Energy Sec. Jenifer Granholm once again met with the CEOs of major energy companies last week to discuss refinery capacity following Hurricane Ian. But in the middle of those conversations, the secretary yet again floated the idea of banning American crude oil exports – a move that would be detrimental on numerous fronts.
As the American Petroleum Institute and American Fuel and Petrochemical Manufacturers said in a joint statement following the meeting:
“U.S. refiners and administration officials met to discuss current market imbalances and our industry’s ongoing work to efficiently and affordably supply fuel to the U.S. market. As the administration refuses to rule out limitations on exports, we shared the significant unintended consequences that would come with such a policy, including potential cost increases, refinery closures, job losses and productivity declines…The focus of this administration should not be on trapping product in the United States or diverting fuel away from retail sales and into storage, but rather, on how to better produce and more affordably move U.S. product within the United States. The oil and natural gas industry stands ready to continue to meet U.S. consumers’ need for affordable, reliable energy while supporting our allies around the world.”
In rationalizing the ban, Sec. Granholm asserts that if American oil producers stop exporting their products, there will be more available supply in the United States, thus lowering domestic prices. Sec. Granholm and President Biden have asserted that increasing domestic oil and gas supply is the “patriotic thing to do” at a time when supply and inventories are low. To emphasize this, the Dept. of Energy emailed the following before the meeting on Friday:
“The president’s team emphasized that energy companies with record-high profits, record high exports and record-low inventories must step up and bring down prices at the pump.”
Once again, the administration is blaming the oil and natural gas industry for high prices and the supply shortage, something Energy in Depth has covered at length and repeatedly debunked, while ignoring the effects of their own policies. Let’s dig in further.
Economics: Fungible Commodities and Supply and Demand
As experts have repeatedly testified to, oil is a globally traded and fungible commodity – meaning that it is sold within a competitive market where no one supplier or consumer can determine the price. Additionally, because it is globally traded, it is the global supply that determines prices, not domestic supply. And, because overall supply would decrease under an oil export ban, an energy export ban would only cause prices to increase.
This is even more of an imminent concern given the disarray that European markets are currently in from Russia’s war in Ukraine, made potentially worse given OPEC recently announced that it intends to make significant production cuts. As the largest group of oil exporters in the world, this may have a severe impact on prices.
In a letter from ExxonMobil CEO Darren Woods to the Energy Department, Woods details the effects a ban would have on shortages:
“Continuing current Gulf Coast exports is essential to efficiently rebalance markets—particularly with diverted Russian supplies. Reducing global supply by limiting U.S. exports to build region-specific inventory will only aggravate the global supply shortfall.”
Support Our Allies
To say that Europe is facing a complex energy situation is a massive understatement. Countries within the European Union produce very little domestic crude whether due to geography or their own energy policies, so it must rely on other countries for imports. If the U.S. were to truly stand with its European allies in this time of need, as the Biden administration has claimed, it would fast-track both LNG and American crude to the continent, rather than banning crude exports.
In an article for Forbes, energy analyst David Blackmon said:
“Given the desperate situation related to these fuels that exists in Europe right now, a sudden reduction in U.S. supply would in fact amount to an act of near-cruelty.”
The Wall Street Journal further emphasizes the impacts of an oil export ban:
“The Granholm export threat is also a slap in the face to European allies trying to diversify energy sources from Russia…U.S. refiners have recently been exporting more fuel to Europe, but Ms. Granholm is now telling them to stop.”
The White House has acknowledged the importance of maintaining robust natural gas exports, stating it will not place a ban on these exports this winter. Crude oil should be no different.
Bottom Line: A crude export ban would lead to higher energy prices for Americans, and no, not because of price gouging, but because the ban would stunt energy supply even further. Additionally, it would abandon our western allies in a time of need, while simultaneously harming the environment.
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