While one can debate the reasons for the Organization of Petroleum Exporting Countries’ decision in November to continue flooding the oil markets, the fact is that this is squeezing many U.S. shale oil producers out of business. Oil prices have dropped by 50% in the past six months, and crude oil inventories in the U.S. have grown from 350 million barrels last year to more than 480 million barrels today.
Part of the reason inventory has ballooned is that crude produced in the U.S. is literally trapped here, because American firms are not allowed to sell it overseas. An antiquated rule bans crude oil exports from the lower 48 American states, even though producers could earn $5-$14 more per barrel by selling on the world market. At this moment the U.S. government is considering lifting sanctions on Iranian crude oil exports. Why not lift the self-imposed “sanctions” on U.S. crude exports that have been in place for the past four decades?
The export ban is a relic of a previous era, put in place around the time of the 1973 Arab oil embargo against the U.S., when Washington thought very differently about ensuring America’s energy needs. Other measures related to the 1973 embargo, such as price controls and rationing, were eliminated decades ago, as policy makers realized that they impeded, rather than aided, American energy security. But the ban on crude oil exports persists.
There is no defensible justification for the continued ban on the export of U.S. crude oil. Some hold a misplaced fear that the price of gasoline at the pump would rise if our crude were able to be exported, but the opposite is true. Gasoline prices in the U.S. are correlated to the global price of crude oil. Repealing the export ban would increase global oil supplies, which would put downward pressure on prices and therefore help lower U.S. gasoline prices, as numerous studies, including ones by the Brookings Institution and IHS, IHS -0.32 % have shown.
The U.S. already exports more than 3.5 million barrels a day of refined products such as gasoline and diesel fuel. American producers export natural gas and soon liquefied natural gas as well. Why not crude oil? The U.S. is the only major oil-producing country in the world that bans the export of crude, putting U.S. producers at a competitive disadvantage. No other industry is treated this way. Jobs are being lost and investments cut. The number of operating rigs has already dropped to 932 rigs from 1,900 in September. One Forbes analyst suggests the oil and gas industry has shed 75,000 jobs worldwide, most of those in the U.S. At Hess, our company has reduced our rig count in the Bakken oil basin in North Dakota from 17 a year ago to eight today to preserve our financial strength.
The key point is that what is good for shale energy is also good for the U.S. economy. “Lifting the ban on crude oil exports from the United States will boost U.S. economic growth, wages, employment, trade and overall welfare,” two scholars with the Brookings Institution, Charles Ebinger and Heather L. Greenley, wrote last year.
Ten years ago, almost no one would have predicted America’s transformation into an energy powerhouse. But the shale revolution has been a great success, buoying the national and state economies, filling tax coffers, and cutting energy-related carbon-dioxide emissions by more than 10% since 2007 as natural gas replaces coal in electricity generation. The U.S. shale industry employs two million people, about 25% of the jobs created since the 2008 financial crisis. Shale firms invest about $100 billion a year, or about 7% of our country’s total annual capital investment. Any shakiness in this sector will cause serious headwinds for the economy as a whole. We need to act now.
While the U.S. cannot control global oil prices, it can allow American oil producers to compete on a level playing field. The government could lift the federal ban on crude exports, eliminating a hardship and allowing the industry to get back on its feet. All it would take is a presidential executive order or an act of Congress.
Thanks to the boom in shale oil, the U.S. has become an energy powerhouse. It is time to start acting like one by giving the green light to crude oil exports.
John Hess is the CEO of the oil and gas company Hess Corp.