Avoiding the Crude Oil Production 'Wall'
Posted January 23, 2014
The U.S. energy revolution continues to reshape America’s energy outlook for the better. Thanks largely to shale energy reserves and advanced hydraulic fracturing and horizontal drilling, the U.S. Energy Information Administration’s 2014 Annual Energy Outlook estimates domestic oil production will approach 9.6 million barrels per day by 2016 – a level of output not seen since 1970. EIA also projects that U.S. liquid fuels net imports as a share of consumption will decline to about 25 percent in 2016, down from a high of 60 percent in 2005. Both are great pieces of news.
Unfortunately, surging U.S. oil production could hit a wall of our own making in the not-too-distant future, says the International Energy Agency (IEA). In its latest oil market report, IEA cautions that a decades-old ban on the export of domestic crude oil could leave significant amounts of U.S. oil with no place to go, negatively impacting production. The Wall Street Journal (subscription publication) quotes the report:
The growing volumes of light tight oil that cannot leave North America are increasingly posing a challenge to industry, putting the spotlight on the U.S. crude oil export ban. … Although there appears to be room in the market to accommodate further supply expansion in 2014 without any immediate change in export regulations, how long this can continue is open to debate.
The issue is energy infrastructure capacity and growing domestic crude output, especially lighter crudes. The Journal:
For now, refinery, pipeline and crude rail capacity in the U.S. has expanded rapidly to accommodate the extra supply. U.S. refineries processed more oil than they have in eight years in December and exports to Canada have increased to around 155,000 barrels a day, according to the IEA. However, production is expected to continue to grow, with output forecast to rise by 780,000 barrels a day this year.
API Upstream Group Director Erik Milito recently told reporters:
“The U.S. has long been a refining powerhouse, but our refining capacity is largely designed to accommodate foreign, heavy crude. Trapping light, domestic crude within our borders only penalizes U.S. production, which could mean high costs for refiners and consumers.”
The notion of ending a ban on the export of U.S. crude, which was imposed when America faced energy shortages, is getting on policymakers’ radar screens and appropriately so. Surging domestic production has dramatically altered America’s energy opportunities, and the crude export ban should be revisited.
The fundamental economics of supply and demand strongly argue for lifting the export prohibition. U.S.-produced crude oil, as a globally traded commodity, must be able to reach markets or output will necessarily be impacted. That’s the message in IEA’s report. Milito:
“It’s undeniable that the American energy revolution has rendered our current export policies obsolete. By restricting the export of crude oil … current policies also restrain job creation, economic growth and further production gains.”
Free trade is a win-win for America. The sale of U.S. products and commodities brings overseas wealth into our country while stimulating domestic production. More production means expansion leading to job creation and capital investment. Crude oil and liquefied natural gas are valuable American products that, with access to export markets, can return value to this country, provide greater stability to global supplies and generate revenues stateside.
About The Author
Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Previously, Mark was a reporter, copy editor and sports editor at an assortment of newspapers. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela have two grown children and five grandchildren.
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