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Thwarting America's Crude Awakening

June 27, 2013 in Economics

By Scott Lincicome

Scott Lincicome

The American “shale boom” is poised to revolutionize global energy markets. It could transform the nation from a longtime net oil importer into an export powerhouse. Consider that the 2012 increase in U.S. crude oil production, announced last week, was the largest not just in U.S. history but the world.

To help this transformation, a bipartisan swath of federal and state officials is pressing for new infrastructure, like the Keystone XL pipeline, to move a glut of domestic oil from the center of North America to Gulf ports. This is a crucial step, but unless Congress reforms archaic restrictions on crude oil exports, all that black gold’s going nowhere.

These restrictions not only contradict global trade rules and national trade and energy policies, they also threaten to derail the American energy revolution. Yet, unlike similar restrictions on natural gas, almost no one in Washington is talking about them.

Archaic restrictions on crude oil exports threaten to derail the American energy revolution.”

In a free market, the answer to the key question of where to sell all this new American oil would be simple: wherever demand takes it. Unfortunately, the U.S.crude oil market is anything but free.

Instead, the Energy Policy and Conservation Act of 1975 authorized an export licensing system that, though intended to address temporary conditions, remains in place. It prohibits almost all crude oil exports — even in this time of abundant supply.

Exports today require a license from the Commerce Department that, except for shipments to Canada and a few other narrow circumstances, is only approved if the proposed transaction is “consistent with the national interest.”

Non-Canadian exports of U.S. crude oil are effectively banned. No license applications were approved under the “national interest” exception between 2000 and mid-2012, and subsequent data confirms that this unfortunate streak remains intact.

This de facto ban creates a host of problems. First, by curtailing exports and subjecting license approvals to the whims of bureaucrats, the current system slows domestic production, breeds economic distortions, discourages investment and destabilizes energy markets.

U.S. oil producers, for example, lose an estimated $10 billion a year due to their inability to sell crude in foreign markets. They’ve also spent hundreds of millions of dollars building “mini-refineries” in the Midwest and Gulf region to circumvent the current restrictions and export a slightly processed, cheaper product — leaving another $1.7 billion in potential profit on the table.

As Rube-Goldbergian as this sounds, producers have few alternatives, given that …read more

Source: OP-EDS

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