Crude Oil Exports
Rising output of light tight oil (LTO) is helping the United States return to production levels it enjoyed more than four decades ago. Yet even under the most bullish assumptions, the United States will continue to consume six to eight million more barrels of petroleum and other liquids than its produces per day, according to the EIA’s twenty-five-year projections. This supply deficit appears to weaken arguments for oil exports, but the intricacies of U.S. oil infrastructure could lead to a surplus in light tight oil. U.S. refiners built plants to process heavy crudes from Canada and South America, and facilities that handle LTO are approaching capacity limits, forcing producers to offer discounts as volumes increase. A private equity investor with a stake in LTO properties in North Dakota, Texas, and Louisiana, is concerned about oversupply and may hold back on expanding production until it’s clear where the oil will be sold, and at what price. Many experts say this potential surplus of LTO and other liquids such as condensate should be exported.
“The question of whether the United States should have a substantially more permissive policy with respect to the export of crude oil and with respect to the export of natural gas is easy. The answer is affirmative.”—Former Treasury Secretary Lawrence Summers
Oil export restrictions began in the 1970s when price controls on U.S. oil prompted domestic producers to seek more lucrative foreign markets. The 1973 Arab oil embargo, which led to widespread shortages in the United States, led Congress to pass the Energy Policy and Conservation Act of 1975, prohibiting the export of oil unless the president determined that certain exports are in the national interest. (A series of subsequent federal statutes regulating oil exports are detailed in this 2014 CRS report on crude oil export policy.) The debate over oil exports has settled around three policy options: maintaining the ban, relaxing or lifting restrictions, or allowing for temporary exports and redefining which types of crude oil are restricted.
“I believe that the question of whether the United States should have a substantially more permissive policy with respect to the export of crude oil and with respect to the export of natural gas is easy. The answer is affirmative,” Former Treasury Secretary Lawrence Summers said in September 2014. His position is backed by a Brookings study that found “increasing crude oil exports in any fashion will have positive economic effects both in the United States and in the world oil market.” The study predicts that U.S. gross domestic product will rise between $600 billion and $1.8 trillion if the ban is lifted, with the greatest benefits if exports are permitted in 2015. But some experts say these projections are overly optimistic and that export benefits will be more modest.
In addition to charting the uncertain crude output from the United States, forecasting price effects hinges on predicting the behavior of the Organization of the Petroleum Exporting Countries (OPEC), the cartel that delivers almost thirty million barrels of oil per day to global markets. Saudi Arabia, OPEC’s most influential member and holder of the world’s largest spare production capacity, reduced its output in August 2014 as oil prices declined due to softer demand, especially in Asia. Increased supply of LTO and its potential export may further weaken demand for OPEC oil, but U.S. exports aren’t likely to pressure prices over the next few years. If prices fall or OPEC loses customers, some members may boost production and provide discounts, a development that would force U.S. producers to shut down due to the high cost of tight oil extraction.