Recently, the U.S. Commerce Department approved the export of limited volumes of light-sweet crude oil to Mexico in exchange for heavy-sour oil from the country. Ardent defender of the Nixon-era oil export ban, Sen. Edward Markey (D-Mass.), said the move illustrated “sufficient flexibility under the U.S. oil export ban” and cited national security and the defense of American consumers against “Big Oil” as reasons to retain the ban.
If undermining “Big Oil” is Markey’s aim, then he is looking for a villain where one does not exist. The shale renaissance that has unfolded this decade has been led by hundreds of independent exploration companies founded by entrepreneurial leaders willing to risk their own capital. This industry has created hundreds of thousands of high-paying middle class jobs, providing a means to elevate oneself and support one’s family through hard work. Like high tech Silicon Valley companies, these firms have been tremendously innovative, directly contributing to gains in economic productivity through the development of horizontal drilling and well stimulation technologies. As I’ve witnessed first-hand, they have given back generously to the communities in which they operate through economic stimulus, new educational opportunities, and charitable support.
Conversely, the East Coast refining companies pushing so hard to retain the oil export ban Markey supports are owned by Wall Street private equity companies seeking to protect their “golden goose” investments for themselves and their investors. Because our nation’s export laws restrict the export of crude oil but allow refineries to freely export the gasoline, diesel, and heating oil consumers actually use, these outdated laws have created a low-risk, high-margin investment opportunity for refineries to buy U.S. crude oil at depressed prices and sell their refined products to the highest bidders at home and abroad.
I’m inspired by Harvard economics professor Sendhil Mullainathan, who in an April New York Times op-ed ruminated on various roles within our economy. Citing a paper by Chicago and Harvard economists, Professor Mullainathan distinguished between “supervalue-adders,” who create societal wealth through innovation and job creation, and “rent seekers,” who instead of creating wealth merely transfer wealth from others to themselves.
What Markey perhaps misunderstands when he targets “Big Oil” exploration companies on behalf of the American consumer is that he’s actually working to undermine the independent “supervalue-adders” while defending Wall Street’s refinery “rent-seekers.” Surely, if these refinery owners really had the best interests of American consumers and national security at heart, they would pass along the savings from cheap, export-restricted U.S. oil to domestic drivers. Instead, they sell fuel at home and abroad at prices tied to the relatively higher priced global crude oil marker, Brent. With the exports of gasoline, diesel, home heating oil and other products Americans actually use soaring to over 4.2 million barrels per day this year, it is clear the Wall Street mantra of “buy low, sell high” prevails, with only the private equity principals and investors benefiting.
Study after study from federal agencies, independent economic research firms, think tanks, and prominent universities – including Harvard University in Markey’s state of Massachusetts – have concluded that lifting the oil export ban will add jobs, boost GDP, and importantly, lower gasoline prices for U.S. consumers. If Washington weighed this issue by the body of research alone, a full repeal of the ban would win in a landslide. And yet, politicians like Markey cling to outdated laws that pad private equity pockets while failing to expand the number of high-paying, middle class jobs or yielding innovations that make our nation globally competitive.
While this Mexico swap is an incremental step in the right direction, it is hardly the sufficient support for the exploration industry Markey claims it to be. The 100,000 barrels per day to be swapped with Mexico is only one-fortieth of the growth in U.S. crude oil production over the last four years and one forty-second of what refineries export in fuel every day. In other words, it is a miniscule step. Congress must avoid complacency with this small measure taken by Commerce and instead must push full steam ahead for a total repeal of the ban this fall – the “supervalue-adders” depend on it.