The business of change

Jan. 27, 2014
Change is messy, demanding both courage and vision to risk comfortable todays for promising tomorrows.

Robert Brelsford
Technology Editor

Change is messy, demanding both courage and vision to risk comfortable todays for promising tomorrows.

The petroleum industry endures because it identifies when change is necessary, confronts the uncertainties involved, and acts with the mettle to evolve.

The laws and policies that govern this industry should do the same.

Any sampling of headlines in recent weeks shows a repeated call for lawmakers to lift the embargo on the export of US-produced crudes—a ban (with very narrow exceptions) instituted during the 1970s when US refiners were at the mercy of constrained foreign supplies.

But as Heraclitus observed, "All is flux, nothing stays still." Just as people change, so do industries.

Complaisance kills

This writer recently joined Oil & Gas Journal as downstream technology editor after 8 years as a price reporter for crude oil trading in the spot market.

In practice, price reporting was like scoring tickets to a great show only to discover the seats are in the theater's nosebleed section. It became a habit of watching comfortably from afar, well away from the fray of real action.

But comfort breeds stagnancy. In resigning to a belief that a system works, you can lose perspective. And the longer it persists, the more reluctant you become to disrupt the order of it all, however stifling that order may be.

Then came OGJ.

The move has been life-changing in every way one could hope that phrase might apply to the result of any decision to risk change.

All movement, however, requires action.

You recognize a problem requires a solution and now are faced with a choice. To make it involves assessing both short- and long-term values inherent in the undertaking.

The same logic applies to policymaking regarding the ban on US oil exports.

As US Sen. Lisa Murkowski points out in a recent white paper entitled "A Signal to the World: Renovating the Architecture of US Energy Exports," the US is producing more oil today than at any point in the past 20 years, with the Energy Information Administration projecting increased conventional and light tight oil (LTO) production growth through end-decade.

Given the boom in LTO production from US shale deposits, US refineries are beyond supply threats experienced during the Arab oil embargoes of the 1970s.

But increased US production results in cheaper feedstock prices, which leads to improved refining margins and greater profits, right?

Not exactly.

As with anything that appears too good to be true, there's always a catch. Here, it's that the boom in LTO output yields crude supplies that, as Sen. Murkowski notes, exceed US light refining capacity.

In fact, back in 2005, US Gulf Coast, West Coast, and Midwest refiners were investing billions into upgrading their plants to process the flood of heavy Canadian crude for which many refiners, by the way, continue to wait.

Despite mounting light crude supplies entering storage as US refiners—largely configured to process heavier, more sour slates—pass on them, opponents to reexamining the export ban contend a production plateau by 2020 once again places US energy security at risk. Other opponents, including some refiners, allege lifting the ban will increase feedstock costs, thereby quashing profitability and jeopardizing continued operability.

First act

But crude in storage profits no one, and even a drop in US oil production will leave domestic supplies exceeding historical levels.

Add on downward pressure to global crude prices as US-produced crude enters international markets, and we find ourselves in a theater where Act I is just under way.

Whether it will be a drama or tragedy remains unclear.

Either way, at OGJ, editors sit in the fire of the front-row. And for what it's worth, this editor wouldn't wish to be sitting anywhere else.