By Kevin D. Williamson
Wednesday, March 02, 2022
Canada has announced a ban (mostly symbolic) on
Russian petroleum imports. The United States has not, because we have hamstrung
ourselves. In spite of being the world’s largest oil producer — by far — we
continue to import enormous quantities of oil and other petroleum products.
That isn’t a bad thing in and of itself, but it does limit some of our options
— and, in this case, it does so unnecessarily and, indeed, destructively.
There are four things to know here.
First:
The big immediate issue with U.S. petroleum production is
not how much crude we produce but what kind of
crude we produce. Before the boom in domestic production — enabled by the
modern extraction techniques colloquially known as “fracking” — the United
States depended heavily on imports, largely but not exclusively from the Middle
East, because we had no other practical choice. As a result of that situation,
many U.S. oil refineries are optimized to handle the “heavy, sour” crude we
import rather than the “light, sweet” crude we produce. That persists partly
out of inertia but also because of the fact that our sophisticated refineries
have big advantages when it comes to turning that heavy crude into useful
products. The science and the economics get complicated pretty quickly, but
that’s the simplified version.
The U.S. petroleum industry has not done much to update
or expand its refining capacity, in part because the owners of existing
refineries do not want to create new competition for themselves, and in part
because U.S. government policies discourage building new refineries.
Russian imports do not make up a very large part of the
U.S. energy portfolio: More than 60 percent of our oil imports come from
Canada, another 10 percent from Mexico, 6 percent from Saudi Arabia, and only 3
percent from Russia. (Estimates vary and the market is fluid — in November,
Russia was in the No. 3 position instead of Saudi Arabia — but the Russian
share is always in the single digits percentage-wise.) It may not be very much,
but that imported oil matters more than you might expect it to, because of the
specific composition of U.S. production facilities.
Second:
In January of 2019, the United States imposed sanctions
on Venezuela, which had been a big supplier of the heavy feedstock U.S.
refineries need. Deprived of that Venezuelan crude, U.S. refineries began
importing substitutes such as Mazut 100, a semi-refined oil product from
Russia. The boom in Russian oil imports pretty closely mirrors the decline in
Venezuelan oil imports — an unintended consequence of sanctioning Venezuela,
but not an unforeseeable one.
In the short term, Washington could decide that sanctions
directed at Vladimir Putin are more important than sanctions directed at
Nicolás Maduro and try to replace those Russian imports with Venezuelan imports
— and Venezuela’s production has been making a little bit of a
comeback recently. But a long-term approach would involve creating incentives
to update and expand refining capacity in the United States.
Remember, there aren’t very many uses for crude oil — it
is the stuff that refineries make out of crude oil that is useful and valuable.
Third:
Another problem with U.S. petroleum production is where we
produce and refine it. With the exception of Houston, most of the large U.S.
population centers are far from the Gulf Coast facilities at the heart of our
energy industry. We import petroleum products in part because there is no good
economical way to get them from the Gulf Coast to the East Coast.
In addition to heavy stock, we also import gasoline and
diesel from Russia, along with light, sweet crude for West Coast refineries.
New Englanders sometimes rely on natural-gas imports from Russia.
That is an almost entirely artificial problem, a big part
of which Joe Biden could solve, unilaterally — today.
The Jones Act requires that ships going from one U.S.
port to another U.S. port be built in the United States and owned and crewed by
U.S. citizens. There are very few tankers and crews that meet this requirement.
As a result, it costs two or three times as much to ship petroleum products
from Gulf Coast refineries to East Coast cities (or from Texas producers to
West Coast refineries) than it does to bring those products in from ports in
faraway countries such as Nigeria and Saudi Arabia. So there is little or no
port-to-port petroleum business within the United States.
The Jones Act is pure protectionism for a small number of
uncompetitive U.S. shipbuilders. Without it, we could replace some of the
Russian imports with domestic product almost immediately.
Repealing the Jones Act entirely would be a good policy
move irrespective of the situation with Russia. But even without congressional
action, the Biden administration has the authority to issue Jones Act waivers.
The administration did that, in a limited way, after the cyberattack on the
Colonial Pipeline in 2021. If there is an occasion for going big with those
waivers, this is it.
Fourth:
Another barrier standing between U.S. petroleum producers
and consumers: New York. A succession of New York governors — including Andrew
Cuomo and Kathy Hochul — have prevented the construction of new interstate
pipelines running through the state. This is what has cut New England off from
so much U.S. petroleum production — and what keeps New York consumers from connecting with gas producers in
Pennsylvania.
These same New York politicians have kept New York’s own
oil and gas industries on the sidelines.
President Biden is himself an offender on that score,
having scuttled the Keystone XL pipeline, which would have expanded
U.S.–Canadian trade. That would be a win for many reasons, one of which is that
Canada is a big producer of heavy oil, which is used to produce everything from
heating oil to petrochemicals.
We move oil and gas around on trains and trucks, but the
most efficient — and safest — way to transport fuel is via pipeline.
Environmentalists who block pipeline projects do so out of an ideological
opposition to building any new conventional-fuel infrastructure. (Sometimes,
they even say as much publicly.) If the Biden administration is going to go along
with that, it means taking some policy options off of the table in our
confrontation with Vladimir Putin. There are many environmentalists who will
say that the tradeoff is worth it, and it may be, in the long run — but we
should be transparent about what the tradeoff is and thoughtful in evaluating
it.
“Energy independence” is a pipe dream and always will be,
even for a big producer such as the United States. The real-world energy
business is too complex for that. But our relationships with Canada and Mexico
are not very much like our relationship with Russia. And we are hobbling our
domestic energy industry for political reasons.
That is a choice, and probably not the best
one.
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