Examining America’s Status as an Energy Exporter

Nearly Three Years of Routine Crude Exports

In January 2016, pursuant to an act of Congress the previous year, the US lifted its export ban on crude oil. The ban itself was a product of the mid 1970s, when the phrase “energy crisis” was on everyone’s lips. The numbers on US exports, and the resulting decline of the net import figures, have been remarkable.

The Energy Policy and Conservation Act of 1975 gave the President a good deal of discretion for allowing oil exports when he deemed it to be in the national interest. As a consequence, the ban became over the years an increasingly patchwork affair. For example, in 1985 the President authorized both the export of crude to Canada for domestic (Canadian) consumption and its export from the Cook Inlet in Alaska, the area around Anchorage, the site of state-owned submerged lands rich with the stuff. Ten years later, another President permitted the export of the crude oil coming out of the North Slope of Alaska as well.

New Technologies

But the default rule remained through all of that: whatever exports weren’t specifically allowed, were forbidden. That default rule is what came off the table as 2016 got underway.

As new technologies in the 21st century made new basins in the US available for oil and gas exploration, the export ban increasingly came to seem cumbersome and antiquated thing. As this frac-driven domestic production increased, it pushed out importation of the light grades of crude. There was no place for domestic light crude to go except (as noted by a McKinsey study) to move along the US coastline from Gulf to East Coast and compete with remaining light crude imports there.

The immediate response of the market to the disappearance of the ban was … a price increase. West Texas Intermediate prices were at about $40 a barrel in December 2015, but they went to $48 by April. There was some concern this was a permanent shift in pricing patterns. But the consensus now is that this was actually just the consequence of short-term stock building in the US. The WTI price ticked back down to $44 that summer. It has drifted upward since, as a consequence of output reduction by OPEC members, but the US exports have had an important mitigating effect on that drift.

The US remains a net importer of crude. Nonetheless, the change over the last nearly-three years is marked.

Change and Interdependence

The increasing exportation of crude from the US matters on the world scene because it reduces the amount to which the US is a net importer. In mid December 2015, shortly before routine exportation began, the net importation of crude oil into the US was at 6.83 million barrels a day. The corresponding figure was 6.6 million barrels in mid October 2016, 6.2 million in October 2017, and 5.5 million in October 2018. That’s a decline in net importation of 20% over the period, one which saw no drop-off in world or US demand.

The change is much more dramatic if one includes petroleum products in the import/export picture. In December 2015 the US was a net importer of crude and petroleum products to the tune of 4.57 million barrels. The corresponding figure was only slightly lower the following October, 4.47 million. A year later it was 2.16 million, and another year after that it is 1.86 million. The US has thus lowered this net import figure by close to 60%.  

A paper on the state of the Oil and Gas industry,  as of the beginning of 2018, by Deloitte analyst John England, said that the year 2017 had been “the year the United States confirmed its growing status as an energy exporter.” OPEC had responded by announcing, and sticking to, production cuts. England said that the next big upward push in oil prices would await a demand side push, but in 2017 demand increase had not been such as to “move the needle.”

The old ‘70s dream, the one that inspired the export ban, was of American “energy independence.” The idea was that if the US could and did provide for our own energy, the concerns of the rest of the globe on that matter would not press upon our lives, causing us gas lines or blackouts.

But that dream, at least in its original significance, has quite sensibly faded. Exporters require partners in the rest of the world as much as importers do! The new prospect is of increased US importance in the interdependent global market, as both an importer and an exporter, across the whole range of fuel sources.  Crude oil of course will continue for the foreseeable future to play an important part in that Big Picture.

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