Crude exports are governed by the Export Administration Act of 1979, which gives the president the authority to ban or curtail the export of commodities thought to be in short supply. While certain exceptions have been granted, most U.S. energy companies are unable to export crude to foreign countries besides Mexico and Canada.
Adam Sieminski, the recently appointed head of the US Energy Information Administration, has also voiced his support in favor of crude oil exports. He argues that crude exports could actually benefit the U.S. economy by creating jobs and ultimately reducing prices.
Even if the U.S. continues to import crude oil on a net basis, Sieminski suggests that exports may be the right solution for the growing volumes of light, sweet crude, which are poorly suited for U.S. Gulf Coast refiners.
To export or not to export
In my view, exports of surplus light, sweet crude, if implemented correctly, could be a major boon to the U.S. economy. Laws governing oil exports do indeed appear archaic, since many of them were instituted three decades ago, when the prevailing ideology was drastically different. Back then, oil was considered the most vital of strategic resources, supported by the then-prevalent belief that peak oil would soon turn out to be reality.
But now, it certainly appears that we’re a long way away from running out of oil. Unless we allow greater exports of crude oil, we will probably continue to build on the current glut, which will almost inevitably drive prices lower still.
By doing so, we could risk alienating the oil and gas entrepreneurs who have contributed to the rapid growth in domestic oil production. If the price of oil collapses below its marginal cost of production, they would suffer, which would be bad news for our economy as a whole.
If history is any indicator, oil booms can lead to tremendous prosperity. It was oil gushers discovered at Spindletop, Texas, that helped fuel America’s extraordinary economic growth in the first quarter of the 20th century. Similarly, it was the massive discoveries of oil in East Texas that aided the U.S. during World War II; some six out of seven barrels used by the Allies came from oil produced in the United States.
Like in these past decades of prosperity, oil exports may once again be exactly the catalyst America needs to boost its economy.
The article Should the U.S. Export Crude Oil? originally appeared on Fool.com and is written by Arjun Sreekumar.
Fool contributor Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool recommends Enterprise Products Partners.
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