A version of this appears on National Journal’s Energy Insiders blog.
You wouldn’t know it because it still costs you more than the GDP of Burundi to fill up your Ford F150 at the pump, but the US is awash in crude oil. We’re producing so much fracking oil in places like Bakken and Eagle Ford that by 2015 no other country on Earth will produce more oil than us. I call it the Sarah Palin Effect, after the Vice-Presidential Candidate’s rousing chants of “Drill Baby Drill” on the 2008 campaign trail. The takeaway from Palin’s mantra was the more oil America drills, the lower the prices we pay for gasoline.
Obama’s Cabinet is embracing Palin’s Petroleum Plan with gusto, but with a twist: “Export Baby Export”. His Energy Secretary, Dr. Ernest Moniz (who looks like he stepped off the set of American Hustle), cribbed from her notes when he recently told reporters that the 39-year-old ban on exporting American-Made oil is outdated. I can still hear the popping of Big Oil’s champagne corks, because lifting the ban on crude oil exports will mean two things: higher gasoline prices for US drivers, and fatter profits for oil companies.
First, we need to understand why Palin’s Petroleum Proliferation hasn’t resulted in dramatically lower gasoline prices (gasoline prices during Obama’s Oil Boom have actually increased 54% since 2009). Global oil infrastructure makes it relatively easy to physically deliver the commodity in most parts of the planet, so there are generally prevailing universal benchmark prices. As a result, Wall Street traders price oil based on global events and trends, and right now they’re chasing Chinese demand rather than bulging US production. That’s because as America approaches the title of The Planet’s Largest Producer, it’s still only a puddle in the sea of global supply and demand. Even if we open all federal onshore and offshore areas to new drilling, it will have an “insignificant” impact on gasoline prices.
Ending the four-decade-strong ban on exporting US produced oil will raise prices for households and small businesses. While the domestic oil glut isn’t moving global benchmark prices, it is keeping US gasoline prices down a tad, as the excess capacity means it’s cheaper for US refiners to access select US landlocked crude (Light Louisiana Sweet, Mars and Bakken Clearbook) and turn it into useful products like gasoline. But these savings are being offset by record exports of refined petroleum products, which are exempt from the export ban. Because the ban only applies to crude oil, there’s no restrictions on exporting refined petroleum products, which is why they are now the largest physical export in the US economy, as we’re exporting more than 3 million barrels of refined petroleum like gasoline and diesel every day. A Public Citizen analysis finds that, absent increased exports of refined gasoline, average U.S. gasoline prices over the past year would have been as much as 3.5% lower. We predict that if the oil can be exported without first refining it, we will likely see a higher rate of exports, and a bigger price increase for American motorists. So if the millions of barrels of American oil were now free to be sold outside our borders, our refiners will be competing with China for our oil, and we’ll see prices increase.
So why would ObamaPalin support overturning a law that protects consumers? Because Big Oil’s influence on our political system is extreme: their lobby arm, the American Petroleum Institute, spends more than $200 million annually to influence how Americans think about energy policy, and companies like Exxon and Shell are spending even more to do the same.
Exporting fracked oil, or opening millions of new acres to drilling in our oceans and in our federal parks won’t produce enough extra oil to lower global prices, but the additional hundreds of thousands of barrels of daily production will mean huge profits to the companies extracting it. And central to their strategy is moving this oil out of America and into more lucrative global markets. But what’s good for Big Oil isn’t OK for households and small businesses, as there will be a net job loss from exports, with any additional oil jobs trumped by losses incurred by non-oil businesses, both large and small, due to higher gasoline prices.
Sarah Palin’s – whoops I mean President Obama’s – focus on oil is ultimately misguided. As our current domestic oil boom painfully illustrates, the US cannot produce its way to affordable gasoline, because the underlying commodity price is set by factors outside our borders. As long as we remained tethered to oil, we won’t be able to deliver affordable or sustainable energy for our families. Renewable energy, energy efficiency, the electrification of the transportation sector and other investments in a sustainable energy infrastructure are the only options.
Tyson Slocum is Director of Public Citizen’s Energy Program. Follow him on Twitter @TysonSlocum