Oil – Do We Have Enough to Share?

February 12, 2014

Recently, the energy policy discussion in Washington has turned to the issue of crude oil exports. Crude oil exports are controlled—and restricted—under the Energy Policy and Conservation Act of 1975 (EPCA), passed in response to the oil price shocks of the early 1970’s. Earlier this month, Senator Lisa Murkowski issued a white paper advocating greater energy exports. After many years of growing oil imports, the United States is seeing a reduced dependence on imports and growing domestic oil production.  

The United States was formerly a crude oil exporter. In fact, during World War II, the United States was the primary supplier of petroleum to the allied war effort. As the global petroleum market changed in the following decades and with the eruption of the 1973 Arab Oil Embargo, EPCA’s restrictions soon followed. 

To be clear, EPCA does not specifically prevent crude oil exports, but require that they be licensed through the Department of Commerce in a process that places restrictions on oil trade, unless specific criteria are met. Oil exports had declined to a very low level before the 1975 law because of growing U.S. consumption and a greater reliance on imports. In other words, the market had already restricted exports because of economic conditions before the government acted. 

The process of finding, extracting, and refining crude oil into useful products is capital intensive and technologically advanced. Crude oil is not a homogeneous commodity, but varies widely in composition. All crude oil is composed of carbon and hydrogen, but the size, complexity, ` molecules varies between different crude oils. In addition, other molecules, such as sulfur compounds vary; oil with lower sulfur compounds are referred to as sweeter oils and those with higher sulfur content are considered sour oil. These different crude oils require different processes to convert them into gasoline, diesel, and other products. Refineries are built to process a specific range of crude oil quality most efficiently. Refineries in the United States were largely built to process heavier crude oil. The shale oil being produced today is lighter crude oil, creating a mismatch between refinery configurations and growing light crude oil supplies. 

The United States economy has benefited greatly because of trade with other countries. It is trade that made it possible to meet the energy needs of our growing economy for the last few decades when we did not produce sufficient oil for our expanding needs.  Increasing trade in crude oil exports would allow the market to balance the crude oil quality with existing refinery needs. 

The price of oil is set through global markets, so delaying or impeding the efficient trade of a commodity, such as oil, has only regional and short-term impacts, but can lead to longer term imbalances. In the case of Canadian crude oil, railroads have expanded capacity in order to reduce the bottleneck due to the failure of approved infrastructure. In a global market, increasing production by allowing the markets to determine the most effective investment is the best way to ensure adequate supplies at the most affordable prices. 

In 2013, the United States became the largest natural gas producing country in the world. In the Energy Information Administration’s 2014 Energy Outlook, the United States is slated to become the world’s largest oil producer in just a few years. This energy abundance is the result of market forces that capitalized on new technology during a time of higher energy prices. The best way to ensure continued energy abundance is to trust markets, including allowing crude oil exports. A free market approach enables future technology development and investment. 

Markets work. In the past, when government has attempted to manage energy markets and restrict use, the result was scarcity. The crude oil markets are too important and too complex to rely on government control, when it is impossible to have foresight on how the market will evolve. 

Back to the question posed in the title, do we have enough oil to share? Sometimes the best answer is a simple answer. In a 1986 book by Robert Fulghum called All I Really Need to Know I Learned in Kindergarten, the first rule is “share everything”. Enabling crude oil trade is good for U.S. consumers and good for the world. Ask a kindergartener if it is good to share. 


Murkowski white paper


EIA Outlook