WASHINGTON -- The ban on U.S. crude oil exports is exacerbating the challenges of lower oil prices for U.S. tight oil production, creating a “doubly chilling effect” on additional investment, jobs and oil production that would actually lower gasoline prices if the ban were lifted. Those are among the findings of a new study by IHS Inc. (NYSE: IHS), the leading global source of critical information and insight.
The study, entitled Unleashing the Supply Chain: Assessing the Economic Impact of a U.S. Crude Oil Free Trade Policy, builds on previous IHS research on the economic impacts related to the 1970s-era ban on exports of U.S. crude. According to the study, substantial economic benefits of developing the nation’s oil and gas resources extend beyond the oil producing regions throughout an extensive supply chain that includes every state. Every new oil production job creates three jobs in the supply chain and another six jobs in the broader economy. The export ban—enacted in 1973 in conjunction with now defunct oil price controls—deters additional production, which reverberates in job losses throughout the supply chain and broader economy, the study says.
Previous IHS research found that removing export restrictions would result in significant benefits in terms of jobs, U.S. gross domestic product (GDP), household disposable income and government revenues. The research also determined that lifting the ban on exports would actually lower gasoline prices since U.S. gasoline—unlike crude oil—is part of a global market, and the current crude export ban prevents additional supplies of crude from being produced.
The new study finds that the negative effects of the ban—which creates a supply gridlock that forces U.S. light crude to be sold at a sharp discount since production of that type of crude has outpaced domestic capacity to refine it—are amplified in the current price environment.
During periods of lower oil prices (oil prices have declined by roughly half since mid-2014), crude oil production drops even more sharply with each incremental price cut such as those that result from the crude export ban. A $3 per barrel change in a $50 per barrel price environment can have the same effect as a $10 change in a $100 per barrel environment, the study finds.
The export ban—which keeps domestic crude from trading on the global market—causes U.S. crude prices to be discounted versus international crude. The study notes that the difference in price between international (Brent) and domestic (West Texas Intermediate) crude recently widened, ranging from $7 to $12 per barrel over the past month.
“The decline in global oil prices provides further need to remove the market distortions created by the ban on U.S. crude oil exports and avoid the additional disruption to investment in oil and gas production and its associated economic benefits and jobs growth,” said Kurt Barrow, IHS vice president, downstream energy. “U.S. crude production would be facing the doubly punitive impact of low global oil prices and additional price discounts compared to international crudes.
“At current prices, the spread between Brent and WTI pricing will be the difference between the viability and non-viability of a great deal of new investment,” he added.
Unleashing the Supply Chain focuses on the impact of upstream expenditures from lifting the crude oil export ban on the diverse set of industry sectors that support oil and gas producers—from steel and nonferrous metals to engines, pumping equipment, construction, professional services and railroads.
This new study affirmed previous IHS research that ending the crude oil export ban would benefit the entire economy, generating another 394,000 jobs annually, $238 in annual household disposable income, and $86 billion more per year in GDP on average from 2016-2030. The increased economic activity would add $1.3 trillion to cumulative government revenues during that period. Additionally, the increased supply of oil on the global market would lower U.S. gasoline prices by an average of 8 cents per gallon.
Unleashing the Supply Chain finds that supply chain industries represent more than a third of the total economic benefits if the export ban were lifted.
Impacts specific to the supply chain include:
- The crude oil supply chain would add $26 billion to GDP per year (2016-2030)
- Total employment in the supply chain would increase, averaging annually 124,000 new jobs over 2016-2030 – contributing to the 394,000 jobs annually that would be created economy-wide over the same period
- Labor income would rise by more than $21 billion per year, on average, (which translates to an additional $158 per household)
- Cumulative government revenues from corporate and personal taxes attributed to supply chain industries would increase by $429 billion
Unleashing the Supply Chain also maps the potential supply chain economic benefits of a crude oil free trade policy for each state and congressional district.
Key state and congressional district findings include:
- In states where the crude oil industry predominates, such as Texas, core supplier industries such as construction and well services are poised to reap the largest economic benefits in terms of jobs and value added, followed by professional services, which play a large role in supporting crude oil activity.
- In states with essentially no crude oil production, such as Florida and New York, key supplier industries that incur the largest benefit associated with the adoption of a crude oil free trade policy include the industrial equipment and machinery, professional services, financial services, and information technology sectors.
- The supply chain can account for half of the value added from lifting the export ban in states with a diverse and mature set of supplier industries. Washington state’s supply chain industries—led by information technology and manufacturing—would contribute 47 percent of the state’s total GDP benefit from higher crude oil exports over 2016–30. Illinois, an oil-producing state with diverse supplier industries, would derive 58 percent of the total GDP impacts from its supply chain.
- California and Texas—large oil producers that also have substantial manufacturing activity and diverse supply chain sectors—are expected to yield the largest benefits from lifting the crude oil export ban in terms of supply chain jobs, value added, and labor income impacts. California and Texas together account for about 25 percent of the total US supply chain jobs and labor income contributions and 20 percent of the value added contributions in 2016–30. These two states also have the largest number of affected congressional districts.
- Non-oil producing states such as Massachusetts and Maryland would also see strong growth in supply chain-associated government revenues. They rank among the top 10 states in terms of the GDP and labor income impacts on their supply chain industries, suggesting strong ties between their supply chain activity and their government revenue from associated taxes.
- Nearly all congressional districts would experience benefits. The economic impact of a change in trade policy would be distributed across suppliers in congressional districts with crude oil activity, as well as in adjacent districts with supporting supply chain sectors. Those districts with crude oil activity and strong supply chains benefit most.
About The Report
Download Unleashing the Supply Chain: Assessing the Economic Impact of a US Crude Oil Free Trade Policy at www.ihs.com/crudeoilsupplychain. The Web site also features an interactive tool providing access to jobs, income, tax and related data for state and congressional districts and supply chain sectors.
Unleashing the Supply Chain: Assessing the Economic Impact of a US Crude Oil Free Trade Policy from IHS utilizes the company’s extensive knowledge and proprietary models of both the upstream producing and downstream refining sectors to assess the combined investment and price impacts of U.S. crude oil free trade. The energy impacts from crude oil free trade provide the inputs into IHS macroeconomic, regional and social accounting models to generate the national, state and congressional district level supply chain contributions to U.S. employment, GDP growth, labor income, trade and tax revenues that will result from removing restrictions on the free trade of crude oil. This research was supported by Baker Hughes, Chaparral Energy, Chesapeake Energy, Chevron, Concho Resources, ConocoPhillips, Continental Resources, Devon Energy, Energy Equipment and Infrastructure Alliance, EOG Resources, Exxon Mobil, General Electric, Halliburton, Helmerich & Payne, Hess, Marathon Oil, Newfield Exploration, Oasis Petroleum, Occidental Petroleum, Pioneer Natural Resources, QEP Resources, Rosetta Resources and WPX Energy.
IHS is exclusively responsible for all of the analysis, content, and conclusions.
All findings listed in this press release reflect the study’s base case.
Unleashing the Supply Chain: Assessing the Economic Impact of a US Crude Oil Free Trade Policy also includes a Potential Production Case, a higher crude oil production forecast that takes into account the potential for additional production from known but less well-defined areas of existing plays along with moderate improvements to drilling performance and technology in the future. Under the Potential Production Case, the removal of restrictions on crude exports would lead to an additional 2.3 million b/d in production, resulting in additional economic benefits with free trade.
Previous IHS research, U.S. Crude Oil Export Decision: Assessing the Impact of the Export Ban and Free Trade on the U.S. Economy, is available for download at www.ihs.com/crudeoilexport.
About IHS (www.ihs.com)
IHS (NYSE: IHS) is the leading source of insight, analytics and expertise in critical areas that shape today’s business landscape. Businesses and governments in more than 150 countries around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact decisions and develop strategies with speed and confidence. IHS has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS is committed to sustainable, profitable growth and employs about 8,800 people in 32 countries around the world.
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