HOUSTON (CN) – Oil executives and Republican lawmakers hailed the lifting of the 40-year-old ban on crude oil exports as a major victory Friday, but one expert says it won’t stem the tide of layoffs and bankruptcies wracking the industry.
The export ban was lifted in the $1.15 trillion spending bill that President Obama signed Friday.
Congress enacted the ban in the 1970s, when gas prices skyrocketed due to the OPEC oil embargo that began in October 1973, after the Yom Kippur War. Oil prices rose swiftly, from about $3 a barrel to more than $12 (sic).
Prices rose with little restraint until U.S. crude production took off in 2008 with the advent of fracking, leading to a domestic glut, driving prices at the pump below $2 at many gas stations today, for the first time in recent memory. U.S. production increased by 74 percent from 2008 to 2014, according to The Wall Street Journal.
U.S. oil companies called the lifting of the export ban a game-changer.
But University of Houston energy economics professor Ed Hirs had a ho-hum reaction to the news.
Based on the numbers, Hirs said, exporting U.S. crude does not make sense, and the country will remain a net importer. The United States produces around 10 million barrels a day, but consumes 18 or 19 million.
“Let’s suppose they start exporting 1 million barrels of crude a day. That means the U.S. is going to have to import another 1 million barrels a day,” the Yale-trained economist said in an interview.
OPEC crude was selling at $31.49 a barrel on Dec. 17, and Hirs said U.S. shale producers cannot compete at that price and stay in business.
Saudi Arabia, the most powerful member of OPEC, has refused to curb production despite the fracking-created glut, and prices have plummeted.
Iran, another oil-rich member of OPEC, will soon be allowed to sell its crude on the international market, under a deal it struck with Western nations this summer. The Western powers agreed to lift some trade sanctions in return for Iran letting international inspectors monitor its nuclear program.
Opponents of the 40-year-old ban argued that Iran should not get that privilege while U.S. producers were confined to domestic sales
Still, Hirs said, the economics don’t add up for many U.S. producers.
“Let’s face it: 5 million barrels a day of the oil we produce comes from our high-cost shale, where these guys honestly need $70 per barrel at the wellhead to make a living. Right now they’re getting $30 or less. So how do they expect to export $70 oil for $35 a barrel and be profitable?”
Hirs said Saudi Arabia can afford to sell its oil cheaply because its bountiful wells are “conventional.” The oil comes out of the ground without the need for the expensive fracking process.
“In 2014, the U.S. produced about 5.1 million barrels a day from around 22,000 shale wells; Saudi Arabia produced 9.1 million barrels per day, from about 3,100 conventional wells,” Hirs said. Simple math shows that the average Saudi well was 12.7 times more productive than a U.S. well.
The price of crude plummeted from $144 per barrel in July 2008 to $31 today, knocking down prices at U.S. pumps from more than $4 per gallon to under $2. The lingering recession and worldwide economic slowdown repressed demand from China, India and Pakistan, and OPEC’s decision to protect its market share by maintaining its output despite the U.S. production renaissance indicates there will be little upward pressure on prices for the foreseeable future.
Hirs said OPEC will not bat an eyelash at the export of U.S. crude.
“OPEC doesn’t give two shakes about it. OPEC is protecting their market share; they realize that essentially they let the price get too high,” he said.
“Basically, the United States got involved in a price war that at least half of the industry couldn’t afford to get into.”
The American Petroleum Institute agrees that prices will stay low.
Jack Gerard, president of the trade group that represents more than 650 companies, wrote to congressional leaders on Dec. 16 that U.S. crude exports will “create 1 million jobs at its peak in 2018, and add $38 billion to our economy, and lower our trade deficit by $22 billion and our federal budget deficit by $1.4 billion in the coming years. And every major study agrees – crude oil exports would put downward pressure on U.S. gasoline prices, benefiting American consumers.”
ConocoPhillips CEO Ryan Lance said in a statement that “Americans will benefit from economic growth, wages, employment and trade. Ending the ban made eminent sense.”
But Hirs said the move is no magic bullet that will reverse job losses for U.S. energy producers.
“Until the United States becomes more competitive in drilling for oil, there’s no way. We’re about to see a whole raft of mergers, consolidations and bankruptcies, because they can’t produce oil profitably at these prices,” he said.
As of Nov. 25, 37 North American oil drillers, with combined debts of $13 billion, had filed for bankruptcy this year, according to the international law firm Haynes and Boone’s Oil Patch Bankruptcy Monitor. Another one, Magnum Hunter Resources, filed for bankruptcy protection in December, seeking to restructure more than $1 billion in debt.
Half of the bankrupt companies are from Texas, the U.S. industry’s epicenter.
Environmentalists say the country took a giant step backward by removing the export ban.
“By lifting the crude oil export ban, congressional Republicans are opting to export American jobs, escalate fossil fuel development, rip up iconic American landscapes to extract more oil, and increase climate disrupting carbon emissions,” Sierra Club director Michael Brune said.
“Rather than keeping pace with the entire world, which just agreed in Paris on an historic, universal climate accord that will help prevent the worst effects of climate disruption, congressional Republicans showed where their allegiances lie, by doubling down on 19th century dirty fuels,” Brune added.
Brune said that Democrats won a few consolation prices in the budget Obama signed: a 5-year renewal of tax credits for solar and wind-energy projects, and money for a water and land conservation fund.
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