With gas prices continuing to climb, there is an ever-increasing quest for ways to find a culprit that can carry the blame. More and more, the finger pointing is focused on the overseas sale of US petroleum product—with the belief being that selling American resources to the highest bidder increases the price of gasoline at the pump. This idea has made strange bedfellows of Fox News host Bill O’Reilly and Congressman Ed Markey (D-MA).
Addressing gas prices, O’Reilly claims: “They are much higher because the oil companies are shipping their products overseas.” Representative Markey (of the Waxman-Markey cap and trade fame) has “introduced legislation that would end the exportation of oil extracted from taxpayer-owned lands, and the exportation of refined fuels like gasoline produced from America’s oil.” Markey’s bill is called the “Keep America’s Oil Here Act.”
The idea has gained traction. It sounds good. Letters to the editor have popped up echoing the sentiments—with one even proposing “a massive letter-writing campaign to Congress insisting it creates a law that prevents the export of our gasoline and fuel oil.”
I was alerted to the trend by “Chip” who wrote the following in response to one of my columns: “So why is no one suggesting a tax on domestically produced oil, natural gas, or coal being taxed if sold overseas. With all of our natural energy resources, why let it count for so little if global demand will dictate that we pay the same general rates for oil, coal, and gas as anywhere else…”
Whether we have a bill like Markey’s that mandates that resources extracted from federal lands be sold in the US or a tax as Chip suggested, the idea that selling domestically produced resources overseas is driving up prices is being propagated from someone, somewhere and is accepted as fact.
With the Obama re-election campaign being staked on raising taxes, it may well be coming straight from the White House. Markey’s “Keep America’s Oil Here Act” tells us that the Democrats have bought into the theme of discouraging exports of US product—whether through regulation or tariff.
Wherever this “protectionism” idea is coming from, it is wrong on many counts. While keeping American oil here sounds like it would lower prices, it will not impact the price and could hurt the overall economy.
In essence, we are keeping American product here as, at present, we use far more than comes out of the ground domestically. Yes, it is true that some of the barrels of oil that come from Texas or North Dakota or the Gulf of Mexico may be sold as gasoline to Argentina or Peru, but we use far more in the US than we extract. Once in the refinery, the barrels of oil may well be merged and the refined product that comes out may, in fact, be interracial—with the gallon of gas’ lineage being a combination of Africa, Brazil, the Middle East, Mexico, Canada, and the US. Since we need the crude oil from some of the very same countries to which we sell the refined product, such as gasoline, is it wise to start adding a tariff to what they buy from us and incite a possible trade war? Here in the US we get many, many products from other countries and adding barriers to trade is likely to hurt the bigger picture.
The misunderstanding of the “keep it ourselves” camp is that there is a difference between the crude oil—from which gasoline is made—and the gasoline and/or refined products such as jet fuel and industrial feed stocks such as ethylene, butane, and propylene. The vast majority of the refined products used in America are produced here. (Some may come from Canada due to the location of the refineries being closer to the American user.) US refineries export the excess finished product—we import about 9 million barrels of oil a day and export about 1 million barrels of fuel. In refining crude oil into gasoline, there are byproducts that other countries need more than we do. If those products, such as kerosene, cannot be sold overseas, we develop a storage problem. American gasoline usage is down while usage in countries with emerging economies is up. For example, in August 2011, US consumers used 8% less gasoline than they had four years earlier. In India, the usage in October 2011 was 5.4% higher than it was one year earlier.
America has the capacity to refine a more diverse mix of crude oil—including the cheaper, heavier crudes, such as those from Canada’s oil sands. Much of the increase in crude supplies is from the heavier oils, and this gives America a competitive advantage. While refiners in some countries are shutting down, the US refineries are positioned for growth, which results in increased jobs and tax revenue. It would be disadvantageous to tell the refiners that they cannot sell their product overseas. Americans are not consuming enough gasoline to fuel growth. Our refiners need the foreign markets.
America finally has something the rest of the world wants! For far too many years we have been importing nearly everything and sending our dollars to other countries. Now we are getting some of that money back, as fuel has become America’s number one export. This helps our trade balance and strengthens the US dollar. A stronger US dollar means lower gas prices as it takes fewer US dollars to buy a barrel of oil. The smaller trade deficit and the stronger dollar can lead to lower US interest rates and that is a boost to American growth.
Additionally there are free-market and moral issues with the “keep it ourselves” model.
If your daughter wanted to set up a lemonade stand and the local city officials told her she could sell lemonade, but she could only sell it to the locals, she might still agree to do it—thinking, “Who else will come down my street?” So she sets up her lemonade stand and sells lemonade to the passersby. One day a bus of athletes headed to the high school breaks down in front of your house and the thirsty athletes flow out of the bus and straight for your daughter’s lemonade stand. Waving dollars at her, they order her ice-cold lemonade. But the local government watchdogs come in and tell her she cannot sell to the thirsty athletes. This is both a violation of free market principles, and it is immoral.
By not being allowed to sell to all customers, she is missing out on a lot of potential sales. Leaving the athletes dehydrated, while she is standing right there with lemonade is immoral. Yet, this is exactly what the protectionism attitude does. It prevents US companies from selling the surplus to customers who want to pay for it and deprives emerging countries from the resources they need to grow. If we thumb our nose at them, they will have to buy from someone else. We lose.
It is better to keep friendly relationships with our customers and encourage growth in US companies that hire our citizens and contribute to our tax base. The more customers we have, from a broader base, the better it is for US businesses.
Instead of a “letter writing campaign to Congress insisting it creates a law that prevents the export of our gasoline and fuel oil,” we need to be grateful that America has something the rest of the world wants: refined fuels made from a truly American melting pot of sources and that “something” has the potential to shrink the trade deficit and boost the declining dollar.
The author of Energy Freedom, Marita Noon serves as the executive director for Energy Makes America Great Inc. and the companion educational organization, the Citizens’ Alliance for Responsible Energy (CARE). Together they work to educate the public and influence policy makers regarding energy, its role in freedom, and the American way of life. Combining energy, news, politics, and, the environment through public events, speaking engagements, and media, the organizations’ combined efforts serve as America’s voice for energy.