FRAMINGHAM, Mass. -- The United States during the week of Nov. 30 exported more petroleum products than it imported by 1.5 million barrels per day (bpd), according to the U.S. Energy Information Administration. This was last achieved 75 years ago. Not coincidentally, 1943 was around the start of a U.S. economic boom that lasted 26 years, and while a baby boom and housing formation were a major impetus, do not discount the similarities to today’s boom in the economy. They include:
- Low interest rates
- Inexpensive energy
- A government favorable to capital formation and business
- Productivity gains from technology and innovation
The burning questions in energy are: Will it last? What takes us from independence to dominance? What are the benefits of independence or dominance? And what policies do we need to implement or maintain to continue independence or dominance?
Benefits of Being First
Most pundits agree independence is defined by exporting more than importing. The 1.5-million-bpd spread will widen in the next seven years to as much as 6 million bpd as we consume less (Corporate Average Fuel Economy standards, electric vehicles, natural gas substitution) and produce more. But that does not mean prices will not rise; we did not detach from the world, and oil is a global commodity.
It does mean that for every $1 rise in the price of oil, $600 million will flow into the United States vs. flowing out, ensuring no recession because of a price spike and possibly an economic stimulus (although the coastal states will lose as the Gulf states, Southwest and Texas enjoy the benefits).
Almost as important, it does put a cap on oil prices. In the past as prices rose, the Organization of the Petroleum Exporting Countries (OPEC) could cut exports because of increasing revenue. But today, much higher oil prices will stimulate U.S. producers to increase production from 11 million bpd to as much as 20 million bpd.
In the past, OPEC and Russia were restrained only by jawboning, fear of agreement cheating, or, in the case of sovereign wealth funds, a collapse in U.S. equities. Today, a fear of market-share loss to the United States and further stimulation to nonpetroleum transport fuels restrains the worst impulses of oligarchs to those sitting on an eroding resource.
Energy independence and dominance, then, is not just an economic security blanket but a geopolitical lever breaking European dependence on Russia and Chinese expansionist plans (see: South China Sea shale formation and African hegemony). In fact, Qatar’s recent decision to leave OPEC is just the first of many more to follow—OPEC is effectively dead. But I still expect more meetings because talk is easy and meetings allow oil ministers to drink, shop and carouse in Austria on a regular basis.
A To-Do List
The policy implications for the United States are clear:
- Keep shale production strong.
- Keep exporting crude and products that keep strong U.S. refinery runs and jobs.
- Encourage the use of natural gas as a transport fuel because we are already dominant in natural gas, with the largest reserves and production in the world, and electric vehicles will never be a solution for trucking, aviation or marine vehicles.
- Build infrastructure—specifically, pipes and export facilities that lessen the final cost to consumers. Forty percent of the cost of transport fuels are related to distribution costs, 24% to taxes and only 36% to hydrocarbon costs. And pipeline transport is not only cheaper but also safer than water, truck and rail.
- Continue to support ethanol and biofuels that drop petroleum consumption 1.6 million bpd.
We are energy-independent today and on the cusp of dominance. We will cross the dominance threshold when we are exporting 12 million bpd of petroleum and products, or 10% of 2020 expected world petroleum demand. Maybe at that point we could join with Canada, the United Kingdom and Norway to form OFEC, the Organization of the Free Exporting Countries. While the U.S. Department of Justice may laugh, it is worthwhile to float the idea.
Joe Petrowski is an adviser to BW Gas & Convenience, dba Yesway, West Des Moines, Iowa, a c-store unit of Brookwood Financial Partners LLC, Beverly, Mass. He is also founder of Mercantor Partners LLC, a private-equity group focused on downstream energy distribution and retail convenience, and is the former CEO of Cumberland Farms and Gulf Oil.
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