Stephen P.A. Brown and Charles F. Mason explain how, despite fears to the contrary, lifting the US ban on oil exports would bring down prices at the pump.
Earlier this year, the US Senate Committee on Energy and Natural Resources requested a comprehensive review of what would happen to energy prices, consumer prices, and more if the United States were to lift its 40-year ban on oil exports.
Until recently, the possibility of exporting US crude oil was not an issue because the United States was importing so much oil from the rest of the world and forecasts of US oil production were showing a decline. All this changed with the fracking revolution, which quickly opened up vast resources of "tight" oil to exploitation—primarily in North Dakota (the Bakken play) and Texas (the Eagle Ford play and the Permian plays)—and reduced US oil imports to new lows.
Combined with limited pipeline and rail transport capacity, this increase in oil production in the United States has led to bottlenecked oil supplies in the Midwest and much lower crude prices there. The situation has been exacerbated by the inability of most US refineries to efficiently process the light crude oil coming from these fields.
The reaction to these developments has been predictable. Most of the oil and gas industry wants the export ban lifted. The additional demand for US light crude oil will increase industry profits, although probably not prices because oil is priced in a world market. However, some refiners are benefiting from the bottlenecked supplies because they can process the discounted light crude and sell refined products—gasoline primarily—that generally have prices tied to world markets. They oppose lifting the ban.
Environmental groups also oppose lifting the ban. They see increased consumption of fossil fuels as contributing to greenhouse gas emissions worldwide and are concerned about other environmental risks, such as spills.
But the area of greatest and most specific disagreement concerns the effect of lifting the export ban on US gasoline prices. Commenters span the full range, variously finding that gasoline prices will increase, decrease, or remain unchanged. In new research to inform this debate, we find that lifting the ban would boost crude oil production and improve the efficiency of global refinery operations. Accordingly, gasoline production would go up and its price in the United States would fall—anywhere from 2 to 5 cents per gallon once the market fully adjusted to lifting the ban.
The Ban on Crude Oil Exports
The US ban on oil exports began as a reaction to the oil embargo in the early 1970s and later was codified in law and Department of Commerce rules for granting export permits. Currently, crude oil can be exported to Canada, but only for use there; from Alaska if it comes through the Trans-Alaska pipeline or from Cook Inlet; if it is foreign oil; if it is in conjunction with operation of the Strategic Petroleum Reserve; and for a few other small exceptions.
