The United States has become the world’s top producer of oil and natural gas over the past five years. And yet, the U.S. has not been able to topple the Organization of the Petroleum Exporting Countries as the world’s energy powerhouse.
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| ‘There are lots of countries that would rather get oil from the United States than Russia and many OPEC countries.’ |
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But U.S. energy advocates said there is a way to lessen the influence of the cartel, which meets Dec. 4 in Vienna: Export crude oil and more natural gas.
That would mean lifting the country’s 40-year-old ban on exporting crude oil and easing restrictions on natural gas exports so more shipping terminals can be approved.
Lifting the oil-export ban, which was put in place after the 1970s Arab oil embargo, would weaken OPEC’s presence in world markets by increasing U.S. market share, said Rep. Joe Barton, R-Texas, who has been pushing for a repeal.
The U.S. oil industry can increase production more than any other country in the world, Barton said, since the U.S. sits on 198 billion barrels of untapped oil, according to the Energy Information Administration, the Department of Energy’s independent analysis arm.
He also argues that being able to sell crude oil would end the past year’s drop in production and prices. That argument at first seems to defy the rules of supply and demand, but he says it’s a case of quality, not quantity.
“Over time, as oil markets adjust to American exports … we will gain market share because our oil is better,” Barton said. “It’s light, it’s easier to refine and those nations in OPEC will lose market share.”
Barton sponsored a bill repealing the ban that passed the House with bipartisan support. It’s being considered in the Senate Banking Committee, but the White House has indicated President Obama would veto a stand-alone bill. Sen. John Hoeven, R-N.D., speculated in September there are enough votes in the Senate to pass the bill.
Christopher Guith, senior vice president for policy at the U.S. Chamber of Commerce’s Institute for 21st Century Energy, agreed that allowing the exports would change global dynamics.
U.S. producers would be able to sell their oil at the higher global price, and he believes there is a ready group of allies who would rather buy from the U.S. than OPEC. Producers would be able to use that extra money to expand production and bring back some of the thousands of workers laid off during the past year.
“If you get the global price instead of the U.S. price, you get a certain percentage of wells back in economic territory,” he said.
Led by Saudi Arabia, the 12-member OPEC last year decided not to reduce oil production, which would have propped up prices, in an effort to squeeze the booming American energy sector. That decision dragged prices lower, and U.S. energy companies, particularly smaller oil-service companies and those that specialize in expensive fracking, have been forced to shed jobs by the tens of thousands.
It also hurt some OPEC countries, such as Venezuela, more than others, but it has allowed the cartel to protect its market share.
Its Dec. 4 meeting in Vienna may be a turning point for oil prices if the OPEC members feeling financial strain succeed in getting the cartel to cut production. Venezuela and Algeria have already made waves with complaints.
“There are a lot of divisions, with countries with much lower capital reserves saying, ‘We’re burning through deficit spending too much, we can’t keep this up,'” Guith said.
Barton thinks the U.S. needs to capitalize on that possibility by repealing the ban. “There are lots of countries that would rather get oil from the United States than Russia and many OPEC countries,” he said.
Iran is another country from which Western nations might not want to buy oil. Iran is expected to re-enter the market after sanctions are lifted next year, which would contribute to the global oil glut and keep prices slumping.
Even with production cuts, the large amount of crude on the market has kept the U.S. insulated from the spiking gasoline prices that normally occur after terrorist attacks and other times of global unrest.
With the Islamic State wreaking havoc, chaos in Libya and the Russian presence in Ukraine, pump prices could be expected to shoot up, but they have remained near $2 per gallon
“You would expect prices to spike significantly,” Guith said, “and we just haven’t seen that.”
Others in the energy sector think there’s at least one other way to lessen OPEC’s influence.
Liquefied natural gas exports are seen as a prime way to increase the U.S. energy sector’s influence aboard, and exports could increase soon if Congress approves the Trans-Pacific Partnership.
Federal law allows for natural gas exports to nations that have free-trade agreements with the United States. If the Trans-Pacific Partnership is approved, U.S. companies could find a ready market in Japan, the world’s top liquefied natural gas importer.
The House is expected to take up the North American Energy Security and Infrastructure Act of 2015 this week. Part of the bill would require the Energy Department to take action on applications for liquefied natural gas projects within 30 days of the end-of-the-review process. Proponents believe this would speed up the regulatory process for liquefied natural gas projects.
Glenn Pinkerton, a partner with Sidley Austin LLP who has worked on energy projects in 25 countries, said increasing exports of liquefied natural gas also would help devalue crude oil.
Crude oil use is moving toward being used solely as fuel for transportation, he said. Natural gas is being used more to fire power plants and provide electricity around the world, leaving crude oil to be refined into gasoline.
“The more that you export gas, the more that you repower electricity generation worldwide from oil to gas, the more that oil becomes solely transportation fuel,” he said. “And, the more you produce electric cars, the more gas seeps into transportation.”
