Europe relies on Russia for about a third of its energy. So with tensions rising, policymakers here in the United States and in Europe are recognizing the importance of expanding U.S. energy exports.
Unfortunately, the current regulatory process for approving such exports is unnecessarily tedious and slow. Streamlining this process would help America’s allies and boost our economy.
Crude oil exports have been banned outright since 1975. Instituted as part of the Arab oil embargo, this ban was meant to safeguard against international manipulation of oil prices and ensure a reliable domestic supply of crude.
But the American energy landscape has radically evolved since then. We’re now on our way to becoming the number one energy producer in the world. Innovative drilling techniques have opened up vast underground energy reserves previously assumed unreachable. We are now much less vulnerable to foreign energy monopolies.
What’s more, the crude oil being extracted in places like North Dakota is of the “light” variety, meaning it flows freely at room temperature. That kind of crude requires a very specific refining process to be turned into usable fuel.
However, very few domestic refineries are equipped for that process. So domestic energy developers have to ship their crude a great distance — at a great cost — to have it refined. Those transportation expenses are so high that it’s often economically unfeasible to extract the crude in the first place. Firms may be better off just leaving it in the ground.
Thus, the crude oil export ban leaves much of our country’s oil-rich lands underdeveloped.
Lifting the ban would immediately benefit the American economy. By one estimation, unrestricted crude oil exports would add over $15 billion a year to the domestic economy. And if energy producers reap new revenues in overseas markets, they’ll have more capital to expand their operations here at home, leading to new jobs and opportunity.
There are also some archaic controls on natural gas exports. The Natural Gas Act of 1938 established the official permitting process for gas exports, but it was highly restrictive. The Energy Policy Act of 1992 slightly loosened the reins and allowed gas exports to all countries with existing free trade agreements with the United States.
However, the export permitting process remains incredibly slow, arbitrary and costly. There’s a bottleneck of applications. Right now, there are more than 20 outstanding applications.
Freeing up natural gas exports would create up to 452,300 positions and add $74 billion to GDP over the next two decades, according to analysis from ICF International. And the National Economic Research Associates predicts natural gas exports would also increase real household income.
Some critics argue that lifting the energy export ban would constrict the domestic gasoline supply and drive up prices at the pump. However, research shows such effects would be minimal to non-existent.
The energy industry is prepped to create jobs and lend a hand with geopolitics — but only if policymakers reform the outdated restrictions on oil and gas exports.
Margo Thorning is Senior Vice President and Chief Economist for The American Council for Capital Formation (ACCF).