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.
IHS is a registered trademark of IHS Inc. All other company and
product names may be trademarks of their respective owners. © 2015
IHS Inc. All rights reserved.
IHS Inc.News Media Contact:Jeff Marn, +1
202-463-8213Jeff.marn@ihs.comorPress Team+1
303-305-8021press@ihs.com
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