Open The Spigots

Instability and conflict in the Middle East is on the rise and with it there is a greater risk that oil production could be interrupted. In Iraq, ISIS forces have put the country on the brink of civil war. Oil production in the North has been disrupted but that has been offset by production in the South that so far seems secure. Last year, Iraq produced 3.2 million barrels a day and has been on track to produce more.   Libya, which had seen it oil production drop to a trickle, had been on track to produce over 1.4 million barrels a day, an increase of 1.2 million barrels from last year. But, like Iraq, Libya’s situation has deteriorated dramatically in recent weeks.

OPEC spare capacity sits at about 2 million barrels a day. Given instability in the Persian Gulf region, that hardly is a sufficient level of insurance.

Across the world in Europe, the Russian-Ukraine conflict and newly announced EU sanctions raise the prospect that Russia once again could use energy to intimidate nations to its west. Russia supplies about 24% of Europe’s natural gas and about 30% of its oil.

From this global perspective, supply and demand rest on a knife’s edge. Under these circumstances, among others, the US should be opening its federal lands and coastal regions to more exploration and production and removing obstacles to the export of crude oil and natural gas. Instead, the Obama Administration continues to slow walk anything, including Keystone XL,that would conflict with its hostility toward oil and gas. Building export facilities and ramping up production take time but actions change incentives and influence behavior. Every barrel of additional oil that we produce and make available for export adds to the world’s spare capacity.

Additional crude oil exports put downward pressure on prices. That has three effects. It lowers the cost of diesel and gasoline prices here. It complicates Russia’s decision to curtail oil exports to Europe since its main source of revenue is oil and natural gas sales. Third, additional production here would further reduce our imports, keeping more investment dollars here instead of sending them to oil exporting nations.

Expanding our ability to export LNG would strengthen our relations with EU nations, which are in need of repair. While Europe complains about US leadership, it has depended on it since the end of World War II but it isn’t getting it. More and more, leading from behind looks like retreat. The EU has been trying to get the US to include a specific energy component in the Transatlantic Trade and Investment Partnership that is being negotiated. But again, the Obama Administration is slow walking.

The strategic logic for “opening the spigots” is compelling. Unfortunately, ideology is trumping realpolitik and our strategic interests.

This article appeared on the FuelFix weblog at http://fuelfix.com/blog/2014/07/30/open-the-spigots/

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