted?
The existing restrictive trade policy has reduced the price that US producers receive for crude oil relative to the global market.
The report states: “But if the ban is not lifted, output will be lower, the reason is that, if the ban remains in place, domestic oil will sell at an increasing discount, reducing the amount of investment in new production. The discount results from the nature of the US refining system, particularly along the Gulf Coast, where just over half of the nation’s total refining capacity is located. Over US$85bn has been spent in the past quarter century to reconfigure these refineries to process heavy oil imported from countries like Venezuela, Mexico and Canada.”
The oil export ban is one of the last remnants of an antiquated system in which the federal government once had all the powers. Scrapping the restrictive ban would enhance energy security by strengthening the energy position of the US, which would regain its stature as the world’s largest producer of crude oil and stimulate the economy, create jobs and reduce consumer prices.
The US is currently the third-largest crude oil producer, behind Russia and Saudi Arabia.