WASHINGTON – At the time of the first OPEC oil embargo (1973-74), in an attempt to protect shrinking domestic oil supplies, the US Government passed a law that forbids exporting American crude oil.
Plenty of oil
Whatever the merit of that policy, now –40 years later– we are in a totally different environment. While in the 1970s we feared shortages, now the world has plenty of new supply.
And we know that America increased its production, in a major way. Time to do away with the export ban? Not so fast, some argue. Even though we are producing a lot more oil, we are still a major net oil importer. It makes no sense to export oil when we are importing it.
This argument would make perfect sense, but only if any oil, regardless of its origin, were essentially the same. But we know that there are different types of oil.
Lift the export ban
And this is why it would make sense to lift the export ban. Many have spoken on this issue, including MIT Professor John Deutch, a highly respected energy expert with a distinguished public service record. (Amplify the Oil boom by Liberating US Exports, The Wall Street Journal, August 12, 2015).
Here are the facts. America now produces a lot more oil. However, much of the additional supply (coming mostly from shale deposits in North Dakota), is light crude. Nothing wrong with that. Except that most US refineries are designed to process heavy crude. For this reason it is more difficult for US shale producers to sell their product domestically. In many instances they are forced to sell at a discount.
If the same shale oil producers were free to sell internationally, they would get better prices from buyers in other countries whose refineries are designed to process light crude.
Buy heavy crude from Canada
Well, and what about America? If we sell abroad, then we lose some of this additional supply. This means that we shall have to import more. Yes, this is true.
But there is a solution to this. There are enormous quantities of heavy oil in Western Canada. (in fact Canada has the third largest proven oil reserves in the world, surpassed only by Venezuela and Saudi Arabia). Of course, we already import quite a bit of this Canadian crude.
But we could get more, a lot more.
If we built the proposed Keystone pipeline, it would carry much more Canadian crude all the way down to Texas. The Texas refineries are designed to process heavy crude.
Open energy markets
This way, by opening up different avenues for different types of crude, each one would get to its optimal destination.
This sounds reasonable. But it is very difficult to do, mostly for political reasons. Lifting the oil export ban may be a bit easier. There seems to be a bipartisan coalition in the making in the US Congress that would have enough votes to pass a new law that would repeal the export ban. This is hardly a done deal, but it looks possible.
Keystone pipeline blocked
Unfortunately, the Keystone pipeline project is blocked, at least until Barack Obama is US President. Indeed, just like exporting US oil, getting more oil from Canada is not based on market forces, old-fashioned demand and supply. Creating this channel for additional supplies of Canadian oil is entirely contingent on President Obama approving the Keystone pipeline. And he will not do this.
Mind you, this pipeline project has been reviewed, assessed, and vetted a million times by the US State Department, the agency technically in charge because this is a pipeline that will go across the Canada-USA frontier. Armies of experts who worked on this for many years could not find any flaws with this project.
Energy policy dictated by ideological prejudice
But President Obama will not approve it, simply because powerful US environmental groups are opposed to it, as a matter of principle.
They just do not like any new infrastructure that will lead to any oil consumption increase, foreign or domestic. In other words, it is all about ideological prejudice.
Sadly, this is how we craft the energy policy for the most important economic power in the world.