US trade deficit narrows in June. What's fueling the decline?
A boom in domestic oil and gas production is keeping the US trade deficit down. Some politicians and analysts think increased production means it's time the US allow for crude oil exports, while others say exporting oil would harm American energy security.
Washington — An oil and gas boom helped drive the US trade deficit to a five-month low in June, according to federal data released Wednesday.
Increased domestic energy production means Americans are buying less foreign oil and gas, and selling more of it overseas. That has tamped down the trade deficit in recent years, helping along an economy that continues to recover from the Great Recession.
Some say the deficit could be slashed further if the US were to ease energy export restrictions put in place to protect US consumers from global energy shocks. But such a move would have impacts that go beyond the country’s balance of trade. Critics of oil and gas exports say they will raise energy prices at home, and increase the environmental impacts of extracting and burning fossil fuels.
Either way, a renaissance in oil and gas production is already changing the way officials, analysts, and economists look at the future of the US economy.
“Everybody targeted the US to be importing 10 billion cubic feet [of natural gas] per day by now,” says Pete Stark, an energy analyst at IHS, in a telephone interview Wednesday. “Instead, we’re targeted to have the capability to export 10 billion cubic feet of gas per day by the end of this decade. That’s a huge reversal.”
Oil and gas product exports accounted for $12.7 billion of US exports in June, according to the Commerce Department. That’s a $1.2 billion leap from June of 2013. The rise in exports helped lower the overall US trade deficit to $41.5 billion in June, from May’s $44.7 billion.
Innovations in hydraulic fracturing and horizontal drilling have spurred a domestic energy revival in the US, unlocking significant stores of oil and gas. The boom has unexpectedly positioned the US as a top producer alongside Russia and Saudi Arabia.
For the oil and gas industry, Wednesday’s Commerce report signals that it’s time for the US to loosen restrictions on oil exports. Relaxing the US’s 70s-era restrictions would help the US economically and would increase energy security, according to the American Petroleum Institute, a Washington-based oil and gas industry group.
“America’s potential as an energy superpower remains limited by outdated trade restrictions that prevent more U.S. oil and natural gas from reaching global markets,” said API chief economist John Felmy in a statement Tuesday.
The US is converting some import terminals to export terminals to ship natural gas abroad, and there are signs the US is mulling policy changes that would loosen the crude oil exports ban.
The US could conceivably export half a million to a million barrels of oil per day if crude exports were allowed, according to Stark. If the export ban isn’t lifted, the US could see bottleneck since US refiners aren’t fit to process the light crude the US is producing, Stark says. US refiners are better equipped to handle heavy Canadian crude.
“No one predicted such a surge of the light crude. It’s out of sync with the way the current refinery basis is set up,” Stark adds.
Despite the US limits on crude exports, increased domestic production means its imports have dropped substantially. Between 2012 and 2013, US crude imports fell 10.2 percent, according to the US Energy Information Administration.
But a change in the crude export policy may be on the horizon. In June, Commerce ruled that two companies could export condensates. Some interpreted Commerce’s action as an incremental step towards an even more lenient export policy.
Last week, a tanker of US condensates – an ultralight, unrefined form of oil – set sail from Texas to South Korea.
“Condensate exports are an easy first step on the road towards a wider lifting of the oil export ban,” Sen. Lisa Murkowski (R) of Alaska said in a statement e-mailed to the Monitor in July. “Simply put, we are producing more condensate than we know what to do with, but customers overseas would be happy to take it off our hands."
But Doug Norlen, chief economist at Friends of the Earth, an international environmental group, points out that natural gas and oil both have significant greenhouse impacts – impacts that could worsen if the US keeps pursuing carbon-intensive energy.
Mr. Norlen says in a telephone interview Wednesday that lifting the export ban would "worsen climate change and continue us down an economically unsustainable path."
It might also undermine the very reasons for imposing the ban in the first place.
The Commerce Department’s reported ruling on condensates “puts America on a slippery slope to send more of our oil abroad, even at a time when the Middle East is in disarray and tensions are running high with Russia,” Sen. Ed Markey (D) of Massachusetts said in a statement in June. “We should keep our resources here at home for American families and businesses, not send this oil abroad even as we import oil from dangerous regions of the world.”