By Velda Addison, Hart Energy
As the drop in oil prices continues to hit oil and gas companies’ profits resulting in project delays and layoffs, it is only a matter of time before the industry’s pain trickles to the coffers of local, state and federal governments.
Maybe then the push to lift the crude oil export ban will gain momentum. But hopefully, the powers that be will see the benefits of the move and make the change before economies fall into doldrums.
Two studies published by IHS shed light on the potential economic impacts of lifting the ban that has been around since the 1970s. The latest study, entitled Unleashing the Supply Chain: Assessing the Economic Impact of a U.S. Crude Oil Free Trade Policy, was released this week. The findings of this study, which was supported by 22 energy companies and one energy alliance, appear favorable to the sector and its ability to create jobs and further stimulate the economy.
Here are some of the key findings, as stated by IHS, in the latest report:
- The export ban causes U.S. crude oil prices to be discounted compared to international crude oil prices, which results in less U.S. oil production, supply chain activity and job growth. However, it raises gasoline prices in the U.S.;
- The economic benefits of oil and gas activity throughout the supply chain far exceed the benefits to the industry itself. IHS found that every new production job creates three jobs in the supply chain and another six jobs in the broader economy. In addition, contributions to the Gross Domestic Product (GDP) would increase. Every dollar of GDP created in the oil and gas sector generates two dollars in the supply chain; and
- Allowing crude oil exports increases supply chain jobs and economic activity by stimulating capital investment, increasing crude oil production and lowering gasoline prices. “Based on two levels of crude production analyzed in this report, the positive impact on the crude oil supply chain of lifting the export ban is expected to add $26 billion to $47 billion to GDP and support 124,000 to 240,000 jobs per year on average during the 2016–30 period,” IHS said in the report.
The economics appear to support lifting the crude oil export ban. But is now the right time?
Currently, supply exceeds demand. A lifting of the ban could result in more production out of the U.S., with producers seeking an outlet for their products outside the U.S. On a conference call with the media this week, IHS’ Kurt Barrow, vice president-downstream, said outlets for U.S. crude could include countries in Europe and Asia, including Japan, Korea and India.
BP’s Energy Outlook 2035 predicts oil demand will increase by 0.8% annually until 2035, with higher demand coming from non-Organization for Economic Cooperation and Development (OECD) countries. The outlook projects China will replace the U.S. as the world’s largest oil consumer by 2035.
“The current weakness in the oil market, which stems in large part from strong growth in tight oil production in the U.S., is likely to take several years to work through,” according to the outlook. “In 2014, tight oil production drove U.S. oil output higher by 1.5 million barrels a day—the largest single-year rise in U.S. history. But further out, the growth in tight oil is likely to slow and Middle East production will gain ground once more.”
But that, like everything else, remains to be seen—especially if the U.S. government lifts the ban.
Contact the author, Velda Addison, at firstname.lastname@example.org.
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