Energy Security, Not Independence, Should Be The Goal

Posted by Ed Burke on Mar 27, 2014 12:36:40 PM

Crude oil terminal

We've discussed previously the debate about lifting the Crude export ban in the wake of the shale oil boom in the US. Last year alone the reduction in US imports (down 9%) and the increase in exports (up 11%) accounted for a $63 billion dollar reduction in the overall trade deficit.

Next year the US is expected to become the world's biggest exporter, and oil production is continuing to increase - analysts predict that by 2020 the US will be a net exporter, and the boom could create a net 4.7 million jobs by 2020 as well. 

The continued economic success of the oil boom however will be greatly impacted by whether or not the Crude ban is overturned. Without a growing export market to support the increased production, prices become depressed due to limited refinery capacity until the infrastructure catches up to the supply, which is never the goal, realistically.

The thought is that the US will be capable of being virtually self sufficient in oil production by that 2020 horizon, although that's not necessarily the practical goal. Trade relationships are often a positive for nations, and the thought is we get a better energy security by maintaining relationships than setting the goal as an isolated, completely energy independent nation. For example, we currently get almost half our oil imports from Canada and Mexico, and the Keystone pipeline would enhance our ability to get Canadian oil into the market and strengthen our relationship with Canada. There is a school of thought that an energy alliance between Canada and the US, or Canada, the US and Mexico would be a much better solution for all three countries' energy security and economic opportunities than being a completely independent country would.   

Exporting will have an enormously positive impact on the trade deficit, and US supply would keep downward pressure on global pricing. In terms of energy security, the availability of alternative crude sources for other nations is a positive as well - being that its a global market, political and other issues in oil-producing nations will always affect one another, but with varied supply an issue in one nation isn't neccessarily a catastrophe for others. For example, as we are seeing in the Russia/Ukraine situation, Europe is in a tight spot given that a huge percentage of their energy supply comes from Russia. That sort of limits their ability to enforce tough sanctions because they risk an economic mess if Russia decides to push their prices higher in retaliation. As we all know - energy prices have huge impacts on almost all sectors of a nations economy.  

Political ramifications and implications of Energy policy and security aren't the only issues at play in the debate, obviously. Environmental groups strongly oppose exporting crude because it will likely make renewable energy even less cost effective in the wake of plentiful oil supply, and reduce the pressure to find alternative, non-fossil fuel energy sources. 

I wrote an article on this topic for the March issue of Oil & Energy Magazine - you can read that article in their online magazine here: http://oilandenergyonline.com/how-energy-independent-is-america/ 

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Topics: Energy Independence, US Crude Exports, US Energy Boom, Keystone XL, russia, ukraine,

Is it Time to Overturn the US Crude Export Ban?

Posted by Ed Burke on Nov 8, 2013 3:33:00 PM

Congress is reportedly considering overturning laws banning US Oil Producers from exporting Crude. The law originally went into place in the 1970’s largely in reaction to embargoes that raised “scarcity” concerns – essentially, blocking export is supposed to safeguard from scarcity in domestic supply.  This is timely on their part – as we have seen for the first time since 1995, US Crude production has exceeded imports. What do they have to do with each other? In the absence of an export potential, or at least one not slowed and more expensive due to refining, US crude production will hit a plateau or worse. But why?

Refined oil  (gasoline and diesel) can be exported under current US law, and exports have grown substantially in recent years. The issue is, however, that the shale oil boom is producing huge volumes of light crude. In order to export, these huge amounts of crude need to be refined, which is difficult, costly and will ultimately slow production over time. The Council on Foreign Relations sums the issue up nicely in the following quote:

“Restrictions on crude oil exports are already beginning to undermine the efficiency of US oil economy. Much of the country’s rapidly growing production of light crude oil… comes from either areas where refiners are not interested in or able to process it, given that many US refineries are configured to run on lower-quality crude oil, or in parts of the country with inadequate transportation infrastructure. With few viable domestic buyers, producers are forced to choose between leaving oil in the ground and pumping it at depressed prices. The artificially low prices slow additional US Crude production. New refineries currently under construction will help remedy some of these market distortions over time, but a simpler, more cost effective solution would include allowing US Crude to be exported

(CFR Policy Innovation Memorandum No. 34 – you can read the whole thing by clicking here )

The CFR also estimates that Crude Oil exports could generate upward of $15 billion in annual revenue by 2017. Revenue to be made from export should also serve to stimulate continued investment in infrastructure, move technology forward, increase profitability for domestically based producers, not to mention create thousands of permanent, high paying jobs for Americans. 

Before we assume it’s a cut and dry decision however, there are several compelling arguments against dropping restrictions on Crude export, from economic concerns to environmental ones. Since this is a big and somewhat complex topic however, I will address them in subsequent posts.

What are your intial thoughts on US crude export policy? Do you favor a change?

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Topics: Energy Independence, US Crude Exports, US Energy Boom, CRUDE

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