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United States Navy: US crude oil exports

Hydrocarbon Engineering,


Below are highlights made by Commander Kirk Lippold, United States Navy (retired), at the Hearing on Legislation to Prohibit Restrictions on the Export of Crude Oil before the US House Committee on Energy and Commerce, Subcommittee on Energy and Power.

“I have experienced first hand the devastating effects of reliance on imported oil when our forward deployed assets are placed in harm’s way. The US Navy has a unique role in the world in cooperation with our allies to ensure the safe conduct of trade, including in oil. Stemming from concerns born out of the oil embargo of the 1970s, we have had policies in place to encourage energy independence that include investment in energy research and efficiency, diversity of fuel inputs, and the strict regulation of oil exports. Before we adopt legislation to drastically alter these longstanding and successful policies, we should proceed with great caution to evaluate the real world consequences.”

Still import dependent

“Despite the recent impressive boom in domestic crude oil production, the fact is that the US remains overly dependent on oil imports. In fact, the volume of oil that the US imports is not altogether different from the import levels at the time the Energy Policy and Conservation Act was enacted in the 1970s.

“While increased domestic production has reduced the total amount of oil that the US imports from abroad to meet its domestic needs, we still import a staggering amount of oil. According to the US EIA, imports in 2014 totalled more than 2.6 billion bbls, or around 30% of supply. By all accounts, domestic consumption will continue to outpace domestic production for the foreseeable future. In its 2015 Annual Energy Outlook, EIA estimates that total imports will not fall another 10% until 2040, still well short of a national policy goal to achieve energy independence.

“At this point, lifting crude export regulations will generate headwinds that would likely dampen the predicted decline in imports.”

Security benefits

“Precipitously lifting the regulation of exports would not confer equal strategic benefits. Advocates of lifting the export ban frequently point to Russia’s aggressive invasion in Ukraine as a ready opportunity for the use of energy diplomacy. This notion makes little sense. As an initial matter, all credible economic studies on the subject project that the vast majority of US crude oil exports purchased on world oil markets would make their way to Asia, not Europe. Indeed, the number one beneficiary of lifting the ban is likely to be China, a nation whose recent activities in the Pacific and South China Sea reflect more the actions of a rival hegemon for security dominance in the Transpacific region than a responsible international partner.”

“US exports would be a drop in the bucket of global crude supplies. Moreover, European refineries, especially those in Eastern Europe, are currently configured to process Russia’s medium sour crude. Reconfiguring those facilities to handle American light sweet crude would be an expensive, long term proposition. Eastern Europe also lacks the infrastructure to access US crude imports. Constructing the needed European pipelines would take a great deal of time and money. Whether any US oil actually reaches Eastern Europe and displaces Russian supplies would depend on market factors largely unrelated to US exports.”

“Fortunately, the US does not have to choose between participating in the international marketplace for petroleum products and lifting crude export regulations. Current law already allows American companies to export refined products overseas. Likewise, the federal government has the flexibility to waive regulations for crude in the form of condensates. In fact, exports of finished petroleum products have risen from 1 million bpd in 2005 to 2.7 million bpd in 2014. In particular, to robust Transatlantic trade in refined products allows our European allies to reap the benefits of our high tech, efficient refineries at a competitive prices. It allows us to satisfy our own security concerns and also address our allies’ needs with the products actually needed for strategic and economic concerns abroad.

“Finally, the US does not need to export crude oil to influence international markets. Because increased domestic production results in reduced dependence on imports, overseas crude is then freed up to be bought and sold in other markets. This market shift has the second order effect of increasing the supply of crude outside the US, reducing prices and alleviating bottlenecks. Other countries are better off because the US is producing more of its own supply. With the export ban in place, the US gets the dual national security benefits of ample supply and leverage on the international stage.”

Deregulation

“Attempting to alter the market forces that influence the distribution of power across the world stage is always risky business, so it is important to consider the political downside risk to any dramatic realignment.”

“The crude export ban improves the competitiveness of US refineries. When refiners have access to reliable domestic oil supplies, significant cost savings translate into a more favourable price outlook for both refineries and US consumers. This situation is a desirable one. A strong domestic refining base provides the US with significant and under appreciated national security benefits. Lifting the crude export ban would expose one of America’s most important industries to the unpredictable vagaries of international markets and international politics. It is axiomatic that military assets mobilise on petroleum products, like gasoline, diesel, and jet fuel. They do not run on crude. So, a change in export policy that could undermine our robust refining base directly constrains the operational flexibility we have in rapid mobilisation necessary for modern projection of force.”

Conclusion

“Too many times in my career, I have experienced the stark reality of not thinking through the impact of changes in international and domestic policy. We cannot afford to just wave off these potential consequences as inconsequential under the guise of market principles. The regulation of crude oil exports was put in place with a long term of objective of decreasing US reliance on foreign sources of energy, specifically oil. Over the past three plus decades, progress was waxed and waned. Today, we are in the midst of impressive new domestic production and discovery of untapped reserves. However, we continue to import virtually the same volume of foreign oil as when the regulations were passed into law. The day may come when the US is no longer overly dependent on oil imports and we may be in a position to change our crude oil export policy but for the sake of national security, that day is not today.”

Edited from statement by Claira Lloyd

Read the article online at: https://www.hydrocarbonengineering.com/refining/15072015/usn-exports/


 

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