When ‘Drill Baby Drill’ means ‘Export Baby Export’

May 23, 2012, 7:06 PM UTC

FORTUNE — Americans are frequently promised that more oil and gas drilling will translate into lower energy prices. In a pre-election advertising push this spring, American Petroleum Institute President and Chief Executive, Jack Gerard, said: “More domestic production is critical to putting downward pressure on gasoline prices – supply matters.”

And so it does. But what happens when we start exporting those extra barrels?

You don’t need to be an economist to know the answer. When supplies are tight, prices stay propped up. A fresh infusion of supplies may send prices down, but when they’re exported to consumers overseas willing to pay more for their energy, Americans never get to see the savings.

A boom in natural gas drilling in the U.S. has, indeed, led to dramatically lower prices across the board as supplies hold near historic highs. Yet the most aggressive oil drilling in the country in nearly a decade has not produced the same result, even as crude oil inventories hit a 21-year high. While oil recently slipped below $100 a barrel – a dip Wall Street has already branded as temporary – it remains at the upper end of its historic range.

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The reason is simple, although our nation’s politicians and business leaders have been coy about it. It comes down to our ability to export. Right now, the U.S. does not have sufficient exporting facilities to keep pace with the flood of natural gas. On the other hand, we have long had the ability to export record amounts of petroleum products, such as gasoline, jet fuel and heating oil – and that’s exactly what we’ve been doing.

The outcome is that, on an energy-equivalent basis, the cost of oil is nearly six times that of natural gas, and the two are hovering near their broadest divergence in more than two decades of trading.

The past year has marked a turning point for both. New technologies in natural gas drilling, such as hydraulic fracturing (known as “fracking”) and horizontal drilling have led to a natural gas glut that’s caused prices to nosedive. The nation’s natural gas market has always been less global and more local, so while facilities exist to receive gas imports there are almost none available to ship them out.

Meanwhile, oil products have long been global commodities that are regularly sent in and out of the country. In 2011, U.S. petroleum product exports exceeded imports for the first time since 1949, hitting a record high. Last August to December was especially productive, as total monthly exports topped 3 million barrels a day for the first time ever. All told, the U.S. shipped out $111.1 billion of petroleum products, up 60% from 2010, establishing energy as one of the nation’s top exports.

Though oil products and natural gas have been given different treatment due to the facilities available to ship them, exports of both this year have held near their historic highs – and the oil and gas industry is scrambling to get more out the door.

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Last week, Enterprise Products and Enbridge reversed a key oil pipeline to the Gulf, which means more oil can be turned into fuel – and then shipped out of the country. At the same time, Cheniere Energy received regulatory approval to build the first major natural gas-export facility in the lower 48 states, drawing in deep-pocked investors like Blackstone Group.

While the $10 billion gas project won’t be ready to start exporting until at least 2015, Cheniere says the facilities are already booked solid for the first 20 years of operation.

With Goldman Sachs predicting this week that the global balance between energy supply and demand will keep tightening, it is unlikely that demand for U.S. energy exports from buyers overseas such as China and India will cool down anytime soon. In fact, even if the nation’s energy supplies are kept bottled up inside its borders the way natural gas is now, the U.S. Energy Information Administration suspects that instead of prices falling, refiners might just cut production.

The upshot is that the boost in oil and gas drilling does indeed undergird our energy security by reducing our dependence on foreign oil and gas. But any extra slack is not likely to translate in reduced prices at the pump for Americans, as oil and gas drillers are just as keen to export our supplies as to drill them.