Posted on 09/18/2014 5:28:00 AM PDT by thackney
It will take a “train wreck” of falling prices, declining oil production and idle drilling rigs before the United States lifts its longstanding ban on exporting crude, a noted economist predicted Wednesday.
Analysts have warned those are the possible outcomes if existing discounts on U.S. crude grow even larger and domestic oil production exceeds the ability of the nation’s refiners to process it.
And while oil producers are beseeching the Obama administration and lawmakers to ease the export ban now — heading off any such “day of reckoning” — Rice University economist Kenneth Medlock said political action probably will lag behind the oilfield impacts.
“I don’t see any movement or legislative action to lift the ban probably until the next administration is in office,” Medlock said during a panel discussion in the nation’s capital. “And the problem with that is that is when the train wrecks.”
West Texas Intermediate oil — the U.S. benchmark — is now trading about $4.50 less than its international counterpart, Brent crude. But the discounts are deeper in other parts of the country; for instance, in Midland, Texas, home to the prolific Permian Basin, oil was valued roughly $21 less than WTI crude in Cushing, Okla during August.
During a panel discussion at the Washington, D.C. offices of law firm Baker Botts, Medlock said that without changes in U.S. export policy, the price disconnects between light, sweet U.S. crude oil and Brent could hit $30.
“We are on a path . . . of continued, dramatic increases in oil production,” said Medlock, who heads the Center for Energy Studies at Rice University’s Baker Institute for Public Policy. But “if you start to see those discounts matriculate across all producing assets in North America, (that will) discourage activity in the field. That’s where you start to see the train derail.”
Faced with dropping U.S. prices for their crude, Medlock said, international oil companies could take their drilling rigs and their dollars to other countries, including Mexico, where energy reforms are opening up new opportunities south of the border. “What you are likely to see if those disconnects become very real and very biting is a lot of capital moving into Mexico — a lot more than otherwise would,” he said.
Medlock is not alone in predicting a kind of tipping point when falling U.S. oil prices make some drilling uneconomical. The research firm IHS warned about current trade policy threatening domestic oil development in a report it issued in May. Frank Verrastro, a senior vice president of the Center for Strategic and International Studies, has said “a day of reckoning” is coming. And Kevin Book, who leads the research practice at ClearView Energy Partners, describes a point of saturation, but has cautioned it is difficult to say when it hits and how long it will take before drill bits stop turning.
The fears are pegged to domestic refining capacity, now largely geared toward heavy crude, not the light, sweet variety flowing out of many U.S. wells.
But refiners, who can export their gasoline, diesel and other petroleum products, generally argue those concerns are overrated. Refineries have already backed out imports of light oil to accept more domestic supply and, the industry insists it can make bigger changes to accommodate even more U.S. crude.
Crude feud:
Both Congress and the Obama administration can relax the 39-year-old ban on oil exports, which already makes exceptions for some Californian crude, Alaskan oil and shipments to Canada. Already, the Commerce Department issued confidential rulings affirming that Pioneer Natural Resources and Enterprise Product Partners can export condensate once they have minimally processed that ultra-light oil.
But big changes are not expected before the Nov. 4 election, in part because some lawmakers are worried that any vote to endorse oil exports will be seen by their constituents as an endorsement of higher gasoline prices.
Michael Catanzaro, a managing director for FTI Consulting who previously was the senior energy policy adviser to the speaker of the House, said he expects the new Congress to get more involved next year — even before any possible decline in domestic oil and gas activity.
“Over time as the public gets more educated on the issue and as the members get more educated, you may start to see a consensus emerging and a willingness to take this on,” he predicted.
Our trade is in a bad deficit as it is, why not export something?
Importing the cheap heavy oil we already upgraded our refineries to use while we export our expensive light oil helps the trade balance.
If we have so much oil here then why are the gasoline prices (and home heating oil) still so high?
Those foreign drillers can leave if they want. Good riddance.
Obama does everything possible to harm the carbon energy industry. The delusional and ideologue EPA wants to prevent all burning throughout the world.
We wouldn't be producing so much if the price was significantly lower. Those tight plays like shale are expensive to produce. The reason our production is finally climbing is the relatively high prices.
Those foreign drillers can leave if they want. Good riddance.
Yeah, it would be so much better to be sending our dollars to another country instead of keeping the jobs in the US. < /sarc>
We need a glut of cheap liquid fuels. We should either "trade" our "expensive light crude" directly for gasoline and diesel; or ban the export of finished product.
Because the dollar isn’t worth crap.
Believing the demand curve of economics will rule while pretending the supply curve doesn’t exist only works in fantasy land.
Shutting down our refineries that currently produce a surplus of products while we import more crude oil than we need isn’t going to help us either. It helps the trade balance, keeps a surplus of refinery capacity in the US, keeps more jobs in the US. Why do you want to send that work to other countries?
Do you believe plastics, food, cars or anything else would become cheaper if we banned their export? Or would we simply stop producing as much because people don’t invest their money with the plan of losing money?
What good is a healthy bottom line for your industry, if the average American and small business can’t afford your product?
I refuse to spend $100 to fill my gas tank every week. That means I drive less, people drive less. That means transported goods cost more.
That means small businesses fail or don’t start up in the first place.
Employment and wage increases are stagnant and haven’t kept pace with fuel inflation.
Your solution?
Your suggestion won’t lower prices. It would only move the dollar paid to foreign nations. Oil well are not magical machines that produce the same amount forever. It takes constant inflow of investment to keep our production from dropping.
Banning exports will not lower prices. There are two curves in economics.
The way I see it, if we allow exports then the money will go to the US Treasury. The Obama government will have all this money to spend on his communist and homosexual agenda. Our taxes, of course will never go down. Better to deprive the regime of any money. Starve the beast. Go Gault.
What good is a healthy bottom line for your industry, if the average American and small business can’t afford your product?
I refuse to spend $100 to fill my gas tank every week. That means I drive less, people drive less. That means transported goods cost more.
That means small businesses fail or don’t start up in the first place.
Employment and wage increases are stagnant and haven’t kept pace with fuel inflation.
Your solution?
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There are thousands of by-products produced by the oil industry. Not just gasoline.
http://www.ranken-energy.com/Products%20from%20Petroleum.htm
Nixon’s 1973 crude export ban was intended to prevent oil producers from circumventing his socialist price controls. Politically, the ban channeled popular anger at oil producers resulting from the increase in pump prices, though the cause was OPEC, not greedy oil barons. That is still the political equation today. Even on FR, most are more concerned with what they personally will pay at the pump tomorrow than the long-term economic health of the nation. Refiners egg this thinking on, since the ban increases their crack spread. The consumer is the unwitting dupe in this, thinking that he is forcing oil producers to give him a fair shake at the pump. The reality is that all bans, embargoes and tariffs benefit a favored few. The crude export ban is a cruel joke on the consumer. Real life examples will help break this monster. Economic theory goes right over their head.
Yes of course, it would be better to drive down US production so OPEC can pick up the slack and we fund their governments instead. < /sarc>
Too many ignore the long-term economic health (more US production) is long-term lower prices, everything else being equal.
The reality is that all bans, embargoes and tariffs benefit a favored few.
BTTT, the government should not be selecting individual winners and losers in the market.
Real life examples will help break this monster.
Absolutely. Ban the export of wheat this year and wheat prices will drop. But don't expect the farmers to plant the same amount of wheat next year, and the prices are going to skyrocket and for longer than a single season. The oil is the same, but a long time frame.
U.S. Has Some of the Cheapest Gas in the World
Based on the price per gallon, the US is 44th out of 55.
Based on the pain at the pump price, which is relative to income, the US is 50th out of 55.
These are averages so you are probably paying more or less than the US average. And your income is probably more or less than the average US income
Easing this ban might be a win for Big Oil, but it would hurt American consumers. ... We must continue to keep domestically-produced crude here to lower prices for consumers ... Allowing for expanded crude exports would serve only to enhance the profits of Big Oil, and could force U.S. consumers to pay even more at the pump.
And several of those cheaper than us use tax dollars to subsidize the fuel cost.
I never suggested that should happen.
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