WE have often referred to Barack Obama as “The Great Divider.” Within the Obama administration, there seems to be a great divide over the matter of oil import/exports.
One agency, the State Department, has held up approval of a pipeline to cross the U.S. border with Canada to carry tar sands — an unrefined product. The oil would flow to Oklahoma and then be distributed by a pipeline network. Much of it would end up on the Gulf Coast – from which most crude oil produced in the United States can’t be legally exported.
Another agency, the Energy Department, thinks it might be a good idea to break with 40 years of policy that bans the export of domestically produced crude oil. Two months ago, Energy Secretary Ernest Moniz said the Arab embargo-era restriction against exports may have outlived its usefulness.
The vast pipeline hub in Oklahoma was once again in the national spotlight last week with a Wall Street Journal piece on a rally in oil prices partly linked to infrastructure improvements that are allowing more crude to reach the Gulf Coast. Once there, the crude is refined into products that can be legally exported.
The greater the demand for refined products, the more demand there is for crude. Thus, crude prices may rise. But they also can fall. This is a market determination based on global demand for refined products – just as global demand for crude helps determine its price.
What’s interesting is that bottlenecks are easing from Oklahoma to the south but the infrastructure making this possible is the subject of a bottleneck when it comes to Canada exporting its unrefined oil.
An argument against approval of the Keystone XL pipeline is that it wouldn’t promote North American energy independence. Instead, Canadian oil would be piped here, refined and then sold to other countries. The real reason for anti-Keystone hysteria is an anti-fossil fuel mentality. The export argument is a red herring.
It’s also ridiculous. Sellers generally have a right to reach a deal with buyers, whether it’s for a home, a car, crude oil or whatever. To extend the anti-export argument to real estate, imagine if the government said you could sell an Oklahoma home for whatever the market will bear to an Oklahoma buyer but not to a wealthy buyer from California. This would depress prices if Californians came here looking for a home and Oklahomans weren’t in a buying mood.
Populism enters the equation when we start thinking of restricting one set of sellers while leaving another set alone. A libertarian view would put crude oil and refined products on equal footing and let the market determine how much we pay for each.
But energy policy, particularly in the Obama era, always carries a populist tinge. After Moniz appealed for ending the crude export ban, U.S. Sen. Edward J. Markey, D-Mass, called the ban lift idea “a disturbing trend.” American oil, he said, “should be kept here in America, to benefit our consumers and to reduce our dependence on imports from the Middle East.”
Aside from the fact that liberals generally rail against “Big Oil” and oppose energy independence measures such as Keystone and fracking, we note that oil producers and energy firm shareholders aren’t focused on a benefit to “our consumers.” They’re focused on making money — or at least not losing it.
Imagine a politician urging a market restriction so that Oklahoma buyers would get cheaper homes. That’s fine for the buyers. But what about the Oklahoma sellers?
While the State Department has the authority to approve Keystone’s transit across the border, the decision really rests with Obama. The Energy Department doesn’t have the authority to relax the crude export ban. That lies with the Commerce Department.
Be assured that oil produced in North America will stay on the continent as long as consumers here are willing to pay the market rate.
Not all crude exports are banned. In the first 10 months of 2013, the United States exported an average of 95,000 barrels of crude a day. The biggest buyer? Canada, whose importers were taking advantage of favorable market conditions that may or may not last.