Oil exports are now a thing: Prices, production and protectionism

Opinion by Winston Shi
Jan. 14, 2015, 8:30 p.m.

Cheap gas is a good thing. Right?

You certainly won’t hear many people complaining about cheap gas. A dollar in gas prices equates to about $600 in household spending per year, and for many Americans  especially working-class Americans  less pain at the pump means substantial savings at home.

What many Americans don’t really know is that low prices at home are in part fueled by a ban on oil exports that has lasted for 40 years  a ban that may not last for much longer. Reeling from the 1973 oil crisis, America banned most oil exports two years later. As American oil production has increased, that production has gone straight to American consumers, meaning lower prices for Americans. That ban is now under fire.

Why are oil companies trying to overturn the export ban now? Traditionally, the American standard oil price  West Texas Intermediate  has traditionally been tied very closely to Brent, the European standard. But the oil export ban has distorted the American oil market in ways that its authors did not foresee. Yes, Texas oil is still priced the same as Brent crude. But as hydraulic fracking techniques have opened up new oilfields, American oil is as cheap as it’s been in a long time. North Dakota is one of the centers of the fracking boom, and North Dakota sweet crude is now more than $6 cheaper than West Texas Intermediate.

Banning oil exports was mostly irrelevant when American production was dwarfed by domestic demand. Now that America’s oil production has exploded — crude oil production has increased from five million barrels a day to an astonishing nine million  America finds itself in an entirely new era of oil production. America is still a net oil importer, but as long as its oil deficit is relatively smaller than those of its peers, exporting oil would still make sense in the grand scheme of things. Domestic oil prices would rise, but profits would rise as well.

And oil companies would not be the only beneficiaries of that trend. Increasing American oil exports should help our foreign policy, because there are real and specific benefits to becoming a global energy player. Germany, for example, is trying to secure its energy supplies at a time when it is shuttering its nuclear power plants and is increasingly dependent on Russian oil. They have imported more American coal in recent years; they would import American oil as well. That both gives America more leverage with Germany and also frees Germany — a key NATO ally  to be more assertive against Russia.

Legalizing more oil exports will also provide more support to the American oil industry at a time when the Saudis are trying to fight a price war with the United States and destroy America as a major oil player. Oil companies are saying that allowing oil exports  and thus more profits  would help an industry that is being harshly squeezed by falling prices. There’s a lot of truth to that.

Still, though, you wonder about the big picture.

At least in the short run, repealing the export ban would raise gas prices in the United States  and higher prices would influence Americans much more than they would Europe or Japan. Right now, the average price of a gallon of gas in San Jose is $2.60, so an increase of $1 would raise prices by 36 percent. But in Norway, where a gallon costs $9.26, the same dollar increase would amount to 11 percent. In short, higher gas prices would have a disproportionately large effect on how Americans live their lives.

Other industrialized countries are already used to high gas prices, and many of them have changed their lifestyles accordingly. That’s not the case for the United States. As Time magazine reported, the market for SUVs and other energy-inefficient vehicles is booming once more. In the short run, ending the export ban would raise gas prices in the United States while lowering them to a lesser extent abroad  and you might reasonably expect environmentalists to be thrilled.

But if you look at the Keystone XL pipeline fiasco, that doesn’t seem to be the case. The bulk of the environmental lobby is up in arms, even though the bulk of Keystone XL’s oil would be shipped overseas  which would in effect replicate ending the export ban. Their rationale is that any incentive to expand oil production would push against their ultimate goals. And they’re happy that the higher prices that exports would generate might help arrest Americans’ reversion towards its old, energy-inefficient norms. You won’t see me calling for fossil fuel divestment anytime soon, but I think we can agree that energy efficiency is a good thing  and traditionally, only short and medium-term price pressures have led people to make the investments in efficient energy systems that America legitimately needs.

Although President Obama has upped his criticisms of Keystone in recent months, nevertheless, under his watch the first cracks are appearing in the oil export regime. The Administration just gave Shell approval to export ultralight crude yesterday, and given that Obama’s criticisms of Keystone seem to be inversely correlated with oil’s price, I have little trouble believing that he would be tacitly supporting Keystone XL if gas prices were still high. In fact, I think it’s very possible that substantial oil exports will be approved in the coming years. But for the environmental lobby, that might actually be a good thing.

Contact Winston Shi at wshi94 ‘at’ stanford.edu.

Winston Shi was the Managing Editor of Opinions for Volume 245 (February-June 2014). He also served as an opinions and sports columnist, a senior staff writer, and a member of the Editorial Board. A native of Thousand Oaks, California (the one place on the planet with better weather than Stanford), he graduated from Stanford in June 2016 with bachelor's and master's degrees in history. He is currently attending law school, where he preaches the greatness of Stanford football to anybody who will listen, and other people who won't.

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