With the midterm elections upon us, it’s no surprise that politicians have been trying to show voters that they are doing whatever they can to lower prices at the pump. Last Monday, President Biden warned oil companies that they could face higher taxes and “other restrictions.” The president didn’t provide any more details, but his comment follows a recent Bloomberg report that the White House had asked the Energy Department to analyze the impact of an export ban on gasoline, diesel and other refined petroleum products.
Let’s hope this is just political posturing. An export ban is a bad idea that would hurt American consumers as well as our allies around the world.
Here’s why.
First, the U.S. refined product market suffers from geographic concentration and transportation limitations. Most of the refineries are in the Gulf Coast region, whereas demand is spread throughout the country and especially on the coasts.
Because of a lack of pipeline capacity, an export ban would end up trapping refinery production in the Gulf Coast region. According to an American Council on Capital Formation (ACCF) study, those refiners – lacking markets for their products – would have no choice but to limit production, shuttering about 7 percent of total U.S. capacity. The U.S. has been supplying a significant amount of global refined product and so without that supply, global prices are sure to rise.
Meanwhile, because of pipeline constraints and protectionist shipping limitations, domestic refineries have been unable to satisfy all the east and west coast demand for gasoline and other petroleum products. Instead, those areas have been relying on foreign imports to make up the difference.
With a ban on exports, this situation wouldn’t change; what would change is that the costs of imports (which are set on the global market) would rise. ACCF estimates that the cost of gasoline would increase by 15 cents per gallon and 45 cents per gallon for distillates. Asked about the possibility of a ban on a recent Columbia Energy Exchange podcast, energy markets analyst Amrita Sen commented that it was a “really, really bad idea,” explaining that it “would raise the cost across the board.”
Higher energy prices aren’t good at any time; but now, with inflation at record highs, it would be even worse.
On the international scene, the ban would also work against our foreign policy interests. Ever since Russia invaded Ukraine in February 2022, the U.S. has urged countries around the world to reduce or limit their imports of Russian oil and gas. At the same time, we have pledged to ramp up our exports, especially of liquified natural gas, to Europe so that they could reduce their reliance on Russia.
And U.S. companies have responded. During the first half of 2022, the U.S. exported nearly 6 million barrels of petroleum products per day, which was the largest first-half-of-the-year amount since this data started being collected in 1973. It was an increase of 11 percent from the first half of 2021, and it was the fastest growth rate in five years. For propane, which was the most-exported U.S. petroleum product, shipments to Europe increased by 51 percent and set a record in June 2022.
As Europe steels itself for a difficult winter, it would be an abdication of leadership to cut off some of our energy supplies to them. Former White House National Security Council official Bob McNally put it succinctly, commenting that an export ban would be “a gut punch to our allies and… a gift for [Russian President Vladimir] Putin.”
It’s also important to note that during the last decade, roughly half of U.S. product exports have gone to Latin America, with Mexico being the largest importer of U.S. products (representing more than 70 percent of its 2021 overall consumption). Are we also going to cut those countries loose, putting them – and others – in the difficult position of deciding how they are going to satisfy their needs, and giving Russia a market opportunity to backfill the hole?
Rather than float counterproductive proposals, Biden administration officials should be looking at policies that could actually make a difference. They could, for instance, waive the Jones Act, a 1920 law that mandates that goods shipped within the U.S. be transported on American ships. Removing this limitation would allow more efficient distribution of petroleum products, allowing greater flows from the Gulf Coast refineries to the coasts. They could focus on regulations that limit types of available fuel. They could encourage refinery expansion and other longer-term solutions.
None of us are happy with the prices we are paying for gasoline, diesel and other petroleum products. And that is precisely why policymakers have a responsibility to look for real solutions. A refined product export ban would do more harm than good, raising domestic prices and hanging our allies out to dry.
Jeffrey Kupfer, a former acting deputy secretary of energy in the Bush administration, is an adjunct professor of policy at Carnegie Mellon University’s Heinz College and the president of ConservAmerica.