Freezing in the dark

Feb. 13, 2012
Reporters see an endless flow of press releases. Some are vital, many are at least helpful, but a few are what my British friends might colorfully describe as "pig-ignorant."

Reporters see an endless flow of press releases. Some are vital, many are at least helpful, but a few are what my British friends might colorfully describe as "pig-ignorant."

In early January, consumer advocate Public Citizen issued a claim that there is no need for additional drilling for oil and gas in the US because—gasp!—last year the US became a net exporter of petroleum products. The industry's supposed motive was to hike domestic prices.

This month the Sierra Club announced its objection to the export of US natural gas produced through the use of hydraulic fracturing. Club members claimed, strangely, "Liquefied natural gas is not only the dirtiest and most polluting form of gas, but it also requires an increase in fracking; a process we know to be unsafe and dangerous." But they also charged export of LNG "would raise gas and electricity prices nationally." So gas from shale plays is damned as dirty but remains vital to hold down consumer prices.

The Sierra Club and Public Citizen apparently subscribe to the strange belief that US energy prices would be lower if the industry would not sell its surplus abroad. This is the environmentalist and consumer equivalent of "let the rest of the world freeze in the dark," a sentiment just as ugly today as in the 1970s when some Texans foolishly advocated the same fate for Yankees. It now seems especially prejudiced since much of the exported US petroleum products supply developing economies in Latin America.

Once in 62 years

As in most effective propaganda, there is a grain of truth in the Public Citizen statement: For the first time since 1949, the US exported more petroleum products than it imported in 2011. The Associated Press reported the US exported 848 million bbl of petroleum products (valued at $73.4 billion) in the first 10 months of 2011, more than any other single export product. But the US also imported 750 million bbl of petroleum products in that same period for a net difference of 98 million bbl—not exactly a market-changing amount. Crude imported into the US in those months cost roughly $280 billion. One would think even the most rabid opponent of international trade would welcome any offset to that deficit.

Public Citizen acknowledged anemic US demand combined with high US oil production has resulted in an oversupplied US fuel market, providing incentive for refiners to export. But then it leaps to wild conclusions, ranting, "What does that do? It keeps prices high, of course. And that's really what the oil industry is after: more drilling (without having to abide by rules prohibiting the fouling of the environment or the poisoning of people), more oil, more exports, high gas[oline] prices, more money."

The industry abides by rules, of course—it just wishes some were more reasonable. Since drilling crews are first on the scene, it would be hard to hire workers if fouling and poisoning were commonplace. It would be like inexperienced airline flight crews taking up ill-maintained aircraft knowing pilots are the first to hit the ground in a crash.

Naturally no commercial company would willingly overproduce, especially at a loss, just to artificially deflate the price of its own product. Even bailed-out Chrysler wouldn't do that. The way to lower prices long term is through more efficient production—the corporate dream—and US refineries have become more efficient. But crude is the biggest element in refining costs, and crude prices have hit record highs in recent years, until shale development increased supply. That's why US demand for gasoline has been declining since its 2007 peak. Since opponents have long advocated less use of fossil fuels, one would think they would be ecstatic. Opponents also ignore other important elements such as the shifting valuation of the euro vs. the dollar and—more important—continued loss of refining capacity in Europe and on the US East Coast as high crude prices and declining demand squeeze refiners out of business.

More Oil & Gas Journal Current Issue Articles
More Oil & Gas Journal Archives Issue Articles
View Oil and Gas Articles on PennEnergy.com