A bias against fossil fuels because of their potential climate impacts permeates US President Barack Obama’s administration and could shorten the nation’s recent oil and gas prosperity, warned Charles K. Ebinger, who has been a prominent member of Washington’s energy community for more than 40 years.
It increasingly looks as if Obama would veto any bill ending a ban on exporting US crude oil, which has been in place for the same amount of time because he and others in the administration believe any increased fossil fuel use should be stopped, Ebinger said in Nov. 10 remarks at the US Energy Association.
“I believe this was at the core of his Clean Power Plan and decision to reject the Keystone XL pipeline’s permit application (OGJ Online, Nov. 6, 2015), and it will be there if a bill allowing crude oil exports reaches his desk,” said Ebinger, who now is a senior fellow specializing in foreign policy at the Brookings Institution’s Energy Security and Climate Initiative.
“Unless you believe demand will miraculously disappear, the world will need more oil,” he said. “BP’s latest annual statistical review says we’ll need another 15-19 million b/d by 2035. But if it doesn’t come from tight shales or Alberta’s oil sands, where will the world get it? It certainly won’t come from the Arctic, where it has become so uneconomic that Shell has withdrawn and others are reconsidering their strategies.”
Ebinger said more crude would have to come from politically unstable Middle East producers like Iran and Iraq, scandal-ridden countries like Brazil, or anti-US nations like Venezuela, which continues to export crude despite the unsettled political conditions there. “There’s a disconnect between what US energy policy promotes now and the world actually needs,” he observed.
Candidates lack proposals
Democratic and Republican candidates who are vying to succeed Obama have yet to propose substantive energy policies, Ebinger said. “Beyond expressing support of opposition to Keystone XL, none of them have said anything meaningful, which is sad,” he noted.
Ebinger said the case for allowing domestically produced crude oil to be exported is stronger than it was in September 2014 when Brookings issued its report, “Changing Markets: Economic Opportunities from Lifting the US Ban on Crude Oil Exports,” which he co-wrote with Heather L. Greenley, a research assistant with the Energy Security Initiative.
The main difference now is that there’s a roughly 1 million b/d global crude glut that has driven prices down already, Ebinger said. Brookings and eight other studies driven by data show gasoline prices would fall if US exports came onto the global market, he said.
“How can this administration say—at the same time it is pushing Trans-Atlantic and Pacific trade agreements emphasizing free markets—that keeping the ban is justified?” he asked. “It would stimulate domestic oil patch investment and put more people to work not only producing more crude oil but also manufacturing more equipment and laying pipelines which would be needed.”
Refiners in the Upper Midwest and the Philadelphia area and some petrochemical producers benefit from the ban’s staying in place because they get deep discounts on their feedstocks because Bakken producers can’t find an outlet for their production otherwise, he indicated.
Not on the margin
“There have been recent reports that the three refineries near Philadelphia have resumed imports from overseas because depressed prices are reducing domestic tight oil production,” Ebinger said. “They’ve done a good job arguing that the ban should stay, but I don’t think they’re on the margin at all, especially the Philadelphia refineries because they’re so close to New England which still relies heavily on oil for wintertime heat.”
But US shale production also has been incredibly resilient because producers have become much more efficient, he said. “I think Saudi Arabia badly underestimated this when it thought US tight oil production would be crushed when they slashed prices. We’re starting to feel some pain now from lower rig counts and deferred projects, but those can be reactivated fairly quickly once prices begin to recover,” he said.
Eginger was critical of calls for more US energy independence or security because they fail to recognize that most crude imports come from friendly countries. “Since 1973, we’ve had it drummed so thoroughly into our heads that oil impacts are bad that many people on Capitol Hill, as well as in the administration, believe exporting domestically produced crude will need to gasoline lines,” he said, adding, “Nothing could be further from the truth.”
Contact Nick Snow at firstname.lastname@example.org.