The Fuse

Despite Net Exporter Milestone, the U.S. is Still Tethered to OPEC Actions and Oil Market Realities

by The Fuse | December 19, 2018

For one week late last month, the United States became a net crude oil and petroleum product exporter for the first time in the Energy Information Administration’s weekly data since 1991. From November 24 to 30, the U.S. exported a record 3.2 million barrels per day (Mbd) of crude oil and 5.8 Mbd of products.

The news brought about a feverish reaction in some quarters. An editorial in the Wall Street Journal, headlined “How America Broke OPEC,” dismissed concerns over America’s reliance on foreign oil. “Remember when America’s political class fretted about ‘peak oil’ and dependence on foreign energy? So much for that,” the Journal wrote, adding, “The U.S. the other week for the first time in 75 years became a net petroleum exporter as the Organization of the Petroleum Exporting Countries wrangled over how to respond to America’s growing energy bounty.”

With apologies to Mark Twain, reports of the death of net importer status for the U.S. are premature.

To begin, oil dependence remains a core strategic concern for the U.S. As Iran sanctions waivers show, U.S. foreign policy is still diluted and limited by our singular reliance on oil as a transportation fuel. Waivers were granted even as the U.S. was producing oil at historic highs and were also issued the same month that America reached its net-exporter milestone. Moreover, the U.S. military spends at least $81 billion each year securing the world’s oil supply. Clearly the United States still views minimizing oil supply disruption – read: spikes in price – as an economic and energy security imperative.

Next, the net petroleum export figures include over 1 Mbd of hydrocarbon gas liquids, which are less valuable than oil for making the petroleum-based fuels that the U.S. uses to power 92 percent of its transportation system. The light, sweet crude that is increasingly produced from U.S. shale formations is less well-suited to American refineries, which are configured to cater to heavier and more sour blends. To reconfigure the system to refine lighter blends would require a series of costly upgrades that do not make economic sense to domestic oil producers. Consequently, and regrettably, this means the U.S. remains reliant on cheaper, better-suited oil imports.

Lastly, even if U.S.-produced crude oil was better-suited for domestic refinery runs, the U.S. would nonetheless require imported oil. The November 2018 EIA statistics show the U.S. imported approximately 7.5 Mbd of crude oil and exported 2.5 Mbd. A negative crude oil balance of 2 to 4 Mbd is likely to endure for decades. Increasingly challenging geology, rising interest rates, and eventual oilfield service inflation mean domestic production is unlikely to ever be able to completely displace imported crude oil. All of this keeps America’s energy security vulnerable to OPEC’s collusive and manipulative actions.

There may come a day when the U.S. is able to claim that OPEC is finally broken, but that day has yet to arrive. The key to lasting energy security involves diversifying the U.S. transportation sector away from its near-singular reliance on oil.

 

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