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.
And you want the government to create another phony market. It won't lower prices. It will cost US jobs. It will drive investment currently going to the US to go to other countries.
Funny you should say that. Since the post you replied to clearly states that I DO NOT.
You want additional regulations limiting the market, limiting those that participate in trading, limiting sales...
Or are you just hoping for magic fairies to wave their wand to make your wishes happen?
We still import import 7 million barrels a day of crude oil from other countries. So you want our domestic producers to sell for less than we pay for imports?
I clearly stated liquid fuels...Why do you keep accusing me of something I never said?
I misunderstood. Thanks for the correction.
Most of our exports are not gasoline, ~10%. We actually import more gasoline than we export. We are a net gasoline importer. Just of function of location of refineries and demand.
http://www.eia.gov/dnav/pet/pet_move_exp_dc_NUS-Z00_mbblpd_m.htm
http://www.eia.gov/dnav/pet/pet_move_wkly_a_epm0_IM0_mbblpd_4.htm
Refining crude oil produces a lot more than gasoline. Much of what we export is refinery “leftovers” like Petroleum Coke and Residual Oil. But it all gets counted in refined products.
It's pretty clear that the best interest of the American People (affordable motor fuels) is not something that is on your radar.
No, the market isn't going to do anything that benefits the people, unless there is some margin of profit in it for the commodity Ferengis.
The government, same thing, and even if they try it, they would screw it up.
So you are promoting more government regulations and limits to the free market?
I've proposed less government regulation and interference. I do not yet understand your proposal. Your comments appear to be contradictory.
We already produce more than we use. You want to take away those foreign markets from our domestic suppliers. Those foreign buyers will now buy from non US suppliers.
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NOW!
re: Post #45:
Most of our exports are not gasoline, ~10%. We actually import more gasoline than we export. We are a net gasoline importer.
Make up my mind, do we produce more diesel and gasoline than we use or not?
WOW!
See Post #49.
According to you, we both produce more motor fuel than we can use AND we are a net importer of gasoline.
Refined products is a lot more than motor fuel. We produce more refined product than we use. We are a net exporter of refined product. We currently are a net importer of gasoline. None of that is contradictory.
As the links I’ve included above show, and as I have stated, refined products is more than gasoline. It is more than gasoline and diesel.
If you need me to read for you the specific values of specific products, I can do that for you. It seems to be a distraction from the original topic of crude oil exports, then your next topic of regulations, but I’ll try to help.
Using the latest monthly data, We imported 51 MBPD Finished Motor Gasoline and 551 MBPD of components used to blend into Finished Gasoline, depending on the local recipe. A total of 602 MBPD gasoline imports.
http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_epm0f_im0_mbblpd_m.htm
http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_epm0f_im0_mbblpd_m.htm
We exported 362 MBPD finished motor gasoline and 57 MBPD gasoline blending components, total 419 MBPD gasoline exports. 183 MBPD more gasoline imports than exports.
http://www.eia.gov/dnav/pet/pet_move_expc_a_EPOBG_EEX_mbblpd_m.htm
http://www.eia.gov/dnav/pet/pet_move_expc_a_EPM0F_EEX_mbblpd_m.htm
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For diesel, that is the new EPA’s ULSD which is 15 ppm or less sulfur, we imported 91 MBPD and exported 964 MBPD or net exports 873 MBPD.
http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_EPDXL0_im0_mbblpd_m.htm
http://www.eia.gov/dnav/pet/pet_move_expc_a_EPDXL0_EEX_mbblpd_m.htm
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When we look at total refined products, everything coming out of the refinery, our imports are 1,761 MBPD and the exports are 3,761 MBPD. We are a net refined products exports, but your car or truck isn’t going to run on most of it.
http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_EPP0_im0_mbblpd_m.htm
http://www.eia.gov/dnav/pet/pet_move_exp_dc_NUS-Z00_mbblpd_m.htm
Yes, but "gasoline" and "diesel" are not, and I specifically referred to those two motor fuels repeatedly .
See, Post# 49 (45 and 24) those are your answers to direct motor fuel questions...NOT "refined product".
If you need me to read for you the specific values of specific products, I can do that for you.
Don't worry about my reading comprehension level, but thanks for the explicit links on import/export values of finished products.
I’ll try to help.
You're the freaking expert, I'm just asking questions, and never mind my alleged desire for "government intervention". Now that you've decided we are a "net importer of gasoline" my remaining question is:
What needs to happen to lower the rack/pump price of regular unleaded and diesel for US consumption?
(My guess is; the aggregate industry wants it right where it is.)
In post #7, where you started this, you stated or ban the export of finished product.
Finished product is a lot more than gasoline and diesel. And such specific bans would only result in more breakdown of the components.
What needs to happen to lower the rack/pump price of regular unleaded and diesel for US consumption?
As I've stated several times in this thread, less government regulations, less government restrictions, less government picking winners and losers.
Same question to you, do you have any suggestions besides more government interference? What market has that ever helped?
I got more specific downthread where I asked you the specific questions.
My suggestion (boiled down)was that in the interest of our national well-being, that we surcharge the “world market” in order to discount the domestic market.
No government required....just Americans.
No government required....just Americans.
So how do expect, the relatively small amount of motor fuel we do export, to get sold on a fungible market, when priced above the market price? I think we need no more incentive to get business to export at the highest price the market will support, do you think that is different from what is happening now?
If you agree they are currently exporting at the highest price they can get, (which is the market price) where is the surplus dollars coming from? And if ExxonMobil found a way to get more money, how does Valero get it to discount the price of their gasoline?
OK then, “gouge” the world market a bit on a different “finished product” that we do export a lot of.
If we had a government that was worth a crap, rather than mandating or regulating, they could “incentivize” the industry by seriously cutting the corporate income tax on a sliding scale, commensurate with their ability to deliver less expensive domestic motor fuels.
It could be directly related to the wholesale price.
Do you believe they are selling those products today, below the market price? Do you think they would sell any of it, if they were charging some significant amount above the market price?
If we had a government that was worth a crap, rather than mandating or regulating, they could “incentivize” the industry by seriously cutting the corporate income tax on a sliding scale, commensurate with their ability to deliver less expensive domestic motor fuels.
Please, no subsidies for special groups, not even the ones that hire my company. The government should not select winners and losers. The government should not take from one group to give to another.
No, but if they are supplying enough of a commodity to the "global economy" they should be able to influence the price. Just like the Arabs did in the past.
There's no such thing as "fair trade"...we deal with unfair international competition all the time...that makes us suckers. It should be a two way street.
Please, no subsidies for special groups, not even the ones that hire my company.
I never suggested a subsidy, only a tax incentive.
The government should not select winners and losers.
The government wouldn't be doing the selecting...the companies desiring the tax break would be self-selecting.
The government should not take from one group to give to another.
I don't see how you can suggest that is what would be happening. The industry should be ruthless, providing needed global commodities in exchange for $2.00 gas. (and a fat tax break)
I'm sure the bookkeepers could work it all out.
We are not. Do you believe they are not charging the most they can get for their product and still sell what we produce?
Just like the Arabs did in the past.
By have a huge share of the market (which we don't) AND by holding back product and not selling it, OPEC drove prices up. Those refineries need to keep running because they don't produce a single product. Gasoline and Diesel are the primary drivers for the flow rate. Much of what we are selling are effectively "leftovers" of lower value. For example Petroleum Coke is often used for a coal substitute, raise the price above that and they just use coal.
we deal with unfair international competition all the time...that makes us suckers. It should be a two way street.
Selling a relatively small amount of globally-produced fungible-commodities and thinking you can dictate price is naive.
I never suggested a subsidy, only a tax incentive.
So you don't consider the past ethanol tax credit per gallon a subsidy? I do. And what you suggest, giving special taxes to selected products is the government choosing the winners and losers. You support the wind tax credit as well?
The government wouldn't be doing the selecting...the companies desiring the tax break would be self-selecting.
WHAT??? The government hands out tax credits on selected products and you think they didn't select which products get them and which don't? You want special tax credits to companies that export products that are not given to those that only produce domestically?
providing needed global commodities in exchange for $2.00 gas
You should try a little math for the volumes you are talking about. Small increase to small volumes that are priced relatively lower are not going to provide large decreases to large volumes of more expensive products.
Actually I do differentiate between subsidies and tax breaks.
First of all, as the shining beacon of economic freedom, the US shouldn’t even have a corporate income tax, since only the consumer winds up paying the tax anyway.
But if the government is directly giving money to someone, like medical welfare, EBTs, section 8 housing, BAILING OUT AN INDUSTRY...that’s a subsidy.
I heard of a report yesterday that indicated that Americans are essentially at the same level of income/cost of living, as they were 15 years ago....regardless of sex or income status.
But back then, fuel costs and taxes didn’t eat up large chunks of household income.
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