Oil companies are applying for permits to export crude produced in the U.S. to Canada, according to Reuters, even as protesters in East Texas continue attempts to block construction of the southern portion of the Keystone XL pipeline. BP already has gotten government approval for exports, and Shell Oil has applied for a permit to do the same. While the exports are tiny, they are being touted as a sign that the U.S. is stepping closer to energy independence. In fact, something quite different is going on.
The U.S. exported an average of about 47,000 barrels a day to Canada last year — less than half of 1 percent of our oil imports. In July, though, crude exports rose to 77,000 barrels, the second-highest volume recorded by the U.S. Energy Information Administration. It isn’t clear how much BP and Shell are looking at moving out of the country, but it’s not likely to skew the numbers much. Rising production from places like the Bakken Shale in North Dakota and the Eagle Ford Shale in South Texas has created a glut of light sweet crude. As I’ve written before, a lack of pipeline capacity makes it difficult to get that oil to refineries, and many U.S. refineries have been retooled to process heavier crude from other countries.
The result has been a price disparity that’s persisted for several years between West Texas Intermediate crude and Brent crude, which is the benchmark for the world price. With a price difference running about $20 a barrel, exports are becoming a profitable alternative.
Rather than being a sign of energy independence, though, it’s a sign of infrastructure that isn’t keeping up with rising domestic production. The southern leg of the Keystone pipeline, for example, would help move some of that light sweet crude that’s backed up at the terminal in Cushing, Okla., to refineries on the Gulf Coast. That, in turn, could actually help lower gasoline prices.
Instead of protesting fossil fuels, what the tree-sitters in East Texas are doing is ensuring that drilling in the U.S. will continue but the economic benefits from it will be sent somewhere else.