Alex Mills
By Alex Mills
The recent and dramatic decline in the price of crude oil has grabbed the attention of policymakers within the U.S. and abroad. The Domestic Energy Producers Alliance told member of Congress that it has caught U.S. oil producers between the hammer of the OPEC monopoly and the anvil of the oil export ban.
“In response to a dramatic increase in U.S. oil production, OPEC member countries have used their monopoly power to dump low-cost oil into global markets – all in an effort to drive down the price of oil and punish U.S. producers for launching the American Energy Renaissance,” DEPA stated in its letter.
“At the same time, U.S. producers are held captive to limited domestic refinery capability due to the current ban on the export of U.S. crude oil,” the letter stated.
The light, tight oil (LTO) being produced in the U.S. is a poor match for domestic refineries that are primarily configured for heavy crude.
According to a May 2014 report by IHS, as a result of this mismatch between domestically-produced LTO and the U.S. refinery infrastructure, “there is a widening discount, which will reduce drilling investment, jeopardizing oil production growth, reducing jobs, and hurting the U.S. economy.”
“It is ironic that even as U.S. producers are drilling the wells that are making us less and less dependent on foreign oil OPEC is once again trying to ‘take control’ thereby threatening the very energy revolution that is providing jobs and keeping prices reasonable at the pump for all Americans,” the letter asserted.
U.S. Rep. Joe Barton (R-Tx.) introduced legislation that would overturn federal laws that prohibit companies from exporting crude oil, except in a few cases. The Department of Commerce recently allowed the export of some condensate over the objections of refiners.
Oil production has grown more in the United States over the past five years than anywhere else in the world. With these changes has come a widening gap among the types of oil that U.S. fields produce, the types that U.S. refiners need, the products that U.S. consumers want, and the infrastructure in place to transport the oil.
Allowing companies to export U.S. crude oil as the market dictates would help solve this mismatch.
Removing all proscriptions on crude oil exports will strengthen the U.S. economy and promote the efficient development of the country’s energy sector. Crude oil exports could generate upward of $15 billion a year in revenue by 2017 at today’s prices, according to industry estimates. Today’s export restrictions run the risk of dampening U.S. crude oil production over time by forcing down prices at the wellhead in some parts of the country. It would also encourage investment in oil and gas production in the United States rather than abroad. In oil-producing regions, more workers would be hired for oil exploration and production, as well as for local service industries. Greater policy certainty regarding exports would also catalyze the expansion of U.S. energy infrastructure.
As it stands, the primary beneficiaries of the export ban are a few fortunate oil refineries in the central United States that are able to buy crude oil at lower prices.
Allowing crude oil exports will increase U.S. energy security and enhance U.S. foreign policy. It would demonstrate Washington’s commitment to free and fair trade, and bolster its negotiating position on other trade issues.
With the technological innovations in drilling and completion, the domestic oil and gas industry has been able to increase production in the 21st century. Now is the time to bring America’s energy policy into the 21st century, too.
Alex Mills is President of the Texas Alliance of Energy Producers. The opinions expressed are solely of the author.
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