Free Trade in Energy Export

The belief that creating barriers to exports and infrastructure will lock oil and gas under the ground is a misplaced one. Markets will clear, as long as the demand for fossil energy remains.

The United States as a superpower and leading global economy has a vital interest in free trade and open markets in energy. The United States, by virtue of both its superpower role and its position as the largest oil consuming country, has a direct interest in preventing energy supply from being used as a strategic weapon.

Barriers to foreign investment in energy resources in key producing countries generally contribute to supply constraints, leading to sharp rises global prices and potentially harming economic growth in major oil consuming countries such as the United States and its key industrialized trading partners. For three decades, the United States has recognized this and has actively supported open markets and free trade in energy. To continue to do so, the United States cannot restrict its own energy exports. By leading the charge on new energy technologies and exports, the United States now has the ability to fashion a global energy world more to its liking where petro-powers can no longer hold American drivers hostage or turn off the heat and lights to millions of consumers in the United States or allied countries to further geopolitical ends.

Since the United States participates in international trade, blocking exports of one or more particular commodities or manufactured products cannot “protect” U.S. consumers from international prices.

Ultimately, the discussion of banning some energy commodity exports and not others is a question of who in the United States economy gets the profits from exports. U.S. gasoline and diesel exports will link prices for U.S. consumers to international markets in the exact same way as crude oil exports. And, any net exports from the US will hurt OPEC eventually, whether it is refined products or crude. That is because rising exports of U.S. refined products to international markets will eventually erode profit margins for European, Asian and Latin American refiners, causing them to reduce their own refinery throughputs, lowering demand for crude oil generally and thereby weakening international crude oil price levels. In this way, rising U.S. crude oil production impacts global crude oil markets through displacement via U.S. refined product exports and it is not correct to say that OPEC has been shielded from the impact of rising US production even if it seems to be trapped in the US midcontinent. Rising US tight oil production is impacting OPEC. Global oil prices would be even higher, but for ongoing disruptions in supplies from Libya, Nigeria, and Sudan, among others.

The only way to keep oil under the ground is to lower demand more permanently through energy efficiency, lifestyle changes or externality taxes or pollution markets.

With America’s oil and gas potential on the rise, returning to the strategy of calling for mechanisms for a realistic carbon price and other kinds of green finance is a better path to the task at hand, as some world leaders pointed out in Davos earlier this month. Environmental groups might do well to take stock of their tactical achievements from advocacy against exports/pipelines and regroup to more effective ways to bring about change. In the meantime, as long as demand for oil remains strong, exports should be part of the arsenal of policies that the United States can tap to ensure that resource nationalism does not deprive the global economy of needed energy supply.