Lawrence H. Summers, who was US Treasury Secretary during Bill Clinton’s presidency and was President Barack Obama’s National Economic Council Director, said there are no significant reasons for the US to continue restricting exports of domestically produced crude oil.
“There essentially would be no costs. I hope it would be undertaken as soon as possible,” he said in keynote remarks at a Sept. 9 Brookings Institution conference, “Changing Markets: The Future of US Energy Strategy.”
“This does not require a new law,” said Summers, who also was Harvard University’s president for 7 years and now directs its Mossavar-Rahmani Center for Business and Government. “A legislative repeal of the export ban would be best. Failing that, the president should use his authority.”
Reasons for banning US crude exports no longer apply, he said. “We have a situation today we have not had for two generations,” Summers said. “The market is sending signals that US crude exports would be desirable.”
The US traditionally has embraced free trade, which condemns restricting exports to benefit domestic producers, as part of a general commitment to an open world economy, he added.
He disputed arguments that allowing more crude exports would increase raise crude production, reduce US supplies, and increase domestic gasoline prices. “Oil imported to make gasoline is tied to Brent prices,” Summers said. “Marginal US production goes to West Texas, where prices are $5/bbl lower than Brent. Exports would increase global volumes, which would reduce Brent prices.”
The idea that allowing more LNG, as well as crude oil exports would contribute to environmental degradation is wrong, he asserted. “I’m not taking a position on hydraulic fracturing because I’m an economist, not an engineer,” Summers said. “But environmental considerations should not influence oil or LNG exports.”
He said the crude export restrictions have created an absurd situation where condensate goes through the most basic upgrade to qualify as a petroleum product and make it eligible for export. Responding to a question following his remarks, Summers conceded that some US refiners who process light crude that otherwise would be stranded potentially could lose that advantage. “If you’re one of those refiners, you’re getting a terrific deal on your input,” he said.
Summers offered three more reasons for the US to allow more of its domestically produced crude to be exported:
• Investments to increase oil and gas production and pipeline transportation capacity would increase blue-collar employment and improve the general economy. “We are a growth-starved nation,” Summers said. “It’s now 5 years since all the [federal Troubled Asset Relief Program] money was repaid, yet the US has achieved only a 2% annual economic growth rate. I believe we need all the economic growth we can get.”
• While it’s possible to debate whether climate change is the world’s most pressing problem, “it’s profoundly important and must be considered,” he said. “We will not solve climate change without moving beyond fossil fuels, but our crude and LNG exports won’t have a significant impact.” More US gas use helped the nation reduce carbon emissions, and Summers said the US should share its production with the rest of the world, particularly to displace coal, “the new tobacco,” in economically developing nations as a contribution to a final global climate change solution.
• US crude production soon will surpass that of Saudi Arabia, raising the question of whether this country will use it as a tool of political influence. “That question answers itself,” said Summers. “When most countries west of Russia depend on it to stay warm in the winter, that means Russia exercises considerable influence on them. We should help them diversify their supplies.”
Finally, Summers disagreed with arguments that it would take too much time for increased US crude and LNG exports to have an immediate beneficial impact. “The price of oil and gas today has a lot to do with its price in the future,” he said. “Actions today which would lower them then would reduce prices now.
“This is the right thing to do no matter what happens to the macroeconomic or geopolitical future,” Summers said. “But the softer the economy is, the greater the imperative for change…. If this were a trial, perhaps it would be time to call for summary judgment on these policies.”
David L. Goldwyn, president of Goldwyn Global Strategies LLC, moderated a panel discussion following Summers’s remarks that examined two recent studies examining impacts of current US crude and LNG export policies, and potential benefits if restrictions were eased significantly. Panelists included Charles K. Ebinger, who directs the Energy Security Initiative at Brookings; Sugandha D. Tuladhar, a vice-president at NERA Economic Consulting; and Robert Baron, who was a consultant in the study NERA prepared.