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Crude Oil Exports, U.S. Energy and Global Influence

Mark Green

Mark Green
Posted March 3, 2015

ConocoPhillips Chairman and CEO Ryan Lance applies some uncomplicated logic to the question of whether the United States should lift its 1970s-era ban on exporting domestic crude oil. “We should treat crude oil like any other potential product export,” Lance said at an event hosted by the U.S. Chamber of Commerce.

lanceAs he did during a January visit to Washington, Lance laid out compelling reasons for lifting the crude oil export ban:

  • An abundance of domestic light crude produced from shale is mismatched for a U.S. refining sector that’s largely configured to process heavier crudes.
  • Exporting crude would give producers access to the global market, helping to sustain domestic production and U.S. industry jobs.
  • Exports would add supply to the global market, helping stabilize it and affording the U.S. new opportunities to exert positive influences in the world.


Lance said because domestic light crude has virtually no access to the global marketplace, it trades below the global price. The abundance of domestic light crude could negatively impact production, he said. Lance:

“This U.S. light oil discount poses a real danger to the U.S. growth pattern. … From a competitive standpoint, U.S. producers will be disadvantaged against our foreign competition. Bottom line: more drilling rigs will be laid down, more jobs will be lost and the U.S. economic stimulation will fall. … (W)e need to export our surplus oil. We need exports particularly in a low-price environment.”

Conversely, exporting some light crude will allow that oil to reach the global market, sustaining and growing domestic production, he said. This would strengthen the domestic economy and U.S. foreign policy. Lance:

“Exports could play a stabilizing role (in global markets). … It would strengthen our economic power that underlies our global influence. We could provide reliable sources of energy to many friendly countries that are now dependent on less secure sources. … It’s time for the government to address this issue. … We have to change the mindset. There’s no longer a scarcity of reserves, but an abundance of reserves, certainly in the U.S. and in North America. Really, the export ban is a holdover from the last century.”

Lance’s remarks came as a House subcommittee listened to experts talk about the crude oil export ban. Highlights:

Adam Sieminski, U.S. Energy Administration:

  • U.S. was the main contributor to global crude oil and liquids supply growth, adding 1.6 million barrels per day (b/d), including 1.2 million b/d of increase crude oil supply.
  • EIA’s forecast for U.S. crude oil production averages 9.3 million b/d in 2015, with average production rising to 9.5 million b/d in 2016 – close to the highest annual production in U.S. history of 9.6 million b/d in 1970.


Sieminski:

“Not long ago, the North American natural gas market, dominated by the United States, was largely isolated from other global regions. The advent of shale gas, which greatly increases the U.S. resource base, could allow the United States to be a significant exporter of liquefied natural gas.”

Amy Myers Jaffe, University of California-Davis:

The United States has an opportunity, through crude oil exports, to “improve both its position relative to economic exposure to world energy market volatility and its geopolitical influence in the past few years …” This includes the opportunity to be a global energy leader. Jaffe:

“The United States can do much more to use its advantageous energy position to enhance its global leadership role. … In the global context, hoarding energy supplies inside our borders sends the message to other countries that they too should be hoarding their energy. Such attitudes were precisely what worsened the economic damage to the global economy during the 1979 oil crisis.”

Jaffe said, contrary to the view of some, keeping domestic crude inside the U.S. doesn’t help U.S. consumers:

“It is not the case that hoarding energy supplies inside our borders helps lower prices to consumers. The United States is both an importer from and exporter of gasoline to the international market. As such, U.S. gasoline prices are generally speaking tied to global market trends. Analysis by the U.S. Department of Energy, among others, has shown that the export ban is not lowering gasoline prices here in the U.S.”

The shutting in of U.S. domestic crude, caused by the export ban, could be easily solved with exports, she said. It would strengthen America’s ties to allies and trading partners and grow U.S. influence in the world. Jaffe:

“The United States needs to lead from the front when it comes to energy geopolitics. Open trade and investment in energy is important to vital U.S. interests. Artificial restrictions on energy flows can be a source of international conflict as we can already see from events in Eastern Europe and the Middle East. Moreover, the United States has a direct interest in preventing energy from being used as a strategic weapon or as a spoil of war in civil conflict between competing militias or sectarian groups. … By leading the charge of new energy technologies and energy exports, the United States has the ability to fashion a global energy world that is more secure, freer of geopolitical strings and lower in carbon emissions. We should not shirk that responsibility to save a few pennies on the energy bill of some subset of the U.S. manufacturing sector which will be increasingly competitive given its geographic proximity to abundant, new U.S. energy resources and access to innovative technologies like the industrial internet.”

Scott Sheffield, Pioneer Natural Resources:

“Storage of domestic crude oil is at an 80-year seasonal high ─ over 434 million barrels ─ and storage capacity is running out. This is symptomatic of the combination of the export ban and the limited appetite for light tight oil among the only customers we can access. Absent the ban, U.S. producers could be selling their crude oil abroad and driving global crude prices lower by increasing global supply. …”

ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.