VOL. IX ISS. II | SUMMER 2015

How reforming one policy could change the country’s economic trajectory & influ-ence global stability.

ADVANCING THE POSSIBILITIES

The United States is standing on the threshold of a new era of energy independence for the nation, and North Dakota can lead the way.

Thanks to technologies in oil and gas development including horizontal drilling and hydraulic fracturing, the Bakken and Three Forks formations in western North Dakota have been unlocked, ushering in a new era of economic, income and job growth for the state. These benefits have been well-touted over the past decade, but the benefits this will have on the nation’s role in the world have been understated.

Fostering a new era of self-relianceIn less than a decade, North Dakota has risen from being a “fly

over” state with a struggling economy to being a leader in energy development and economic growth in the nation.

Oil production has increased nine-fold since 2006, making North Dakota the second largest oil producing state in the nation and the 19th largest oil producer in the world.

Today, North Dakota accounts for 13 percent of all U.S. oil production and produces more than 1 million barrels per day. As a result of this increase in oil production, the United States’ reliance on foreign oil has fallen by 28 percent over the last decade, while the nation has become entirely self-sufficient in natural gas production.

“Unconventional energy is perhaps the largest single opportunity to change America’s competitiveness

and economic trajectory, as well as our geopolitical standing,” wrote the Harvard School of Business in a recent report.

The authors of the report, however, say this opportunity is at risk, and among the challenges the U.S. must overcome is a four-decade-old policy: the ban on crude oil exports.

Opportunity mired by the 70sIn1973, the Organization of Arab Petroleum Exporting Countries

proclaimed an oil embargo against the U.S., creating an energy shortage that led to gasoline rationing and long lines at gas stations.

The embargo was a success, effectively establishing Saudi Arabia as an energy superpower as it demonstrated its ability to use its vast energy resources to influence global relations and economy. As prices skyrocketed and the country faced vast energy shortages, Congress responded by banning any crude exports of its own to ensure there was enough energy available for American consumers. It is a policy that remains in place today.

The key to better global relationsToday, that environment is drastically changed. Rather than

having a shortage of energy, the U.S. market is saturated by it because of a mismatch in supply and refining capacity.

At 18 million barrels per day, the U.S. has the world’s second largest refining capacity, but only one third of it is equipped to handle the light, sweet crude produced domestically, which has created a

glut of oil in the country. Meanwhile, refineries around the world have a total capacity of 64 million barrels per day and many of them are located in allied nations, including Japan, Italy, Ireland, Germany, Sweden, and the United Kingdom. Among them are 23 refineries that could process up to 3.2 million barrels per day of light, sweet crude but are currently at risk of being closed or shut down.

OPPORTUNITY IN OILOIL&GASTIDBITS

“Unconventional energy is perhaps the largest single opportunity to change America’s competitiveness and economic trajectory, as well as our geopolitical standing.” - Harvard Business School

“Most of the rest of the world’s refining capacity was built for sweet crude oil,” said Harold Hamm, CEO for Continental Resources, in an interview with The Oklahoman. “[W]e’ve gone from a situation of scarcity in this country to one of abundance, and yet we can’t reach the market [because of the ban].”

Many U.S. leaders are pushing for a repeal of the ban, citing the economic and national security benefits that would result.

“Lifting the ban enhances national energy security by increasing production and reducing volatility in global markets,” said Sen. John Hoeven (R-N.D.) in a statement. “It also lets our allies know that there is a secure source of crude oil and refined products available to them other than OPEC or Russia.”

According to the Harvard Business School, lifting the ban would be an opportunity for the U.S. to not only strengthen its trade relationships with its allies, but it would also be an opportunity for the U.S. to overtake OPEC as an energy superpower and diplomatic influence. “Our energy resources have given the U.S. important new diplomatic tools that can aid allies and counteract the ability of unfriendly countries to use oil and gas access to achieve political aims.”

Enhancing job & economic growth Domestic oil and gas production has not only put the U.S. on

a path toward energy security, it has also bolstered the national economy at a time when it was needed most. Harvard Business School estimated that unconventional shale development contributed $430 billion to the nation’s GDP and supported more than 2.7 million jobs.

“To put that in perspective, since 2005 the U.S. economy has only added a total of 4.9 million new jobs,” wrote the School.

Several other esteemed universities, analysts and organizations, including the Government Accountability Office, Columbia University, IHS, and ICF International, have weighed in on the potential economic benefits and agree lifting the crude oil export ban will help increase production, meaning more

Left: An oil embargo against the U.S. caused major disruptions in energy supplies, causing prices to skyrocket, energy shortages and long lines at the pump like at this station in Oregon.

Below: The impacts of energy shortages were widespread impacting businesses and homes.

Photo: Geoffrey Whiteway, U.S. National Archives

Gas lines & rations

capital investment, more jobs and more dollars being infused into the economy and state and federal tax revenues.

Reports by IHS Energy, as well as ICF International and EnSys Energy, state that these benefits will even occur in states with no production. IHS estimates that 24 percent of the estimated 394,000 jobs that could be created through 2030 will be in states with no production, while ICF International and Ensys Energy determined that 18 U.S. states could gain more than 5,000 jobs each in 2020 alone from exports of U.S. crude oil.

“The U.S. is poised to become the world’s largest oil producer, and access to foreign customers will create economic opportunities across the country,” said Kyle Isakower, Vice President for Regulatory and Economic Policy, American Petroleum Institute (API). “When it comes to crude oil, the rewards of free trade are not limited to energy producing states. New jobs, higher investment, and greater energy security from exports could benefit workers and consumers from Illinois to New York, especially in areas where consumer spending and manufacturing drive growth.”

Enhancing tax revenuesIncreased production has been a boon to federal, state and local

government coffers. In North Dakota, oil and gas taxes account for more than 50 percent of all tax revenues, contributing greatly to the state’s priorities. Sluggish prices due to an oversupply of light, sweet crude and the inability to access foreign markets due to the ban have caused production growth to slow. This has begun to affect both state and local governments’ tax collections.

Already, the Domestic Energy Producers Alliance estimates that the state of North Dakota has lost $1.45 billion in tax revenues between 2011 and 2014 because of the ban. The federal government, meanwhile lost $24.8 billion. A reversal of this policy, however, could add as much as $1.3 trillion to state, federal and local government coffers between 2016 and 2030.

More income, energy savings for AmericansLifting the ban on crude oil exports will also have a direct positive

impact to every American consumer. Opponents of lifting the ban cite higher energy prices for consumers as a concern, but every major study has allayed that fear, stating that lifting the ban will instead put downward pressure on energy prices, saving consumers as much as 13 cents at the pump. IHS Energy estimates that such savings could add up to $265 billion between 2016 and 2030 if the ban is lifted.

This is because U.S. gasoline prices are tied to global oil prices. Lifting the ban could increase U.S. crude production by up to an average of 1.2 million barrels per day between now and 2025, according to theColumbia University’s Center on Global Energy Policy, and adding more U.S. oil to the global market would help lower the international price for oil. IHS Energy estimates that such savings could add up to $265 billion between 2016 and 2030 if the ban is lifted.

As energy costs are lowered, wages are expected to grow larger. Already, domestic oil and gas production has bolstered personal

Several studies have been conducted to evaluate the effects of allowing the export of U.S. crude. All studies agree that lifting the ban will increase investments in oil and gas development, bolstering the economy and tax revenues, creating jobs and helping the nation reduce its trade deficit.

Advantages of exports

Investment in exploration &

productionGDP Jobs Tax Revenue Reduction to

Trade Deficit

ICF International $70 billion by 2020

$38 billion in 2020 plus $15-27 billion annually through 2035

300,000 in 2020 $13.5 billion estimated government revenues in 2020

$22 billion reduction in trade deficit in 2020 through increased trade.

IHS Energy $750 billion during 2016-2030 period

$135 billion increase in 2018

394,000 by 2030; 964,000 jobs at the peak in 2018

$1.3 trillion during 2016-2030 period

$67 billion per year reduction in trade deficit

Brookings & Nera

NA Between $600 billion and $1.8 trillion through 2039, depending on how soon and how completely the ban is lifted

200,000 between 2015 and 2020, or as high as 400,000 from 2015 to 2020 in a high oil and gas resource case scenario

NA NA

Aspen & MAPI NA $114-172 billion between 2015-2025

NA NA NA

ICF International up to 3.8¢(2.3¢ avg)

IHS Energy* $265 billion total (8¢ avg)Resources for the future 1.7-4.5¢Brookings & Nera up to 12¢

(9¢ avg)Aspen & MAPI up to 9¢Govt. Accountability Office 1.5-13¢Columbia University Up to 12¢Congressional Budget Office 5-10¢

* 2016-2030 timeframe

Analysts and experts agree that lifting the ban on crude oil exports from the U.S. would mean lower energy prices for American homes and businesses.

At the pump

$ SAVINGS

incomes, with salaries supported by shale oil production nearly twice the national median income, according to the Harvard Business School report. Furthermore, half of the jobs traditionally created by oil and gas development are middle-skills jobs, accessible to the average citizen. That means these higher wages are going to the lower and middle classes where they are needed most. Lifting the ban will only further raise these wages, increasing the average per household disposable income by $391, according to IHS Energy.

What it means for North DakotaAs an energy producer, the benefits of lifting the crude oil ban

would be enormous. Production in recent months has stagnated as prices have held below $50 per barrel. Furthermore, because North Dakota is a landlocked state and far from major markets, it fetches on average a 15 percent discount.

Opening up trade for crude oil would help relieve this discount, meaning more income for royalty owners and more tax revenues for the state and local governments. IHS estimates that the state could receive an additional $7.7 million in state tax revenues by 2018 if the ban were lifted. Having a ready market for light, sweet crude would also help spur production, increasing the number of jobs by 22,215 and growing personal incomes by $4.8 million by 2020.

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Economic & global stabilityAs domestic oil and gas production has increased, imports have

fallen drastically as the nation has been able to rely on its own resources for much of its energy. While this has strengthened the nation’s energy security, the 40 year old ban on crude oil exports has hampered continued growth.

Already domestic production has helped lend stability to energy prices, but analysts agree that opening up trade and allowing oil exports will further strengthen the global energy market against disruptions. More important, security experts and world leaders agree that lifting the ban will help create stability throughout the world as the U.S. and its allies are no longer forced to rely on the Middle East or Soviet Union for its energy resources.

“With abundant resources, restrictions on exports created in response to the 1970s’ energy crises are no longer needed,” reported the Harvard Business School. “America’s new energy abundance can not only help restore U.S. competitiveness but can also create geopolitical advantages for America. America’s abundant and low-cost unconventional gas and oil resources are a once-in-a-generation opportunity to change the nation’s economic and energy trajectory”

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