Lifting the Crude Oil Export Ban: The Impact on U.S. Manufacturing
"There is an excellent case on policy grounds to end the longstanding prohibition on exports of U.S. crude oil,” the report concludes, “but the economic case for such action is even more compelling."
The manufacturing sector is an important source of strength in the U.S. economic recovery. The surging oil and gas production sector, in turn, is a major reason behind the manufacturing sector’s robust performance since 2010. This paper employs the Inforum LIFT economic forecasting model to analyze how removing the ban on crude oil exports could add to growth in manufacturing by stimulating higher levels of oil production in the United States. Two scenarios are presented and contrasted with a baseline derived from EIA’s base economic projections, a low export case (up to 2 million barrels per day [b/d] at peak year in additional oil production) and a high export case (which would average 2 million b/d and reach a peak of 3.25 million b/d). Higher levels of oil production require higher investment expenditures for capital equipment and construction, which in turn raise overall demand for goods. This stimulates the manufacturing sector and its supply and distribution chains. The resulting improvement in income and employment boosts the economy significantly.
Consider several data points from the high export scenario:
- GDP is higher by 0.93% or about $165 billion during 2019-2021, and levels off around 0.74% higher or $141 billion in 2025.
- 630,000 jobs are added at peak in 2019.
- Real household income is higher by $2,000 to $3,000 per household in 2025, an increase of 2.2%, and reaches the peak of 2.5% on a per household basis in 2019.
Industrial Sector Gains
- Production of durable goods and materials gains 1.4% ($8 billion) by 2017.
- Machinery production gains 3.3% ($12.4 billion) in 2017.
- Agriculture, mining, and construction equipment gains 6% ($6.1 billion) in 2017.
- Jobs in mining (including oil and gas) are up by an average 43,000 per year through 2025.
- New construction jobs peak at 216,000 in 2017.
- All manufacturing jobs see an average gain of 37,000 per year through 2025.
- Related professional services jobs increase by an average 148,000 per year through 2025.
- Capital investment for machinery—exploration and development—are up by $7 billion in 2020 and for construction and mining machinery by $3.6 billion.
In contrast, the refinery sector, because of slightly higher prices for light crude oil, sees its capital investment slip by almost $1 billion in 2020 from the baseline. Some manufacturing exports are also marginally reduced from the baseline by the effects of higher wages, inflation, and the real (inflation-adjusted) value of the dollar. Increased employment, especially good paying semi-skilled production jobs and related engineering and professional services jobs, higher capital investment, and increased production of oil and associated natural gas all combine to strengthen U.S. manufacturing if the crude oil ban is lifted. And strong manufacturing is one key to quickening the pace of economic growth in the United States.
Lifting the Crude Oil Export Ban: The Impact on U.S. Manufacturing is sponsored jointly by The Aspen Institute’s program on Manufacturing and Society in the 21st Century and the MAPI Foundation, the research affiliate of the Manufacturers Alliance for Productivity and Innovation. Econometric modeling was conducted by Inforum, the Interindustry Forecasting Project at the University of Maryland.