Get ready for an industrial liftoff: Column

The Congress is on the verge of lifting a 1975 ban on crude oil exports that is outdated in light of booming U.S. production, a return to world markets by Iran, and growing worries in Europe and Asia over their dependence on Russian and Middle Easter sources of oil and gas. Freeing U. S. producers to market their product (including the natural gas frequently associated with new crude) will contribute to rekindling weak U. S. industrial production and capital investment, as well as to meeting the need for energy security for ourselves and our closest allies.

American manufacturing has been consistently weak and may slip into a recessionary phase, according to the most recent production and new order indices. A primary cause of this problem is the 64% decline in oil and gas rigs in operation this year, and a resulting fall in crude oil production of over 400,000 barrels per day. More than 150,000 jobs in the mining sector have been lost this year due to the slowdown, many of them high-paying construction, welding, pipe fitting and general roustabout drilling jobs in the oil fields. Capital investment is also historically low for an economic recovery period, much of this weakness is due to the oil and gas sector. U.S. manufacturing and oil services industries are world leaders. Exports of oil field equipment are three times that of imports, so the drop in this sector contributes greatly to losses of over 20,000 manufacturing jobs, and shipment declines of over 40% in oil and gas machinery the past year.

Freeing up oil exports alone will not solve the problem of oversupply and low prices causing these declines, but it will level the playing field so that it is not the U.S. (and neighboring Canada) alone that cut production. Iran, Russia and the Persian Gulf states evidently are willing to accept low prices in order to drive North American producers out of the markets and to recapture the market share they lost in the past five years. Additionally, the lighter grades of crude now gushing in new American production fields due to fracking technology are difficult to market domestically because the  U.S. lacks sufficient refinery capacity to handle the lighter grades. This causes the oversupply of U.S. crude and lower domestic prices in relation to world markets. Allowing exports to refineries in Europe and Asia, which are configured to handle lighter crudes, will lead to equalizing prices and hence better returns to new investment in the USA compared with the rest of the world.

Another benefit of abundant domestic supplies and competitive prices of oil and associated natural gas stems from the energy intensity of manufacturing. Up to a third of all energy consumed in the USA is in the industrial sector. Ample supplies and low prices have for example led to large new investments in the U. S. chemicals industry, including by German and Asian chemical giants moving production to U. S. locations. Over $100 billion in new investment in this sector in the past 10 years has been announced. The chemicals industry enjoys a large trade surplus. Last year, its companies invested $33 billion in capital equipment and structures and plowed $59 billion into research and development.

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As supply-and-demand conditions return to a better balance in the next few years, a study I co-authored last year with economists Don Norman of the MAPI Foundation and Jeff Werling of the University of Maryland projected that increased U. S. crude oil exports could increase capital expenditures in the USA by $60 billion per year, raise annual gross domestic product over $140 billion, and create 630,000 jobs in peak years as production ramps up. Most of the gains are in high-paying jobs for skilled workers and engineers.

In a period of chronic U.S. economic underperformance, especially in the highly productive and innovative manufacturing sector, which creates millions of good paying jobs for the often forgotten category of skilled workers, such a boost is badly needed. That the new policy should also bolster relations with our allies and keep the strategically vital energy sector from domination by less than friendly actors are added benefits.

Thomas J. Duesterberg recently retired from his position as executive director of the Manufacturing and Society in the 21st Century program at the Aspen Institute. He is co-editor and co-author of U.S. Manufacturing: The Engine of Growth in a Global Economy.

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