Originally posted on resourceinsights.blogspot.com
Written by Community Solutions Fellow, Kurt Cobb
They say that the first casualty of war is truth. And, on both sides of the fight over lifting the ban on exports of U.S. crude oil, the truth has already fallen into a coma. The ban was instituted in 1975 in order to make America less subject to swings in international oil supply after suffering the price shock associated with the Arab oil embargo in 1973.
Last week a committee in the U.S. House of Representatives voted to end the ban after a Senate committee voted in July to do the same. A vote by the full House and Senate could be near.
The proponents are careful NOT to say that the United States is energy-independent and so has oil to spare. Such claims made in the past backfired because it is too easy to look this up. Net U.S. imports of crude oil were almost 7 million barrels per day (mbpd) in the week ending September 4. That's out of about 15.6 mbpd of liquid fuels consumed domestically.*
Yet, it is this state of affairs that the proponents of lifting the export ban label as "abundance." Here's the relevant quote from the website of the Domestic Energy Producers Alliance (DEPA), a consortium of U.S. oil drillers: "Thanks to the genius of America's independent oil and natural gas producers, the world is moving from a concept of 'resource scarcity' toward 'resource abundance.'" (So, the world is not moving toward actual abundance, just the concept of abundance. But, I'm nitpicking.)
In another piece entitled "From Scarcity To Abundance: Why The Strategic Petroleum Reserve Is Unnecessary" the group is more bold, saying that the supposed "abundance" is right here in the United States:
US crude oil production has nearly doubled since 2008, rising from 5.0 million barrels per day (MMB/D) to 9.5 MMB/D today. These domestic supply gains are a direct result of technological breakthroughs in horizontal drilling and advanced well completion techniques. Over the same period, improved energy efficiency has reduced US demand growth. These combined factors have fueled a paradigm shift in our country from energy “scarcity” to energy “abundance.” (my emphasis)
The site also includes a graph deceptively labeled "U.S. Crude Oil Production Potential" showing what looks like a rise in production to 20 mbpd by 2025. DEPA can always claim that that graph just represents estimates by its backers. The graph, however, stands in stark contrast to the latest "Short-Term Energy Outlook" just released by the U.S. Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy.
Even the ever-optimistic EIA forecasts that U.S. crude oil production will fall next year by 400,000 barrels per day to 8.8 mbpd. In fact, its figures show that crude production actually already began its decline in April. Of course, this decline is partly a response to low oil prices as U.S. oil companies have dramatically reduced their drilling from 1,592 active rigs one year ago to 652 for the week ending September 11.
The central declaration on the DEPA site is as follows:
We must allow crude oil exports to develop America's resource potential. Developing America's resources decreases our dependence on foreign oil.
This comes even as we are told that U.S. oil production has nearly doubled since 2008 WITHOUT lifting the export ban. So, if sentence one has no basis, then it has no bearing on sentence two.
Now, if 1) the United States doesn't produce more oil than it needs, but rather remains the world's largest importer next to China and 2) the export ban didn't prevent domestic production from doubling, then what is the push to end the export ban all about? In a word, money.
There is not enough U.S. refining capacity for all the so-called light tight oil produced from U.S. deep shale formations which have been the mainstay for domestic oil production growth. That means that refineries that can use this type of oil are paying less (because of the excess supply) than they would if foreign refineries could also bid on the oil--which, of course, they can't because of the export ban.
Lifting the export ban would allow domestic oil producers of light tight oil to sell their output to foreign refineries at a higher price than they currently get from domestic refineries. But given the now ongoing decline in U.S. oil production, selling that oil to foreign refineries would mean that the United States would have to import more of other heavier oils (for which we have adequate refinery capacity) to make up for the light oil that is exiting the country. Thus, the United States would become MORE dependent on foreign oil if we lift the export ban.
The oil companies make the case that their product is discriminated against. Agricultural products, manufactured goods and even coal face no export restrictions. Why should oil be singled out?
There is debate about whether allowing essentially a "swap" of U.S. light oil for heavier foreign oil would raise the price of petroleum products such as gasoline, diesel fuel, heating oil and jet fuel in the United States.
What this move would surely do is force more U.S. refiners to pay higher prices for their oil inputs since they would have to compete against bidders across the globe.
The opponents of lifting the ban, not surprisingly, include U.S. refiners. Also included are consumer groups and petrochemical firms, firms which use oil as their feedstock.
These poorly funded opponents claim that lifting the ban would squander America's chance to be energy-independent. But given the yawning gap between the petroleum products it consumes and the oil the country is able to produce, it is highly unlikely that the United States will ever become energy-independent.
(It is important to note that the United States has long been self-sufficient in coal, and so far this year has imported only about 10 percent of its natural gas needs, almost all of it from Canada, our longtime major supplier. So, energy independence is really a codeword for oil independence. No mention is generally made of trying to become energy-independent by actually REDUCING energy use through conservation and efficiency--though there is occasional lip service given to the idea of reducing the GROWTH in energy demand.)
Whether the U.S. Congress will vote to lift the export ban just as members are about to go into an election year is an open question. But even if the Republican-controlled Congress does lift the ban, it's not clear President Obama will go along with the bill. Last year the administration did widen the definition of what is permissible to exportbeyond refined products which have long been legal to export. The administration moved to include condensate which is essentially ultra-light oil that starts as a gas under the tremendous pressures inside oil reservoirs and then condenses to a liquid once it reaches the wellhead.
But so far administration officials such as Energy Secretary Ernest Moniz have sidestepped the issue. It would make political sense for President Obama to veto any bill lifting the ban to rally traditional Democratic groups such as labor and environmentalists for next year's elections.
But, if the ban is lifted and that results in higher fuel prices for Americans, it might be a good thing in the eyes of those who want Americans to use less oil and to adopt renewable alternatives. Those renewables would, of course, become more competitive as a result of higher oil prices.
But until the country figures out how to get along without the millions of barrels of oil it imports each day, oil exports will only increase our dependence on foreign oil--which will have to be shipped in to replace the oil that would now be exported. This might lead to increased efficiencies in the oil industry as each type of crude would more easily reach the refineries best suited to refine it. But it's hard to see how oil exports would make the United States more energy secure.
And, that was the reason behind banning oil exports in the first place.