The Case for Crude

A bill that I have been anticipating is reaching the U.S. House of Representatives most likely this month.

The bill proposes lifting the four-decade ban on U.S. crude oil exports.

This produces many questions for the general populace.

Why is there a ban? Why is the government proposing ending it now? Why are we still importing 7.4 million barrels of crude oil per day (million b/d)? What impact might this have on the environment?

The ban on U.S. crude oil exports began with the implementation of the Energy Policy and Conservation Act of 1975. The ban was put in place in response to the Arab Oil Embargoes to keep as much oil as possible inside the U.S.

We still do export crude oil with Canada and now Mexico and the Department of Commerce can and has granted licenses to export a small amount of crude. While crude oil is restricted, refined oil products are not a part of the ban and the U.S. has become one of the largest gross exporters of refined oil products or petroleum.

Until 2011, the U.S. had not been a net exporter. For many years, oil producers didn’t mind the ban because the U.S. supply was limited. With the relatively new onset of fracking that released a large supply of shale gas under the earth’s crust; supplies have grown coupled with a decreasing demand. With the large supply of crude oil available, oil producers are now lobbying to remove the crude oil export restrictions and politicians are taking notice.

If there is so much crude in the U.S. for the taking, why are we still importing 7.4 million b/d? The answer comes from the types of oil. Fracking of shale rock produces high quality light “sweet” crude oil. U.S. refineries have invested heavily in configuring to refine heavy oil, which was discounted and available. The onslaught of high volume, good quality light crude was unexpected and U.S. refineries are not able to process the light crude efficiently.

The cost of upgrading refineries for the sweet crude is costly and considering our refineries invested sizable amounts to refine heavy oil, the upgrade would not happen quickly. Therefore, in order to get the oil that the U.S. is able to efficiently process and use, we import.

Given that light crude is plentiful in the U.S., jobs are created through fracking and manufacturing of the equipment. The fracking boom enriched the economies of North Dakota, Texas and Pennsylvania. The oil price collapse that started in 2014 is slowing and halting the production of light crude from shale deposits, and the ability to freely export crude oil out of the United States would help the country and these states to continue the expansion of U.S. Oil production.

As a proponent of free markets, the United States limiting its own ability to freely trade and allow the markets to dictate price, supply and demand goes against our stance as a free market economy.

If the U.S. became a crude exporter, it would strengthen our role as a trade partner. It would also help many of our allies that currently obtain their crude oil from Russia.

The downside of exportation of our crude oil supply is the environmental costs and the belief that it will slow our goal of energy independence. There is much fear that fracking may cause earthquakes and harm our water supplies, as a large amount of water is used in the fracking process. In addition, U.S. land loss, carbon pollution and transportation risk are cited as serious side effects of exportation.

The hope from our newfound abundance of oil is that the U.S. would move away from importing and use our supply to create energy independence. By permitting the export of crude oil, it may slow or halt the updating of refineries in the U.S. to handle light crude thus scuttling the chance to retain and use our oil resources.

The bill to permit exportation will most likely pass through the Republican-held House successfully. The White House has stated that it is against the bill and the bill will face opposition in the Senate. The success or failure of the bill will have ramifications in manufacturing, transportation, and energy sectors.