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Study Casts Oil Exports as Economic Growth Engine

An oil industry-funded study says allowing export of domestic crude oil would create thousands of jobs and be a boon to consumers and the U.S. economy.

According to the analysis, between 2009 and 2013, U.S. crude oil production increased by 2.1 million b/d, or by 39%, and is projected to increase by another 3.2-3.3 million b/d through 2020. The new oil is mainly light sweet crude coming from unconventional plays in the Bakken Shale, Niobrara Formation, Permian Basin and Eagle Ford Shale.

"Tight oil production, which is characterized as light sweet crude oil and lease condensate is expected to continue to fuel the bulk of future U.S. oil production growth," the report said.

"The study found that based on global markets, a free market export policy would drive an average of 2.1 million b/d of crude oil exports between 2015 and 2035. Under the current export policy, crude oil exports would average about 580,000 b/d and result in lower crude oil production and fewer long-term economic benefits to U.S. consumers."

The study was conducted by ICF International and EnSys Energy for the American Petroleum Institute (API) and comes at a time when the battle is escalating over whether to relax restrictions on domestic crude exports to relieve an increasing surplus of oil that is not well suited to the country's existing refining capacity (see Shale Daily,Feb. 6). The study suggests that if current restrictions on crude exports were lifted:

  • The cost of gasoline, heating oil and diesel fuel would fall, saving consumers up to $5.8 billion per year, on average, between 2015 and 2035. Prices could decline as much as 3.8 cents per gallon in 2017, dropping as much as 2.3 cents per gallon, on average, from 2015 to 2035.
  • The U.S. economy could gain up to 300,000 jobs in 2020.
  • The U.S. trade deficit could fall by $22 billion in 2020.
  • The economy could grow by as much as $38 billion in 2020, with an average gross domestic product increase of up to $27 billion annually through 2035.
  • U.S. federal, state and local government revenues could rise by as much as $13.5 billion in 2020.
  • U.S. oil production could increase by as much as 500,000 b/d in 2020.
  • Up to an additional $70 billion could be invested in U.S. exploration, development, and production between 2015 and 2020.
  • U.S. refiners could process an additional 100,000 b/d of oil due to more efficient distribution of heavy and light crudes over the 2015 to 2035 period.

"Consumers are among the first to benefit from free trade, and crude oil is no exception," API's Kyle Isakower, vice president for regulatory and economic policy. "Gasoline costs are tied to a global market, and this study shows that additional exports could help increase supplies, put downward pressure on the prices at the pump, and bring more jobs to America.

"Access to foreign customers could drive significant investment in U.S. production, helping to strengthen our energy security. Now that the U.S. is poised to become the world's largest oil producer, the economic case for exports is clear."

Isakower said the United States and China are the only major producers of oil in the world that don't export "a significant amount" of crude oil.

Even after all the domestic production of light sweet crude has backed out imports of the same, there is still a surplus due to flat or declining domestic petroleum demand, refinery limitations and continued refinery demand for heavy oils due to capabilities and contracts. The U.S. surplus is expected to increase, according to the study.

In the cases examined in the study, the United States is expected to remain a net crude importer through 2035, and average net imports are about equal in all cases with and without exports. As exports of light crude oil are allowed, imports of heavier crudes would increase to better align supply with existing refinery configurations, which leaves net imports little changed, the study found. Net crude imports averaged 9 million b/d in 2000 and dropped to 7.6 million b/d by 2013. Net crude imports with or without exports are projected to be 4.5-4.8 million b/d by 2035.

The API study takes an opposite view from domestic users of oil products such as Graeme Burnett, senior vice president of Delta Air Lines, who claim crude oil exports would increase the price of oil products to American consumers and industry. Testifying at a recent Senate hearing on the controversial issue Burnett said "If we lift the export ban we would in essence be allowing the transport of crude out of a competitive market in this country and into a less competitive global one controlled by a few oil producing states.

The results would be easy to predict: U.S. crude would flow out of this country and onto the world market, OPEC would reduce supply to maintain high global prices, the United States' use of homegrown oil would diminish, and prices here at home would rise to match the higher global price for a barrel of crude...It's clear who gains from this scenario: the oil exploration and production companies, many of which are foreign owned. (see Shale Daily, Jan. 30).

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