Why importing and exporting oil makes sense

The United States now leads the world in oil production, surpassing Russia and Saudi Arabia. Yet the United States still imports about 7 million barrels of crude oil each day, causing some to question why we should repeal the ban on exporting American crude oil.

The answer to that question is fairly simple.

First, there is economics. Decisions to import or export are typically based on supply and demand for a product at that location, as well as transportation costs. Products are often both exported and imported when it makes economic sense. For example, the United States is also the world’s leading producer and exporter of corn, yet in 2014, we still imported 635,000 metric tons of corn. Other products that are commonly both imported and exported include gasoline, cars, computers and aircraft parts, as detailed in data compiled by the Massachusetts Institute of Technology.

refinery graph
refinery graph

Second, not all crude oil is the same. It ranges from light to heavy, high to low sulfur and sour to sweet. The bulk of the oil currently produced in the United States is light oil. And not all refineries are the same. Many Gulf Coast and Midwest refineries were designed to process heavy oil from Canada, Venezuela and Mexico. To use more light crude domestically, refineries would need to pay less for their oil feedstock and would run in a suboptimal fashion, or require a significant investment in new infrastructure.

“There’s a mismatch between the new production we’re developing as an industry and our country’s existing refining capacity,” said Ryan Lance, ConocoPhillips Chairman and CEO. “To process this new, lighter oil, refineries would have to operate inefficiently or at a reduced rate. They need to buy oil at a discount in order to make it economic to refine it, which hurts domestic producers and ultimately, consumers.”

Third, the United States has an abundance of light oil resources. Light crude production already exceeds refiners’ ability to process it at certain times of the year and that is expected to get worse as more oil is produced. Experts agree the United States should export to refineries set up to process light oil in other countries and import heavy oil to refine at home. Exports would consume only part of U.S. production. Refiners would still have all the light oil they can process, and would still enjoy a competitive advantage over foreign refiners due to the $2- to $6-per-barrel cost of transporting U.S. oil overseas.

The United States is producing more light oil today than at any point in recent history. Over the past few years, the United States has virtually eliminated imports of light oil. These light oil imports were replaced by domestically produced light oil, mostly from shale formations.

US leader
US leader

According to the U.S. Energy Information Administration, of the 7 million barrels of crude oil that are imported into the United States each day, about 39 percent comes from Canada and 11 percent from Mexico—meaning half of our daily imports come from our closest neighbors and secure and reliable allies. The remaining 50 percent (~3.5 million barrels) comes from a handful of countries, including Venezuela, Brazil, Iraq, Saudi Arabia and Colombia, among others.

There may be times when exports do not make economic sense for the United States. But when they do, we should have the option.

To learn more, visit www.powerincooperation.com.