Some of America’s energy executives may need a remedial math course. They seem to think that because we’re producing more oil than we have in 40 years, we have it to spare.
In recent weeks, several of them have declared that we should immediately ship U.S.-produced oil to Europe and Ukraine to ease Russia’s grip on energy supplies there.
Reuters recently quoted John Hess, chief executive of the company that bears his name, telling the Center for Strategic International Studies: “There’s something we can do today to help our allies now, and that’s give the green light to crude exports.”
Hess’ comments echoed those of Harold Hamm, the chief executive of Continental Resources, who told members of Congress a few weeks earlier that the best way to wean Europe off its dependency on Russian energy would be for lawmakers to stop talking about natural gas exports clear the way for oil shipments.
The first export terminal for exporting liquefied natural gas won’t begin operations until at least next year. It will simply take too long for LNG exports to help Europe, Hamm argued.
“While opening LNG exports is a noble goal and one that we as a country are actively working towards, the fact is the infrastructure to undertake large scale overnight LNG exports does not currently exist,” he said. “If we want to have an overnight impact on today's global events, we can immediately begin exporting crude oil, which does not have the same infrastructure constraints.”
Hess and Hamm have ulterior motives for plugging oil exports. Both of their companies have placed big bets on hydraulic fracking in North Dakota’s Bakken Shale, and they would like to see their oil fetch a higher price.
Crude from the Bakken is unable to get to refineries because of pipeline bottlenecks. That’s driven down the price of West Texas Intermediate crude relative to the price of Brent crude – the global benchmark. The Brent price is currently about $6.50 a barrel higher than WTI.
As a result, Hess and Hamm are forced to sell their oil to Midwestern refineries at the lower price, only to watch the refiners price their gasoline as if they were buying Brent. In other words, in the Midwest, profit margins are migrating from producers to refiners. Exports would be a way for companies like Hess and Continental to reverse the trend.
Our export policies, though, shouldn’t be based on the special interests of a handful of companies.
Midwest producers like Hess and Hamm talk about rising oil production as if we have a surplus, but we are a long way from domestic production levels that would reduce imports to zero. The U.S. still imports about 7.3 million barrels of oil a day, based on the latest four-week running average from the U.S. Energy Information Administration. That represents about 47 percent of our oil consumption.
Any exports would have to be offset by additional imports, says Jeffrey Brown, an independent petroleum geologist who tracks import data. Embracing exports the way Hamm suggests would simply shift the burden of greater foreign oil dependency from Europe back to the U.S.
This is why the notion of energy independence is unrealistic. Even if we manage to drive imports to zero, we are unlikely to maintain them at that level for long.
What’s more, U.S. exports aren’t likely to ease Europe’s fears of a short-term energy crunch. While oil may be unconstrained by infrastructure, it’s also a more complicated model than natural gas. Different grades of crude may make it difficult for European refiners to simply switch to a new oil source.
Just like Europe, U.S. refiners require different grades of crude, which is why Hamm and Hess can’t simply sell their oil to other U.S. refiners.
We may, indeed, reach a point where it makes sense to consider oil exports, just as the abundance of natural gas has eased export restrictions on that fuel, but the issue needs to be studied carefully based on its domestic impact, rather than as a knee-jerk response to Russian aggression in Ukraine.
The changing energy landscape in the U.S. has already altered the nature of global petro-politics, and it will continue to do so. Oil exports may fit into that picture, but only if it is part of a broader strategy.
We shouldn’t look to exports of gas or oil as a quick fix for the world’s problems, nor should we be swayed by the rhetoric of oil company executives who seem to forget the basic rules of math when it serves their companies’ needs.
Loren Steffy, the former business columnist for the Houston Chronicle, is a senior writer with the communications firm 30 Point Strategies. He is a writer at large for Texas Monthly, a contributor to Forbes and the author of Drowning in Oil: BP and the Reckless Pursuit of Profit and The Man Who Thought Like a Ship.
