As Oil Glut Moves, Debate Ignites Over Exporting U.S. Crude

A crude oil storage tank in Cushing, Oklahoma. For years there was a glut of crude there.

A crude oil storage tank in Cushing, Oklahoma. For years there was a glut of crude there.

The United States has never exported much crude oil. We use so much of the stuff that we’ve always needed to import it from other countries. But even if we wanted to ship it away, there are laws that ban most all overseas crude exports. Now, as domestic drilling continues to surge, some are calling for the repeal of those laws.

To understand why, it helps to remember the ‘Cushing Glut.’

If you pay attention to the oil business, you might remember the glut. It’s a bottleneck of crude oil – much of it unleashed through fracking in North Dakota’s Bakken Shale — shipped to Cushing, Oklahoma in pipelines, then trapped there.

Hannah Breul is an industry economist with the U.S. Energy Information Administration who studied that bottleneck. She says the mechanics of the glut are about as simple as household plumbing.

“If you think about it as a bathtub, you have water coming in from the faucet, but then also coming out of the drain. The relative level of those flows will impact what the overall inventory is at any one time,” says Breul.

For the last few years, the drain in Cushing was too small for the stuff pouring in. So the bathtub filled to the brim.

Then, this year, the pipeline company TransCanada opened up the southern leg of its Keystone XL pipeline. That, and the reversal of an existing pipeline known as the Seaway, made the drain bigger. The glut moved south.

“Now you’ve essentially established the valve to move some of that overflowing bathtub to the Texas and Louisiana Gulf Coast,” says Tom Kloza, chief oil analyst with Gasbuddy.com.

But that area was already awash in domestically-produced crude.

U.S. President Barack Obama spoke in Cushing about fast tracking the Keystone pipeline from Cushing to the Gulf.

Photo by Tom Pennington/Getty Images

U.S. President Barack Obama spoke in Cushing about fast tracking the Keystone pipeline from Cushing to the Gulf.

“There are concerns that there may be too much, that there may be congestion, and that we may see much cheaper prices there [along the Gulf]. Because of so much crude oil descending on the refining centers of the country,” says Kloza.

That back-up of light sweet crude (the type being produced in much of the U.S.) is providing some oil companies with an argument to push for exports.

Since the oil crisis of the 1970s, the U.S. has had a de facto ban on overseas crude exports. Now, industry groups like the American Petroleum Institute say those laws have got to change. They could, of course, profit greatly from opening up foreign markets to U.S. crude, but they’re selling the idea by highlighting potential benefits to the U.S. economy.

“By lifting the ban, we would incentivize additional domestic production. That means more jobs. That means stronger economic activity. That means government revenue. It also means that we would be reducing our trade deficit,” says Kyle Isakower, the API’s vice president of regulatory and economic policy.

Critics say it could make the U.S. less energy-secure, and mean higher prices at the pump.

An oil refinery is pictured in Texas City, Texas. A new billed could help streamline the greenhouse gas permitting process.

An oil refinery is in Texas City, Texas. Gulf refiners are awash in oil these days.

“Those producers would like to get the higher price overseas rather than the lower price here in the U.S. And to us, it’s very logical that if you get a higher price for oil, that means a higher price for gasoline and diesel at the pump,” says Bill Day, a spokesperson for the oil refiner Valero Energy.

Take one look at Day’s title and you see that ramping up exports don’t have the support of the entire oil industry. Companies that drill for oil (producers, in industry language) generally favor exports. Companies that refine the oil do not.

That’s, in part, because refined crude products can already be exported. U.S. refiners are also currently swimming in an abundant supply of low-cost domestically-produced crude. They buy it from the drillers – refine it – and sell it to consumers at a tidy profit. Why would they want to mess with a good thing?

Proponents of exports answer that free markets will benefit everybody. Though, even if you support free markets, Gasbuddy.com’s Tom Kloza says there’s a problem with the argument.

“You cant really call something a free market, like oil, when you have a cartel, OPEC (Organization of the Petroleum Exporting Countries), that sets prices,” says Kloza.

Add to the debate a pressing concern over global climate change, and further worries about what exports would mean for U.S. energy security, and we can expect to hear more about exports in the coming years.

Politicians are already staking out territory. Here in Texas, Congressman Michael McCaul (R-TX 10th) recently filed a bill to repeal the crude oil export ban. The U.S. Senate Energy and Natural Resources Committee also looking into the issue.

“It’s going to be a controversial story,” says Kloza.

Comments

  • type 55

    We don’t have a glut of oil. We still import 50% of what we use each day. Don’t be fooled by rhetoric exporting will only increase profits for oil companies and increase prices at the pump.

    • Mose Buchele

      Hi type 55. Thanks for reading. It depends on the kind of oil your talking about. We’re still importing a lot of heavy crude, imports of light crude have been falling according to the EIA.

      Analysts say we will likely never stop importing light crude completely, in part, because countries like Saudi Arabia will want to maintain a market share in the US and will sell it at a discount.

      I hope you didn’t read this as article as “agreeing” with the idea to export, I was simply trying to report on the debate that is starting to unfold.

      • Republican4Hillary

        So the Oil companies closed down all these oil refineries.. Now they don’t have enough to produce and lower cost to the people.. So they want to export it…

        They ignore the fact this is all planned by the Oil companies.. They closed all those refineries in the 1990-2000.. look what happened to the price of Oil since then.,.

        They also don’t tell you that they export more gas and Oil products then the oil we import.. they just refine the Oil then export it..

  • Realist

    How can it be an oil glut?! Crude oil prices increased on a daily basis to $104 now!!

    • Mose Buchele

      Thanks for reading realist. If you’re talking about WTI crude, some analysts believe that that price is skewed precisely because of the massive amounts of oil that have left Cushing, where WTI is priced at. A barrel is going for much cheaper in other parts of the country (where it’s harder to move the oil away).

  • les

    We cant burn the Heavy crude here because of EPA rules but over in Europe, China Russia and Asia every vehicle overseas is allowed to burn heavy OIL crudes. Which also adds to their pollution problems overseas. Although I must admit I don’t see a pollution problem in Europe their is definately one in CHINA

  • http://www.AllStar-AR.com Steve Hula

    I think that, we the people, should take back all mineral and oil rights in America, and not let just a few oil giants take it all for themselves. We could us our new found wealth to provide cheaper fuel costs and fund Free Health Care for All Americans.

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