We’re currently having an interesting discussion in the United States — one that few would have thought possible a decade ago.
Americans are talking about the recent upswing in U.S. oil and natural gas production – and how it can benefit the U.S. economy and U.S. energy security. Technology developed by the industry has opened up vast energy resources across the country, from shale gas and tight oil to deepwater oil and gas.
They’re also talking about what these new supplies mean for the United States when it comes to energy trade – what we import and what we export. And sometimes there’s confusion about the role that energy imports and exports play in the national and global economy.
Energy imports and exports are no different from the billions of dollars’ worth of products Americans buy and sell every day through free and open exchanges in the global economy – products such as food, clothing, vehicles and technology. In fact, a recently released report from the Brookings Institution found that attempts to restrict the free trade of one energy source – liquefied natural gas, or LNG – would “likely weaken the position of the United States as a supporter of a global trading system characterized by the free flow of goods and capital.”
The freedom to import and export goods and services benefits Americans in the form of more choices, more value, more wealth, and more jobs.
So let’s take a look at why this is the case using two examples I hear discussed quite often – crude oil imports and petroleum product exports.
Crude oil imports
Too often I see critics of oil – and critics of free trade – try to stir up concerns about America being overly reliant on imports of “foreign oil.”
As data from the U.S. Energy Information Administration show, the majority of the oil and petroleum products Americans consume is not imported, but rather produced in the United States.
Of the oil we do import, what country is our primary source? Most Americans would be surprised that the answer does not lie to our east, but to our immediate north. In other words, the next time you hear “foreign oil,” think Canada. The U.S.-Canada border is one of the world’s longest and most peaceful, and our trade partnership – from lumber, to fish, to automobiles, to airplanes – is one of the most prosperous and mutually beneficial.
Some oppose imports of oil from any country, however, because they view imports as a “wealth transfer.” But that is a misunderstanding of the nature of the trade in energy. Trade of energy is like any other transaction involving a buyer and a seller – both sides benefit. In this case, when purchasing energy supplies, Americans gain vital resources that enable our economy to expand, our living standards to improve, our own exports to increase, and good jobs to grow.
What would happen if the United States stopped importing oil? For one, we would export fewer high-value goods manufactured in the United States. That’s because oil is fundamental to U.S. manufacturing as both an energy source and a product input. Oil and its byproducts are an important part of every car, every plane, every computer, and every plastic good created in the United States and sold overseas. Millions of American jobs depend upon these energy-intensive exports. Cut the input of energy and you cut the output of U.S. goods and jobs – not to mention running the risk of energy shortages and increased energy costs to American businesses and consumers.
Petroleum product exports
As news outlets reported earlier this year, 2011 was the first year since 1949 that the United States was a net exporter of petroleum products – largely diesel and some gasoline. While the White House and many others have recognized the positive role these exports have played in the economy, some have tried to blame these exports for higher gasoline prices.
I’ll say it again – this is a misunderstanding of the nature of the trade in energy.
Gasoline prices are determined largely by crude oil prices, which are set in a global market by buyers and sellers reacting to a variety of supply and demand factors. The U.S. Energy Information Administration recently confirmed exports were not to blame for higher prices at the pump. In fact, EIA data show that U.S. demand for gasoline has fallen significantly in the past year – down about 3 percent from 2010.
So, like any other manufacturer, U.S. refiners have two options in an over-supply situation: They can either reduce their output (meaning curtailing or shutting down refineries), or keep the business running and export the product. It’s no surprise that some refiners are choosing to keep refineries running and adding petroleum products to the long list of goods that American manufacturers export every year.
The U.S. refining industry continues to be an integral part of America’s economic and energy security. The United States has some of the largest and most technologically sophisticated facilities in the world, producing an array of advanced fuels in close proximity to U.S. consumers. Today, about 95 percent of the fuels used in the United States are manufactured domestically, and the refining and petrochemical industry supports nearly 2 million American jobs.
I’ve only scratched the surface when it comes to energy trade and energy security, but I hope this discussion helps make a few things clear. The free trade in energy ensures that crude oil and products are available when and where they are needed, not only in the United States but around the world.
Maintaining free trade is critical to continued U.S. energy security – as is pursuing all economic energy sources and producing the energy we have in the United States.
The biggest threat to U.S. energy security is not import or exports, but misinformation. If our elected leaders choose to enact anti-trade or anti-oil policies, the consequences could be upward pressure on pump prices, slower economic growth, reduced U.S. exports, and fewer American jobs. That’s not the kind of energy security Americans have in mind.