ConocoPhillips’ CEO told an audience at the U.S. Chamber, American oil is “not a product we want to land lock” in the U.S.
Ryan Lance said that maintaining the domestic oil boom will require ending the 40-year-old ban on oil exports.
Mark Perry at the American Enterprise Institute shows us that hydraulic fracturing has boosted American oil production to a 42 year high! We’ve got a good thing going.
However, Lance said there’s not enough domestic refining capacity to process the lighter oil produced from shale formations. “Light oil production already exceeds refining capacity seasonally – during maintenance turnarounds. That surplus could become year-round by 2017,” he warned. As a result, domestic oil prices have been pushed down and new investment in domestic exploration has slowed, he argues.
At the same time, most of the country’s refining capacity is along the Gulf Coast and is set up to process heavier oil, like that from Canada’s oil sands. It is possible to reconfigure these refineries to more efficiently process lighter domestic oil, but it would be expensive. Lance estimates that because of investments already underway to meet tougher gasoline specifications and the difficulty in getting air permits, retrofitting would cost an average of $400 million per refinery. That’s cost-prohibitive.
A fix to this oil-refinery mismatch is to listen to David Ricardo and embrace comparative advantage and trade. Import heavier oil and export some domestic oil.
This does two things:
- It takes advantage of domestic refining capabilities.
- It expands the market for domestic oil producers and encourages continued development.
The economic benefits from lifting the oil export ban would be significant, Lance said:
On the world market, light oil sells for more than heavy oil. So the U.S. would gain by exporting our surplus light oil, and then importing the cheaper heavy oil that suits our refinery system.
The Brookings Institution predicts U.S. production would rise by up to 3 million barrels a day. Jobs would be created, economic growth would be generated, and household income would grow.
IHS says that our industry’s capital investments would rise by $750 billion thru 2030.
That’s a lot of economic stimulus.
The annual GDP would gain $135 billion at the peak. We’d add a million jobs, also at the peak. The trade balance would improve by $67 billion annually, and government would gain $1.3 trillion in higher tax and royalty revenue thru 2030.
And because fuel prices are determined by world oil prices, consumers would also gain. “IHS estimates savings on gasoline of $18 billion annually, and Brookings estimates 9-to-12 cents per gallon,” Lance said.
Exporting domestic petroleum isn't an alien idea; it’s already happening in the form of petroleum products. Oddly, gasoline and diesel fuel “can be exported legally, but not the crude oil from which they are made,” Lance said, “We are the world’s 2nd-leading product exporter. Products and services together generated $2.3 trillion from exports in 2013.”
While the economic case is clear, Lance said the public and Congress need to be convinced:
We have to change the mind-set of scarcity. It’s really a hold-over from the last century. Today’s energy renaissance is real. It’s here for the long term. It can continue driving economic growth. And we can help ensure that by recognizing the new realities – and allowing oil exports.
House Energy and Commerce Committee, Chairman Fred Upton said, his committee will undertake a "thorough review and will consider all perspectives" before considering lifting the ban.