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Low Prices Driving Record U.S. Crude Oil Exports Despite Export Ban

Are you more desperate to get a better deal when you’re poor? I guess you are.”

That was John Auers, executive vice president of oil industry consulting firm Turner Mason & Company, describing the oil industry as being “poor” and “desperate” to Bloomberg.

As the oil industry cries poverty due to low oil prices in an effort to justify its attempts to lift all restrictions on exporting crude oil produced in the U.S., it is helpful to remember that this is an industry that was demanding tax breaks for oil production even when, in 2013, the top 5 companies made a combined $93 billion in profits. In just the second quarter of 2014 alone, a year of poverty and desperation, as the industry tells it, ExxonMobil made $8.8 billion in profit.

The “better deals” that John Auers was talking about are to be found on the global market, which technically isn’t open to those “poor” U.S. crude oil producers due to the crude oil export ban. Crude oil that is produced in the U.S. is worth more if it is sold on the world market than if it is sold in the United States.

So, it should come as no surprise that in November, as oil prices began falling, U.S. producers went about finding ways to export oil using some existing exemptions from the Reagan era as well as some new approaches. Their efforts resulted in the U.S. breaking the all-time monthly export record in November 2014. The previous record was set in 1957, a time when there was no export ban.

Desperate times call for desperate measures, as Bloomberg made clear in its reporting back in October 2014:

U.S. oil exports are set to surpass a record held since 1957 as traders find ways around a four-decade ban on supplies leaving the country.

When there is more money to be made, traders find ways around things like oil export bans.

And this all occurred before the Obama administration handed out a year-end gift to the oil industry by allowing exports of light crude oil while also making it easier for Canada to export tar sands dilbit that has been mixed with U.S. oil. Expect the November crude oil export record to be obliterated soon.

Following on that move, in late December, President Obama was in Mexico agreeing to export more oil to its neighbor to the south. Business Day reported last week that, “The 40-year-old ban on most US crude exports is set to be loosened after Mexico’s state-owned oil company asked for an exception.”

Apparently if you want to have the export ban lifted, all you need to do is ask.

As they say, traders find ways. And these days Obama is acting like oil trader-in-chief.

So, as oil prices drop, U.S. exports are set to reach record levels. And that is without the actual oil export ban being officially lifted, something Jack Gerard, president of the American Petroleum Institute, has made clear is a top priority for the coming year. Gerard is hardly alone, of course. The CEO of Exxon Mobil also wants the ban to be lifted, for instance.

In December, Republicans held the first congressional hearing on the topic. And as reported earlier by DeSmogBlog, there has been a year-long effort orchestrated by the industry to have the ban lifted. But it isn’t just Republicans doing the oil industry’s bidding: Larry Summers, former secretary of the treasury and economic advisor to President Obama, is also leading the effort to get the ban lifted.

So, while we are hearing reports of how lower oil prices may make fracking for oil in the U.S. unprofitable, the pieces are falling into place to get that oil to the global market, where it will make more money for the producers. And then when oil prices rebound, fracking will be that much more profitable.

The low price of oil has led many to predict the demise of the fracking industry, and the same has been said about the Canadian tar sands industry. Although there are some who say low prices and no new pipelines will shut down tar sands production and make TransCanada’s Keystone XL pipeline unnecessary, Canada set a new all-time record for oil exports to the U.S. in the first week of 2015.

“The market finds a way,” Judith Dwarkin, chief energy economist at ITG Investment Research in Calgary, told Bloomberg. “[I]t’s going to find other ways to move, be that by rail, dog sled, whatever.”

As reported previously on DeSmogBlog, rail will be the main method until new pipelines are built. And according to a forecast by Calgary-based investment bank Peters & Co. cited by Bloomberg News, production is going up: “Due to investments already committed, oil-sands production is poised to rise 36 percent to at least 2.6 million barrels a day by 2017.”

“What you should expect this year is that all incremental heavy oil barrels are effectively going to be transported by rail,” Chris Cox, an analyst at Raymond James Ltd. in Calgary, told Bloomberg.

Tar sands production is likely to hit new records in the next year and beyond, despite current pricing.

As the oil industry uses this low-price “crisis” as a pretext for circumventing the U.S. crude oil export ban while simultaneously working to eliminate it completely, oil companies are really setting themselves up for greater future profits. After all, production in the U.S. and Canada is booming.

And with lower gas prices, Americans are back to buying SUVs.  Scott Painter of TrueCar explained to NPR about the recent rapid rise in SUV and luxury car sales:

“There's no doubt that when you have these kinds of fundamentals in place that you open the door to bad behavior,” Painter said. “When gasoline falls below $3, consumer interest in low-mile- or lower-mile-per-gallon vehicles, bigger vehicles, picks up.”

Lifting a 40-year-old ban on exporting crude oil due to a short-term dip in prices opens the door to plenty of bad behavior and makes fracking for oil in the U.S. more profitable. But apparently that is the least we can do to help oil companies now that they are poor and desperate.
  

Image Credit: Kumpol Chuansakul / Shutterstock.com

 
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