Is the U.S. so energy independent we should export crude oil?

[ This is one of several House of Representative sessions discussing energy independence and whether to revoke the energy policy and conservation act of 1975 ban on crude oil export.

The only time so far I have ever seen a cautionary note about the reality of energy independence so far is in this session, in which Rep Bobby L. Rush of Illinois inserts Mason Inman’s “The Fracking Fallacy”, though Rush never brings this evidence up in the hearing.  A Nature editorial describes the findings as: “The EIA projects that production will rise by more than 50% over the next quarter of a century, and perhaps beyond, with shale formations supplying much of that increase. But such optimism contrasts with forecasts developed by a team of specialists at the University of Texas, which projects that gas production from four of the most productive formations will peak in the coming years and then quickly decline. If that pattern holds for other formations that the team has not yet analyzed, it could mean much less natural gas in the United States’ future.” 

Alice Friedemann  author of “When Trucks Stop Running: Energy and the Future of Transportation, 2015, Springer]

House 113-187. December 11, 2014. The energy policy and conservation act of 1975: Are we positioning America for success in an era of energy abundance? U.S. House of Representatives. 118 pages.

Excerpts follow:

ED WHITFIELD, KENTUCKY.   This morning’s hearing we are going to be focused on the Energy Policy and Conservation Act of 1975 (EPCA), which prohibited the export of crude oil. But as we all know, the trends behind the oil export restrictions have dramatically reversed themselves in recent years. Thanks to advances in hydraulic fracturing and directional drilling, domestic oil production has been sharply rising.  In fact, America may soon be producing more oil than it can handle. We will conduct a thorough analysis and give all points of view the opportunity to be heard before we consider whether to take action [to allow the export of crude oil].

JOE BARTON, TEXASI would hope in the new Congress we take a look at the bill that I have introduced this week, H.R. 5814 which repeals the ban on crude oil exports, and it requires a study reported to this committee of what we do with the Strategic Petroleum Reserve. It is a different world today, Mr. Chairman, and when you are number one you use that status. If we allow our producers to export the crude oil that can’t be consumed here in the United States or refined here in the United States, we put pressure on OPEC, we put pressure on Russia, we create jobs here at home, and we make sure that that world price which sets the crude oil price is based on real supply and demand, and that is a good thing for everybody.  [H.R. 5814 was not enacted]

LUCIAN PUGLIARESI, President, Energy Policy Research Foundation, Inc.  We want to make the distribution of crude oil efficient. That is why we need Keystone. We want to have good regulations. We want to open up the Federal lands a lot more. You know, all this production we have seen has come from Federal lands.

Traditionally, conventional oil had a very modest decline rate, maybe 5 percent, and a pretty high recovery factor, as much as 50 percent. What I don’t think we understand is that, even though we have this very high decline rate in these unconventional resources we have now, but we have to keep drilling, our recovery factor is quite small. Small improvements in this recovery factor are going to make a big difference. That is why we want—you know, we want to see this technology continue to progress.

Deborah Gordon, Director, Energy and Climate Program, Carnegie Endowment for International Peace.  The bottom line is that oils are changing and a more complex array of hydrocarbon resource is replacing conventional oil.  The truth is we know precious little about these new resources. The Nation needs reliable, consistent, detailed, open-source data about composition and operational elements of U.S. oils. Significant information gaps have accompanied the Nation’s oil—increased oil production.

Several EPCA provisions merit careful review and consideration and possible updating: One, widely expanding oil data collection, making this information publicly available; two, increasing the heavy-duty vehicle efficiency standards for trucks and marine vessels that move the oil and petroleum product that we are trying to consume less of at home; and, three, revisiting oil accounting practices so that the SEC is fully informed about oils that are on tap to bolster U.S. markets.

Do policymakers and the public have sufficient information about America’s oil? Unfortunately, they do not. Ironically, there is more detailed open-source data about OPEC crudes than the oils in the Bakken, Permian, and Eagle Ford. In seeking to obtain and verify these needed oil data, we have encountered several obstacles, from data inconsistencies, to withheld data, to Government limitations on expanding oil reporting.

There are so many reasons why the information is not there. The first reason is that the light tight oils are the newest kid on the block

Another one, having met with DOE, is that apparently the Energy Department can’t really collect data on oil freely. It turns out OMB—and I was kind of flabbergasted when I learned this— but OMB says this is duplication of effort. Industry submits data on oil. DOE doesn’t set reporting requirements for oil. Although, when you read EPCA, there is room for this to happen. It just hasn’t really evolved that way. So DOE is actually only getting the information that industry wants to report out. These are new oils; there is less information reported out. One of our partners tried to purchase data owned by big oil consultancies, and after negotiating about a year and hundreds of thousands of dollars, they were told the data wasn’t for sale because it is competitive. They don’t want the academic sector to compete with the consulting sector. So there a lot of concerns when it comes to oil data, especially as now more oils are out there.

What are the environmental risks these new oils pose?  There are several categories of higher emissions from oils. These include gassy oils, like the Bakken or Nigeria, where gas associated with oil is flared or burned instead of separated and sold; heavy oils, those that use more heat, steam, hydrogen through their value chains to yield more bottom-of-the-barrel products like petroleum coke, a coal substitute; watery oils, which are interesting, like those in California’s San Joaquin Valley where it takes a tremendous amount of energy to lift as much as 50 barrels of water for every one barrel of oil that you produce; and extreme oils like those in the Gulf of Mexico that are miles below the surface or those in the boreal peat bogs in Alberta, where carbon is naturally sequestered.

The heavier oils, don’t preferentially make more gasoline. They make more diesel.

The oil market is one of the least efficient markets. There are so many reasons: barriers to entry, barriers to exit, not enough information, externalities. There is far more efficiency in peach markets than in oil markets.

We have new oils, new conditions, and then we have huge growth in China in terms of demand that is sporadic. It is not going to be red hot consistently. It is a market. And so we do tend to talk about oil at a moment in time, maybe because it is sold on every corner, that it is as if this is the condition that exists for all time. But the reality is it is very dynamic and we could easily return with risks, differential risks, different consumption patterns. Even in America, we are selling a lot more SUVs right now. They are up tremendously.

John A. Yarmuth, KentuckyWhile everything looks wonderful right now with an abundance of oil and petroleum in the world and prices down, that would seem to mitigate against worrying about a crisis. But isn’t it entirely possible that we could return to a 1970s situation? I was a staffer here in the 1970s and remember those lines as well. So would it not be useful to have at least some contingency measure for an international outbreak or a war, terrorism, whatever it may be, that we have some way to protect our domestic supply in case of an emergency?

LOIS CAPPS, CALIFORNIA. This lack of transparency is very concerning not just for our assessment of oil export policy but for conducting proper oversight of the industry in general. If the industry is asking us to lift the export ban, I believe they need to provide the information that is so clearly needed to properly assess the very policy that they asking us to expand upon.

Ms. GORDON. Certainly taking the sulfur out will be fantastic for health and for the environment. But a bigger question with the heavier oils is petroleum coke and what happens with the very bottom of the barrels. So when you put coking capacity into these refineries, you basically remove the middle of the barrel and you end up with a lot more gasoline and diesel, which is good for profit, and then a lot more of a solid substance, called petroleum coke. And we are also exporting that. The U.S. has increased its petroleum coke exports to China 70-fold in the last several years. It is a coal substitute, and it is worse than coal in terms of emissions.

Petroleum coke is the bottom of the barrel after all the liquids from the heavy oil are wrung out in every refining process, but in very small amounts. Though with heavy oils, you have a lot of petroleum coke, a high-carbon bottom- of-the-barrel product. And so, when you put in coking capacity that actually cleaves these molecules, you get more liquids out, which is good, but then you get more solids out of your refinery. Petroleum coke is a solid fuel. If it is a very, very high-quality petroleum coke, which goes into steel and glass and ceramic manufacture. If it is a low-quality coke, high in sulfur, high in heavy metals— this is what comes out of the oil production process—that goes into power production and steam, and then you are basically burning coal. It has about 10 percent higher greenhouse gas emissions than coal and higher nickel, vanadium, sulfur, than some of the worst coals. So when coal is priced high, as it had been recently and before we were exporting a lot of our coal, China wanted petroleum coke because it was an economic benefit for them to burn coke instead of coal. Now prices of coal are low. And so coke is a little bit out of favor. And, if you remember, there was a news release in Detroit about a pile of petroleum coke that got a lot of attention in the press. It is very—it is black. It is voluminous. They are spreading it in Alberta over miles because they can’t export it. So it ends up being a problem. Canada wants to send America the heavy oil so that we can export the petroleum coke since we are closer to ports of call.

Prices have come down so petcoke is really priced to sell. It is very hard to get data on petcoke. It is not traded publicly, but person to person, company to company. Since it is a byproduct of refining and no one really wants to make petcoke, it builds up and you have to get rid of it.  Refiners want to get a lot of money for it. But, if they can’t, they still have to put it into the market. So the price is relatively volatile.

There are definitely things you could do with the fuel-grade petroleum coke. You could take heavy metals and the sulfur out and make it actually a beneficial industrial byproduct, but it is going to cost money to do that.

You have to look at the geopolitics and the kinds of oil that we would be exporting.  The light tight oil has backed Nigerian imports out of the U.S. As we produce more of that oil, we are importing no oil from Nigeria, and that has a geopolitical impact  on Nigeria. I think even though oil is not being used at all as a weapon, it ends up being something that can counteract the peacekeeping and the other efforts that we have in these very fragile nations around the world.

I think that Russia is reeling from the price of oil. It is not our exports that are changing what is going on in Russia right now. It is $60 a barrel oil that is changing what is going on in Russia

The problem we have is twofold. We have had many impassioned proposals to do something to help Ukraine with the Russian crisis and other geopolitical events. But the reality is that our oil and gas are owned by private companies, and they are likely to ship the oil or gas to where the market gives them the greatest profit. Right now,  it is assumed that the market for LNG primarily would be in the Far East, because the premiums there have been much higher than those in Europe. Though now we have LNG prices crashing in Asia to such low levels it is questionable whether we can deliver LNG into those markets competitively. By the time we actually have LNG ready to go, outside contracts have already been signed. Geopolitically, I think the issue of exports is extremely important. Our allies in Korea, Japan, and Taiwan are very desirous to have energy from the United States because they see an increasingly bellicose China threatening sea lanes which all of their energy imports come from, not only oil and gas but also coal. I think it does improve our diplomatic status to the extent that we send energy there, but again, these are going to be commercial choices made by the companies that own that oil and gas.

Global production is not site specific anymore and this is also going to happen in refining. The country that added more refining capacity to the world market than any other last year was Saudi Arabia. And China is also adding refining capacity.  Demand growth is happening in Latin America, the Middle East, Africa, Asia.  So the whole market is really shifting somewhat. I don’t think you can really draw a circle around North America very easily in this market.

There is certainly some transparency in the market. But I think the best example of why there isn’t enough information in the market is the explosiveness of the rail cars taking Bakken oil. The market really didn’t know the composition of that oil, and the equipment wasn’t really designed to deal with that oil. So I think that we are seeing physical manifestations of the fact that there isn’t enough transparency in this market





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