Geopolitical factors and sudden increased demand have made 2022 a challenging year for consumers not only in Texas, but across the world that are paying higher than normal prices for energy. While there has been a bipartisan consensus, including from the White House, that the United States needs to continue exporting natural gas to our allies, there continues to be disagreement over U.S. exports of oil and refined products.
But these are global commodities and banning U.S. crude oil exports or refined products would prove counterproductive, leading to an increase in prices at the pump, the shuttering of American refineries and a dip in American geopolitical influence. According to Bloomberg:
“Dwindling fuel inventories and climbing pump prices ahead of the November election have the White House mulling a clampdown on fuel exports in the hopes that shoring up supplies will bring relief to consumers. But doing so could backfire, according to energy experts and economists. Gulf Coast refineries could slash production, spurring higher prices in some parts of the country and leaving some regions with even less fuel than before.”
Further, a ban on U.S. crude oil or refined products would be devastating to our allies. Back in April, Europe was importing roughly 1.5 million barrels of U.S. oil a day, much of which originated in West Texas, according to Reuters:
“British refineries, which plan to phase out Russian oil imports by the end of the year, last month bought the largest volume of U.S. crude in two-and-a-half years, Eikon data showed. Most cargoes were U.S. light sweet oil, with at least a quarter delivering Midland crude, according to the U.S. Customs data. Spain is set to import a record 7 million barrels of U.S. crude in April, according to cargo tracking data, after a peak in March of nearly 6 million barrels.”
Exports Save Americans Money at the Pump
Oil and gas are commodities and are subject to the laws of supply and demand. By limiting exports, the United States would be dwindling the crude oil supplies on the global market, resulting in price increases for consumers worldwide, including the East and West coasts of the United States, which depend on fuel imports.
The U.S. does not have enough infrastructure – pipelines and Jones Act compliant ships – to transport all refined products from Gulf region refineries to the East and West coasts, making it critical for these regions to be able to import oil, gasoline and diesel from the global market. This causes the regions to be subject to global commodity prices. If an export ban were in place, they would face even higher prices.
By not injecting gasoline supplies into the global market, other major producers, like OPEC+ will be more influential on the market, leaving the United States victim to their decisions to not pump more oil to fill the gap.
Further, a crude oil export ban would reduce U.S. GDP by more than $44 billion in 2023 and increase prices for more than two thirds of U.S. consumers, effectively exacerbating the current inflationary challenges consumers worldwide are facing, according to a recent American Council for Capital Formation (ACCF) study.
Exports are Essential for Refiners
U.S. refineries are designed to refine heavy crude oil, which is usually imported. Among the most advanced in the world, the U.S. refining sector can refine heavy oil from Central America and Canada and turn it into high-grade gasoline, diesel, petrochemicals and feedstocks. This refined oil is then used to make niche products or as fuel for cars, planes and ships. Some of this refined fuel stays in the United States and some are re-exported around the world to key allies in Europe, Latin America and even Asia. In contrast, the United States typically produces lighter crude, which few American refineries are equipped to refine and for which there is a smaller market and a lack of infrastructure.
If a ban were in place, oil produced in the Permian Basin would be trapped in Texas, unable to be refined and used in the United States and creating less incentives for U.S. producers to keep drilling. A ban would disrupt global oil supply chains, cast doubt on U.S. trade commitments and lead to inefficient and costly re-allocation of domestic crude oil production.
Currently, U.S. refiners are working at capacity to refine as much product as possible, even increasing their output to keep up with a spike in demand. The war in Ukraine and the loss of a one million barrel refining capacity during the pandemic have made issues greater.
The ACCF study estimated that an export ban could result in 1.3 million barrels per day of U.S. refining capacity being shuttered. This would lead to the closure of refineries and American job losses.
Exports Provide Energy and National Security
The ability to input low-cost crude and export high-value refined products has contributed largely to American energy dominance. American energy exports not only stabilize global energy markets, but they help offset the damage caused by authoritarian governments that use energy exports as a weapon.
An American export ban would be detrimental to our European allies. Not only because they have to rely on American crude amid the war in Ukraine, but because of the steep price they already pay for supplies. The United Kingdom is warning of a national crisis due to rising fuel costs and France is bringing fuel oil plants online to meet its domestic energy needs. A ban would harm the economies of our most trusted allies. As The Wall Street Journal Editorial Board noted, “if these stop now, Europeans could face a cold and dark winter.”
A curb in exports would also result in the loss of geopolitical influence in key neighboring regions like Latin America. Countries in South America heavily rely on refined crude imports from the United States, and if exports were halted, these countries would turn to Russia for supplies, leading to the loss of American strength and influence in neighboring countries.
In short, banning exports would effectively punish Latin American and European countries for buying U.S. products. Texas is a key global player when it comes to crude oil and the many products refined within our borders, and a ban on exporting these resources globally would be detrimental both here at home and abroad.
TIPRO is a trade association representing the interests of nearly 3,000 independent oil and natural gas producers and royalty owners throughout Texas. As the largest statewide association in Texas that represents both independent producers and royalty owners, members include small businesses, the largest, publicly-traded independent producers, and mineral owners, estates, and trusts.
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