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Oil and Gas Exports—One Policy Change, Many Benefits

“Businesses that sell to foreign markets put more people to work in high-quality jobs, offering more Americans the chance to earn a decent wage,” claimed the Obama administration’s Secretary of Commerce Penny Pritzker in a March 18 Wall Street Journal (WSJ) opinion piece.

She makes a strong case for U.S. exports: “jobs in export-intensive industries pay up to 18% more than jobs not related to exports.” Her premise is: “The U.S. economy ended 2014 on the uptick, and exports added to the momentum.” Noticeably absent is any mention of the potential for “high-quality jobs” and economic “uptick” that would come from the export of America’s abundant oil-and-natural gas resources—something her office should champion.

Due to the modern technologies of horizontal drilling and hydraulic fracturing, the U.S. is producing more oil and natural gas than in decades. But the oil-and-gas industry is prevented from exporting to “foreign markets.”

In trade negotiations, the U.S., according to the New York Times (NYT), “typically argues that countries with excess supplies should export them.” We have excess supplies of both crude oil and natural gas that has driven down prices. We “should export them”—but we aren’t.

“Why can’t we export crude oil and natural gas?” you might ask. The NYT explains: “In 2011, the country pivoted from being the world’s largest importer of petroleum products to becoming one of the leading exporters”—though Pritzker never mentioned that.

The “energy world changed.” But, as NYT points out, exports could soak up the excess production, “but there are still political hurdles.”

For crude oil, the problem is energy policy enacted before the “energy world changed.” Signed into law in 1975, the goal of the Energy Policy and Conservation Act, according to the International Business Times, was “to stifle the impact of future oil embargos by foreign oil producing countries.” The result was a ban on most U.S. oil exports—though some exceptions can be made and the Commerce Department has recently given export licenses to two companies for particular types of oil.

Exporting natural gas is not prohibited, but it is not encouraged. In order to export natural gas, it must be converted into Liquefied Natural Gas (LNG)—which is done at multibillion-dollar facilities with long lead times for permitting and construction. The Financial Times says about two dozen U.S. LNG export facilities have been proposed with four “already under construction, which have contracts to back up their financing.”

Fortunately, there are fixes in the works that, as energy historian Daniel Yergin said, symbolize “a new era in U.S. energy and U.S. energy relations with the rest of the world.”

In January, Senators John Barrasso (R-WY) and Martin Heinrich (D-NM) introduced the LNG Permitting Certainty and Transparency Act to expedite Department of Energy decisions on LNG export applications.

A month later, Representative Joe Barton (R-TX) introduced a bill to end the crude oil export ban: HR 702. On March 25, the House Foreign Affairs Committee will meet to debate and vote on the bill.

The NYT states: The telltale sign of a glut will be a collapse in the West Texas Intermediate [WTI] price, the principal American oil benchmark, which is currently [October 2014] about $3 below the world Brent price.” It continues, “If the spread cracks open, the economic arguments for free export of domestic crude will probably win the day.”

That day may have come. On March 13, the WSJ editorial board announced: “WTI now trades 20% below the world market price.” Holman Jenkins, who writes the Business World column for the WSJ, says: “Oil producers are already being denied a premium of $12 a barrel by not being allowed to export this oil.”

“U.S. pump prices are mainly tied to the price of Brent crude, which is freely traded on the world market and is higher than it might otherwise be because of the ban on U.S. exports,” explains the WSJ. “If U.S. producers were allowed to compete globally, prices of Brent and WTI would converge over time, and U.S. gasoline prices would come down, all things being equal.”

If Congress could muster up the political will to lift the oil export ban, the U.S. could emerge as a major world exporter, which according to the NYT, would result in the “return to a status that helped make the country a great power in the first half of the 20th century.”

Pritzker brags that the Commerce Department has “worked with the private sector to help businesses reach customers overseas … and to overcome barriers to entry.”

For U.S. oil-and-gas producers the biggest barrier to reaching customers overseas remains our own energy policy. With one simple policy change, lawmakers could save American jobs and investment, lower gasoline prices, help balance our trade deficit, aid our allies, and increase U.S. influence in the world.

The author of Energy Freedom, Marita Noon serves as the executive director for Energy Makes America Great Inc. and the companion educational organization, the Citizens’ Alliance for Responsible Energy (CARE). She hosts a weekly radio program: America’s Voice for Energy—which expands on the content of her weekly column.

 

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