A series of oil-by-rail accidents, some of them explosive and deadly, has Americans worried about the safety of oil shipments in the United States. Naturally, the attention turns to pipelines. We need to build out pipeline infrastructure such as the Keystone XL project because they are safer and more reliable than trains.
The problem is that the economics of pipelines don’t always work. Trains can ship to a lot of different places. With a pipeline, once it’s built, you’re pretty much stuck with point a to point b.
“Making a pipeline volume commitment is like getting married. Shipping by rail is like a one-night stand,”the Wall Street Journal quotes Ethan Bellamy, an analyst at Robert W. Baird & Co., as saying. “Right now I suspect producers would rather stay bachelors.”
The flexibility of rail shipments allows oil producers to send their oil to the refiners paying the best prices. Right now those are refiners on the east and west coasts, but most pipeline projects (including a couple the Journal notes have flopped in recent months) head south where refiners are already awash in domestically produced oil.
So what’s the solution? One could be to build more refineries, but there’s another much more eloquent solution to this log jam. Why not end the US ban on exporting crude oil?
Thanks to a Carter-and-OPEC-era trade restriction, only oil that has been refined in the United States may be shipped abroad. Domestic producers, particularly the relatively smaller producers that don’t also have refining interests, thus have only one market for the oil they produce, which is US refiners.
Alaska Senator Lisa Murkowski, among others, is calling for President Obama to end the ban on crude oil experts.
We already have some exceptions to the restrictions. “On six occasions since 1981, the president has lifted some of the restrictions on the export ofcrude oil and refined products originally imposed during the energy crisis of the 1970s,” reports Reuters. “Presidential decisions have lifted controls on the export of refined products (1981), crude to Canada (1985 and 1988), oil from Alaska’s Cook Inlet (1985), California heavy crude (1992) and Alaska North Slope oil (1996).”
Not only would an end to the export ban be a boon to US energy producers, but it would put America squarely in competition with Russia in the global oil and gas market (the export of unrefined US gas is also banned). Many feel that Vladimir Putin is emboldened in his foreign policy, up to and including his foray into Ukraine, is the result of his nation’s oil wealth. “Observers see that threat as a continuation of Russia’s long use of energy policy as a geopolitical cudgel,” reports Washington Free Beacon. “The ability of the United States to at least partially make up for a reduction in Russian exports, which could affect not just Ukraine but much of the continent, highlight U.S. interests in approving additional energy export projects, experts said. Doing so could help blunt Russia’s control over the continent’s energy market, according to Council on Foreign Relations Fellows Robert Blackwill and Meghan O’Sullivan.”
This sounds like a win-win to me.
Of course, this hinges on the idea that President Obama is capable of being pragmatic when it comes to fossil fuel regulations. Which seems doubtful after years of the Obama administration using regulations to smother fossil fuel development.