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Why lifting America’s ban on oil exports won’t matter

October 3, 2015, 3:00 PM UTC
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Anthony Schillings opens a valve to unload water from his truck into a Heckmann Water Resources (HWR) treatment plant that separates oil, sediment and water mixed during the hydraulic fracturing process, near Carthage, Texas, U.S., on Friday, Dec. 9, 2011. Water-service companies help manage the chemical-tainted water that's a byproduct of oil and natural gas drilling and production; cleaning and recycling it for re-use, and hauling it away for disposal. Photographer: Jason Janik/Bloomberg via Getty Images
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Now that the U.S. will lift international sanctions on the export of Iranian petroleum, it seems ironic that America still maintains its own self-imposed, decades-old restrictions on the export of domestically produced petroleum.

That could change soon, depending how Congress votes on a bill that aims to lift the restrictions that have been in place for more than 40 years. The House recently voted to lift the 40-year-old ban on oil exports. The measure now shifts to the Senate, where it faces steep hurdles to passage. Producers and other supporters argue that lifting the ban on oil exports would help streamline U.S. petroleum production and stimulate America’s economy, while consumer groups say it would raise gas prices.

Whatever the outcome, it may not matter much in the long run.

The U.S. hasn’t been a significant exporter of petroleum since the late 1940s, and, aside from a brief interruption more than 20 years ago, its consumption has continued to grow. In other words, America consumes more oil than it can produce.

U.S. producers and refiners can argue about who stands to gain or lose from a lifting of decades-old restrictions on oil exports, but as long as the U.S. remains a net importer of petroleum, an unfettered global market will produce only niche areas where export of U.S. crude makes any economic sense.

Let’s take a look back. Since 1920, well before Congress passed the Energy Policy and Conservation Act, intended to reduce oil exports and increase national security, the U.S. has only exported an average of about 5 million barrels per month – roughly 2% of current domestic production, a review of the Energy Information Administration (EIA) data shows. More specifically, the data show that for the 15 years preceding the 1973 and 1975 legislation, over U.S. crude oil exports were practically non-existent.

This changed in the late 1970s. From 1977 to 1980, U.S. exports grew rapidly, and the total volume exported during the ensuing 20 years was higher than any equivalent period in history. From the macro perspective, it would appear that policies aimed at reducing oil exports had the exact opposite of the intended effect. The years following passage of the EPCA were actually promising with respect to reducing petroleum imports. From 1978 to 1983, US petroleum consumption dropped from 18 million barrels per day (MMBD) to slightly below 16 MMBD, and imports dropped from 8 MMBD to 4 MMBD. If ever there was a time to claim policy success, this was it.

Unfortunately, the principal cause for these interrelated declines was the 1981 to 1982 economic recession, which many believe was brought on by a steep hike in global oil prices caused by the 1979 Iranian revolution. That bit of irony aside, the decline in consumption and imports was short lived – both quickly resumed their seemingly inexorable climb through 2005. So, for another two decades, the EPCA clearly was not having its desired effect.

The efficacy of the EPCA as an agent for enhancing US energy security has been no better. The EIA data show that following the perturbation caused by the recession of the early 1980s, petroleum imports again grew rapidly, from about 30% of U.S. consumption in 1983 to 60% by 2005.

There are many ways to measure energy security, but it’s difficult to make a case that we became more energy independent while doubling the percentage of imported oil over a 20-year span.

During the first 30 years following implementation of the EPCA, U.S. oil exports and domestic consumption of oil actually increased, while America’s homegrown production of oil and and overall security declined (through higher imports).

It would be a bit over the top to suggest that the data indicate the EPCA has not only been a gross failure but arguably exacerbated the problem it was meant to solve. But this would be giving the policy far more credit than it deserves.

A fairer assessment of the data indicates that the policy has had no real impact at all. From that standpoint, why not lift the ban? It hasn’t made much difference anyway.
Fred Beach is Assistant Director for Energy Policy at the Energy Institute, The University of Texas at Austin. He also teaches in both the McCombs School of Business and the Cockrell School of Engineering.