Oil Export Ban and Capitalists against Capitalism: When Will They Ever Learn?

by Marlo Lewis on January 10, 2014

in Features

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Capitalists against capitalism are a bane of modern society. Although sometimes clever, anti-market business lobbying is neither honorable nor genuinely prudent. Government would be smaller and our economy more prosperous if business leaders eschewed all forms of rent-seeking and corporate welfare.

What makes this evergreen reflection timely and even urgent is the debate over energy exports.

National Journal’s Amy Harder reports that, on Wednesday, independent refiner New Jersey-based PBF Energy hosted a phone call with six competitors to consider joint lobbying against repeal of the decades-old ban on U.S. crude oil exports. Other participants on the call included Valero, Marathon Petroleum, Philadelphia Energy Solutions (PES), and Delta Airlines’ Monroe Energy. According to one account, Valero and Marathon indicated they would not join the lobbying effort. Harder notes the similarity between PBF Energy’s agenda and that of Dow Chemical, which last year organized a coalition of chemical companies to restrict natural gas exports.

Freedom to export is an essential component of free enterprise. Economic liberty primarily means the right to offer one’s goods and services for sale. Exporting is just competing for customers on the other side of lines drawn on maps. In reality, every sale to anyone living outside the walls of your domicile is an export. What we today call capitalism Adam Smith more accurately called the “system of natural liberty” — the spontaneous order that flourishes when government protects rather than suppresses people’s freedom to “truck, barter, and trade.”

Somebody should remind PBF and Dow that private property is the bedrock institution of capitalism, and that export bans and restrictions violate property rights. Such policies are inherently confiscatory.

As economist Richard Stroup points out, genuine property rights are 3D — defined, defendable, and divestible (transferable). A total ban on the sale of a product would reduce its market value to zero (assuming no black market and no prospect of the ban’s repeal). To the owner, the injury is the same as outright confiscation. A ban on sales to foreign customers is similarly injurious, just to a lesser degree.

Custom has a way of making the outrageous seem normal, and the ban on crude oil exports is a case in point. Imagine the outcry from PBF and Dow if Congress were to ban, or severely restrict, exports of chemicals and refined petroleum products. Such a policy would not only limit Dow and PBF’s sales, earnings, and global market share, it would also depress investment, shareholder value, employment, and wages in their respective industries. Who would even propose such restrictions except someone hostile to refiners and chemical companies?

Notice, too, how the hypothetical policy violates equality under law. If you make cars, computers, or soap, you are free to compete for customers in the global marketplace, but if you refine oil or produce chemicals, it is verboten. An export ban turns people in the affected industry into second-class citizens.

In short, banning exports is anti-capitalist, and seeking competitive advantage by denying to others the freedom you claim for yourself is dishonorable. Maybe PBF doesn’t care about that, but it should care about the political opportunity its proposed lobbying would jeopardize and the nasty economic and political repercussions such lobbying could create.

North America has the potential to develop into an energy colossus. The public is hungry for a true prosperity agenda, and expanding the freedom to export American energy is the key. We finally have a legislative champion — Senator Lisa Murkowski of Alaska, the top Republican on the Energy and Natural Resources Committee. She totally gets the big picture as well as the wonky details. Check out the speech she delivered and white paper her staff published earlier this week, which discuss the economic and geopolitical benefits of exporting U.S. coal, natural gas, petroleum products, and crude oil.

Murkowski will have a strong ally in the presumptive next chairman of the committee, Mary Landrieu of Louisiana. Now is absolutely the worst time to start peddling the false and confusing message that ‘our’ energy exports (petroleum products) are good but ‘their’ energy exports (crude oil) are bad.

For those following Dow Chemical’s lobbying campaign against natural gas exports, PBF’s lobbying against crude oil exports is Déjà Vu all over again. Yes, in the short-run, bottling up U.S.-produced natural gas and crude oil can temporarily lower domestic prices for chemical companies and refiners. But the most effective way to keep gas and oil affordable over the long haul is to increase supply, supply expands with production, and production with investment. Liberating the oil and gas industries to compete in the global marketplace will attract investment in exploration and production. Restricting their access to overseas markets will discourage investment.

The shale boom is a major source of economic benefits for the country as a whole, including the refining industry. The ban on crude oil exports imperils continuing investment in exploration and production in two ways. First, domestic supply is growing faster than demand.* If producers continue to be cut off from the global marketplace, the boom will eventually become a glut. Second, U.S. shale oil is light and sweet, whereas most U.S. refineries are geared to process heavy, sour grades of crude. Producers forbidden to export will sooner or later have to choose between losing money on sales and leaving the oil in the ground. The export ban threatens to turn the boom into a bust.

Lest Dow, PBF, and their allies forget, all fossil energy companies are under attack by a global environmental movement seeking to regulate and tax oil, gas, and coal production out of existence. Green activists are openly hostile to exporting fossil energy. Does Dow want gas companies to continue fracking to supply feedstocks for chemical manufacturing? Does PBF want oil companies to continue fracking to supply feedstocks for petroleum refining? Their best, indeed only effective political insurance against restrictions on fracking is to make the case for energy exports and ally with — not attack — energy producers.

Instead of pretending that some exports are good and others bad, Dow and PBF should defend all energy exports, coal as well as gas and oil, as if their survival depends on it — because it does!

On what basis could an alliance of such disparate (though interdependent) industries be formed? That’s a no-brainer: the moral high-ground principles of property rights, equality under law, and freedom to trade.

Yesterday’s Greenwire observed that a feud between producers and refiners over crude oil exports “could blossom into a major and costly policy fight.” Indeed. And who, I wonder, benefits when oil companies fight with oil companies and chemical companies fight with gas companies?

Divide et impera (divide-and-rule) is the world’s oldest strategy for gaining and maintaining power over adversaries. Thanks to Dow and PBF, industry is more divided and more vulnerable to conquest by fossil-fuel foes. Ben Franklin said it best: “We must, indeed, all hang together or, most assuredly, we shall all hang separately.”

* The U.S. Energy Information Administration (EIA) estimates that U.S. total crude oil production averaged 7.5 million barrels per day (bpd) in 2013, an increase of 1.0 million bpd over 2012. Projected production continues to increase to 8.5 million bpd in 2014 and 9.3 million bpd in 2015, which would be the highest level since 1972. In contrast, total U.S. liquid fuels consumption rose by 380,000 bpd in 2013, and production is projected to be flat in 2014 and to grow by 90,000 bpd in 2015.

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