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Why the US shouldn't export its oil

Thanks to fracking, America is suddenly awash with oil. But lifting the ban on U.S. crude exports would be bad for the economy -- and worse for the environment.
A view of a BP refinery in Carson, California.
A view of a BP refinery in Carson, California.

For the first time since the 1973 Arab oil embargo, the United States is starting to get back into the business of exporting crude oil. That’s good news for the global economy but bad news for the global environment. And it may also turn out to be bad news, in the short term, for the U.S. economy.

The 1973 embargo, imposed in retaliation against the U.S. for its support of Israel during the Yom Kippur War, terrified Americans with price spikes and blocks-long lines at the gas pump, and sent the economy into a tailspin. Congress reacted by passing a series of laws that effectively banned the export of crude oil extracted in the United States. Exceptions were made for Alaskan oil and, to a limited extent, certain oil extracted in California. In addition, crude exports to Canada were permitted. But most U.S. crude could not be sold abroad. Oil could be exported if it were refined into a petroleum product, but a shortage of domestic refineries limited those exports, too.

The purpose was to move the U.S. toward energy independence and reduce its dependency on foreign oil. It didn’t work. The U.S. imported 104,000 barrels of crude oil in September 1973, one month before the embargo hit. By September 1993, crude imports had risen to 197,000. By 2003, they were 309,000.

"The doomsayers of the 1970s were wrong about how quickly the world would run out of oil, but not about the dangers of climate change."'

Since then, crude imports have fallen to 225,000 (as of March), mainly because of the 2007-2009 recession but also because during the past two years, U.S. shale oil production surged due to the new technologies of hydraulic fracturing (“fracking”) and horizontal drilling. In the next two years, U.S. crude extraction is expected to approach the historic peak reached in 1970. In the 1970s the world’s oil reserves were expected to last only two or three decades more. Today, the U.S. literally has more oil than it knows what to do with.

This has proven to be a bonanza for U.S. refineries but a frustration for crude oil producers—specifically, for extractors of the extremely light crude, or “condensate,” largely derived from shale through the new technologies—because the U.S. surplus of condensate drives down their domestic prices. (In addition to the U.S. refinery shortage, shale producers are hurt by the fact that most refiners are equipped to process only heavier crude.) Consequently, these drillers have been urging the federal government to ease the export restrictions. On Tuesday the Commerce department did so, in a limited way, by reclassifying some condensate that’s been subjected to minimal, pro forma processing as a refined petroleum product free of export restrictions. So far the only beneficiaries are two Texas oil companies, Pioneer Natural Resources and Enterprise Products Partners. But by one estimate a more complete lifting of the prohibition could result in the export of about one-quarter of all U.S. shale oil.

Lifting the prohibition is being urged by apparently disinterested and respectably wonky organizations like the Council on Foreign Relations and the Brookings Institution. They favor it because it would create more efficiency in the global oil market, which would, in turn, be a boon to the world economy. In addition, to the extent anyone still worries that the world economy might be held hostage to future turmoil in the Middle East, ending the prohibition would likely help with that problem, too. The U.S. policy of hoarding crude oil never made the world, or even the U.S., a safer place.

But the growing problem of climate change has environmentalists asking how much efficiency we really want in the global oil market. The doomsayers of the 1970s were wrong about how quickly the world would run out of oil, but not about the dangers that hydrocarbon consumption posed to the global environment, especially with respect to climate change. A report by the environmental group Oil Change International states, “exporting tight [i.e., shale] oil would help producers pull more of the resource out of the ground, making it even more difficult to keep within climate limits. Without an effective international regime to keep global greenhouse gas emissions below recognized thresholds, deregulating U.S. crude oil exports can only exacerbate the impending climate crisis.”

Policymakers often have to choose between addressing climate change and acting to lower the price of oil. More expensive oil typically means less consumption and more incentive to invest in alternative energy sources. But more expensive oil also typically damages the economy and puts people out of work. In this instance, though, favoring environmental concerns by maintaining the crude oil export ban would likely keep oil prices low in the United States, at least for now, because the shale oil boom has created a domestic surplus. The oil markets are sufficiently complex that this outcome is not a certainty, and over the long term it’s more likely that lifting the ban would lower prices everywhere. But with the U.S. economy still shaky—GDP growth fell during the first quarter of 2014—right now might not be the best moment to risk a short-term increase in gas prices.