Technology has brought us a surge in production today that was unthinkable just 10 years ago. Tremendous amounts of oil are being produced from our abundant tight oil formations. In just January through May of this year, we produced about 60-percent more crude oil in the U.S. than we did during the same period in 2007 before this tight oil revolution got underway. In May alone, we produced about 8.4 million barrels of crude a day — just more than half of what our refineries ran for that month. And there is more to come.
The added crude being produced is a quality that is referred to as light crude oil, and most U.S. refineries run this type in varying amounts. Current estimates are our refineries are able to run at least another million barrels a day of this light crude oil. But, that is only in the short term. What hasn’t been factored in is most refineries can substitute this U.S. crude for the imports they are currently processing, allowing our refineries to use more of this light crude oil in the short term.
This possibility leaves many to ask why we need to consider exports. There isn’t a pressing need today, but with the tremendous potential for crude production in the future, this is a very important issue. However, it is not a simple issue. While AFPM supports free markets, opening the door to crude exports brings about regulatory-driven changes, not just free market-driven changes. These are changes that will have significant potential regional impacts.
The clearest example of one of the “non-free” market changes is the Jones Act. This particular act gives foreign refiners a competitive advantage over our own refiners. Consider what would happen to the Northeast refiners if we open the door to unfettered crude exports. They could end up paying about three times more to transport U.S. crude to their refineries in the Gulf Coast than their competitors in Europe and Canada would pay. Those competitors will then be able to take the crude, process it and send back products to the U.S. to compete with our Northeast refiners.
Policymakers need to take the time to understand the unintended consequences of a crude export change and to develop an integrated energy policy as we look ahead — not one that focuses on just one form of energy.
Fortunately, we have some time to grapple with these issues.
Editor’s note: This topic is one of a series from AFPM News on this and other topics pertinent to the petrochemical industry. Other topics include “Refinery Turnarounds Explained,” “Ethanol Debate,” “Crude-by-Rail Shipping Requirements” and more.
To view AFPM’s news series, visit www.afpm.org, or call (202) 457-0480 for more information.
