Crude Exports Should Start Soon

If the subject were export of materials such as scrap iron, timber, iron ore or electric power, there would be no political backlash.  Indeed, improvements in our balance of payments and the creation of even a few jobs would be applauded.  But for crude oil exports, it’s different.

A rational and public consideration of crude exports is a testament to recent U.S. success in petroleum exploration and extraction – success achieved despite aggressive regulations on all fossil fuels, and lavish subsidies to depress the retail prices of energy from wind turbines and solar collectors.  The favored excuse for deferring the discussion is the national security issue of energy self-sufficiency, which is a legitimate issue in the sense we should not have to depend on hostile, unstable countries for our energy.  But the objection will soon lose traction.

Some crude oil production and refinery capacity are mismatched.  Light sweet onshore crude is not well-suited to some east coast refineries, which are engineered for refining heavy crude.  As production increases, a surplus of light sweet crude is developing.

The U.S. does not yet produce enough crude to satisfy domestic consumption, but we will in about 7 years due to production growth and stalled consumption.  In 2013, U.S. consumption dropped 0.3 million barrels/day (MBPD).  As for North America, it is 5.1 MBPD short of self-sufficiency, but production growth (1.25 MBPD) and static consumption in the U.S., Canada and Mexico should eradicate North America’s self-sufficiency shortage in 4 years. 

Despite frantic efforts to replace petroleum with politically favored “renewables,” there are no meaningful competitors to petroleum fuels for transportation.  At 20% of gasoline’s cost, liquefied natural gas (LNG) is a promising contender but it lacks a retail distribution infrastructure.  Vehicle manufacturers could quickly equip cars and trucks with LNG motors.  With a few decades and enough capital, much of the current “gas station” infrastructure can be adapted to retail gasoline, diesel and LNG. 

Biodiesel and ethanol (as a gasoline extender) have little impact.  Gasoline made from catalyzed methane /ethanol is not yet commercially viable and hydrogen as a transportation fuel remains a pipe dream.  Until major breakthroughs on battery technology work to cut cost and extend range, consumers are watching “electric” cars, but not buying many.

In a few years, U.S. crude production will be sufficient to replace any crude we import.  Meanwhile there are regional crude shortages and type surpluses caused by lack of pipelines and refinery-crude type mismatches.  Exports of any crude surpluses should be allowed.  Exports should as routine as other materials when North American self-sufficiency is achieved.  Justified crude exports are far more immanent than some pretend.

 

Alan Daley is a retired businessman who writes for The American Consumer Institute Center for Citizen Research 

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