The People of America's Oil and Natural Gas Indusry

Crude Swap and Economic, Environmental Benefits

Mark Green

Mark Green
Posted August 31, 2015

More about last week’s Commerce Department decision to allow U.S. crude oil swaps with Mexico – basically, a positive step in the direction of lifting America’s 1970s-era ban on exporting domestic crude.

An analysis by the U.S. Energy Information Administration (EIA) says the exchange of light U.S. oil for heavier Mexican oil will generate economic and environmental benefits. The economic piece certainly is consistent with a number of studies that say lifting the ban and exporting domestic crude will generate broad benefits for our economy and savings at the pump for U.S. consumers, while spurring domestic production.

The light sweet crude the U.S. will send to Mexico is some of the domestic oil that’s mismatched for U.S. refineries and, because of the export ban, has no access to global markets where world prices for crude are set. As a result, this domestic crude trades at a discount to the global price, which is a significant disincentive to production. The swap with Mexico is a move in the right direction. EIA:

With significant coking and desulfurization capacity, U.S. Gulf Coast refineries are well-suited to process heavy sour crude. Conversely, part of the Mexican refinery fleet is configured to run light sweet crude. Therefore, the exchange should result in better optimization of refineries within both Mexico and the United States, and allow for increased supply of lower-sulfur gasoline from Mexican refineries.

An EIA diagram of Mexico’s oil and natural gas infrastructure:

infrastructure

You can check out EIA’s analysis for details on the proposed oil swap as well as Mexican refinery configurations and capacities. The main points are that there’s demand for U.S. light crude, and U.S. refineries are among the most advanced in the world for processing Mexican heavy crude – which is the heart of the environmental benefit estimated by EIA.

As we’ve said, this is a welcome development but one that policymakers need to follow up on by lifting the export ban. Only by ending the ban will the United States realize the full trade benefits of American crude accessing the global marketplace. The Mexican arrangement, while good, still is a piecemeal measure under a system where the federal government licenses each export action. It’s inefficient and time-consuming and works against the competitiveness of U.S. energy. API Executive Vice President Louis Finkel:

“Study after study shows that free trade in crude oil would promote the creation of U.S. jobs, put downward pressure on fuel costs, and reduce the power that foreign suppliers have over our allies. America is now a global energy superpower, and lifting ‘70s-era restrictions on U.S. oil exports will help bring the benefits of trade home to U.S. workers and consumers.”

U.S. Rep. Will Hurd, a former CIA operative, writes in the Houston Chronicle that the Mexico swap is an important step toward greater energy security:

I have seen first-hand that not every nation we buy energy from has America's best interest in mind. Strengthening our position so that countries can purchase their energy from us and not our adversaries moves us a step closer to a very important goal – North American energy security. … This approval guarantees an expanded market for American energy and is a substantial victory for American energy producers and their workers.

Again, let’s not stop there. The ongoing energy revolution is giving the United States a generational opportunity to strengthen its economy and exert positive influence in the world – if the export ban is lifted. Maintaining the ban unnecessarily sanctions domestic production, denying benefits to the U.S. that accrue to other nations that supply global crude markets.

Lift the ban.

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.