How U.S. crude oil exports are hastening the demise of the oil industry

Not only is the U.S. shale oil industry failing financially and facing debts it likely can’t repay, but calls are growing for the new Biden administration to reinstate the crude oil export ban.

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SOURCEDesmog Blog

When Congress lifted the export ban on U.S. crude oil in December of 2015 to allow for exports beginning in 2016, the oil industry celebrated. However, looking back at the impact of lifting the 40-year-old ban, it appears the move has helped hasten the financial demise of the U.S. oil industry — while also increasing the industry’s huge contribution to climate change.

In many ways, the U.S. oil and gas industry’s demise is self-inflicted. When historians look back upon its declines, lifting the export ban will likely mark a turning point where the industry made a huge bet on the profitability of fracking for oil in the U.S. — and subsequently began to dig its own grave.

“Opening the shale revolution to the world through the export ban lifting helped shift the global oil market psychology from supply scarcity to abundance,” Karim Fawaz, director of research and analysis for energy at IHS Markit, told Bloomberg in early 2021. “It unshackled the U.S. industry to keep growing past its domestic refining limitations.”

Graph: U.S. crude oil exports  Credit: Energy Information Administration

Now, not only is the U.S. shale oil industry failing financially and facing debts it likely can’t repay, but calls are growing for the new Biden administration to reinstate the crude oil export ban — which President Biden could do immediately under a national emergency declaration.

This would effectively put a limit on the U.S. fracking industry — and be a big step in reducing the industry’s contributions to climate change. It would also restrain the industry from simply producing as much oil as fast as possible, something investors have been lobbying for the last several years. That’s because this approach has led to the loss of over $340 billion since 2010. Investors hope imposing fiscal restraint on the U.S. fracking industry will result in companies producing less oil overall but finally producing some profits.

Lifting the crude oil export ban to allow exports beginning in 2016 unleashed the U.S. fracking industry to produce as much oil as possible because it opened access to global markets with a long list of willing buyers of cheap U.S. crude oil.

It was a seismic change for the U.S. oil industry and built on the excitement of what was being called the fracking miracle; investors continued to lend large sums to the industry to produce record amounts of oil, betting on the promise of future profits to pay back the debt.

The profits never materialized despite the record amounts of oil being produced and now it appears that most of the best U.S. shale oil deposits were drained in that effort. The U.S. exported approximately 3.6 billion barrels of crude oil from January 2016 to October 2020. To put that in perspective, that is slightly less than the 4.1 billion barrels that the U.S. is expected to produce in 2021 (estimate based on EIA forecast of 11.1 million barrels per day in 2021).

Lifting the ban increased oil production

In response to the OPEC oil embargo and subsequent gasoline shortage in the U.S. in the early 1970s, the U.S. banned almost all oil exports. Unable to sell U.S. crude oil on world markets before 2016, the U.S. oil industry was limited by how much crude oil could be purchased by U.S. oil refineries. These refineries were running at full capacity and could not process another few million barrels of oil per day that frackers wanted to produce and sell. This very real limit was about to cause producers to have to restrain U.S. oil production rather than simply trying to get as many barrels of oil out of the ground as fast as possible.

To fix that, the oil industry and commodities brokers that trade oil on global markets successfully lobbied the U.S. Congress to lift the ban.

A big part of the argument lobbyists made was that there was such an abundance of oil to be fracked in the U.S. that it made sense to sell it to the rest of the world.In 2015, for example, Harold Hamm, billionaire founder of Continental Resources, presented a slide at the annual Energy Information Administration (EIA) conference projecting that the U.S. could be producing 20 million barrels per day (mmbpd) of crude oil by 2025 due to the energy abundance fracking had opened up. At the time, U.S. crude oil production was less than half that — just under 10 million barrels per day.

Image: Harold Hamm’s U.S. oil production predictions  Credit: DeSmog

By 2016, with the ban lifted and no domestic refining limitations shackling production, U.S. oil volumes exploded in the years that followed. The industry was producing huge amounts of oil as fast as it could — and losing huge sums of money in the process, likely hastening the industry’s currently unfolding financial collapse.

The misinformation behind the export ban’s reversal

The successful lifting of the ban was largely the result of a well-coordinated effort by the U.S. oil and gas industry — along with its partners in academia and various industry-funded think tanks — to mislead the public and government about the industry’s true motivations for lifting the crude oil export ban.

The industry’s campaign was on full display in 2014 at a conference hosted by a new academic energy strategy group, the Center on Global Energy Policy (CGEP), which was launched in April 2013 at Columbia University. New York City’s Mayor Michael Bloomberg spoke at the launch of CGEP where he advocated for fracking and natural gas.

In November 2014, CGEP hosted a Columbia University Energy Symposium. It featured a fireside chat with Marianne Kah, chief economist for ConocoPhillips, who supported lifting the ban.

Kah repeatedly referred to a study done by energy consulting groupIHS — which was instrumental in the public relations efforts to reverse the crude export ban. The IHS study touted the benefits of lifting the ban, focusing on potential economic benefits and downplaying any environmental risks. In 2014 Reuters reported that Daniel Yergin of IHS said that lifting the ban would not hurt the global environment because it would not add to total global oil production — a claim that was quickly proven wrong after the ban was lifted. 

As DeSmog reported at the time, the study by IHS was “funded by Chevron, ConocoPhillips, ExxonMobil, and other industry players.”

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