The United States of America is back in the black gold export market. Selling crude oil on the global stage may well be the newest weapon in the hands of this world’s top policeman. On December 31, 2015, its first crude oil shipment in a long while departed a port in Texas. It was meant for overseas buyers. The last time such a journey happened was 40 years ago. Resumption of export of oil by the US is a landmark occurrence. It’s one phenomenon decision makers here should note. I wonder though if they do, and if our government has organised sharp minds to do some calculations with respect to how this impacts Nigeria’s single most important export commodity. That’s like wondering how much the nation should worry about its economy that’s under pressure at the moment.
The debate as to whether or not the US should resume export of its oil had been on for some time. Trust that society with its robust debaters that are sometimes remotely controlled by interest groups. Never leave out the figures rolled out by opposing sides either to prove or disprove. Statistics don’t lie. Supporters quote them to show the benefits of undoing the ban. They also quote them to show the dangers of refusing to export. Powerful oil companies led the side that wanted the ban lifted. They got the Congress to change its mind mid-December.
But how did the export ban happen in the first place? The US blocked most exports of crude oil during the 1975 Arab oil embargo that had rocked its economy. Security of the domestic economy was thus top reason. But for almost a century before then, the US had exported oil; it had imported oil at the same time. Does it sound confusing? The dynamics of these things could be complex. One factor is how nature distributes its variety of black gold underground across the world. The US refineries are configured to process heavy (rather than light) crudes. But it has much light crude under its ground. So it exports light sweet crude to places such as Mexico which uses the lighter grade in its refineries. In turn, it exports heavier crudes to the US Gulf Coast refineries. In addition, lower prices for Brent crude make it attractive for refiners on the US East Coast to import light sweet crude from Africa. Add this to the fact that all current and projected increases in the US crude production have been in light sweet crude. It means the US has more light crude to export. One report says the US is near the point where rapid production growth of light sweet crude exceeds the ability of its refining system to economically process it. That means exporting light sweet crudes and importing heavier crudes better align existing refinery configurations. Moreover, it all adds up by exporting a surplus of expensive, light oil from one region and importing cheaper, heavy oil in another, instead of moving costlier oil across the US.
The reality is that the US exports and imports several other commodities too. Some economic factors make this necessary. In the event, a bit of juggling always has to be done. So, importing, exporting, banning import or export of the same commodity are normal on the international stage. Anything from international politics, security, implementation of sanctions, to partisan domestic politics could be the reason. Domestic politics in particular was core to how the unbanning of export of the US oil happened. The Democrats want one thing, the Republicans want another. Both negotiate. We allow this, then you allow that. The deal is done. It was how the Republican-dominated Congress handled the latest matter. Unbanning export of oil was the outcome of a compromise. It was one deal in a $1.15tn spending bill that the White House wanted so badly. The bill had also included provisions such as the extension of tax breaks on solar and wind energy. In it, the Republicans had promised not to block a $500m payment to the UN Green Climate Fund. With the compromise, the executive that loathed export of the US oil began to speak in favour. Export restrictions deserve some new analysis and examination in the context of what is now an energy world that is no longer like the 1970s, the US Energy Secretary, Ernest Moniz, has said. An energy independent and net exporter of energy as a nation has the potential to change the security environment around the world – notably in Europe and in the Middle East, Chairman of the Joint Chiefs of Staff, General Martin Dempsey, has added.
The US produces about 9.2 million barrels of oil a day. Half of that is shale production. But it also imports seven million barrels a day. Now, the US has overtaken Russia and Saudi Arabia on both ends. That’s a huge punch for a nation that packs so much already. Initial assessment was that with many oil ships floating on seas, not many nations would be crazy about the US exports. This doesn’t mean the resumption ofits export won’t affect parts of the domestic and global energy industry in the future. There’s the effect on the Organisation of the Petroleum Exporting Countries, for instance. The US crude export is one more hill for OPEC to climb. The organisation used to fix prices by allocating output quotas. Lately, it allows market forces to set prices. The result is that the global stage is littered with more than one million barrels a day of oil that no one buys. The return of the US complicates matters. There’s also the sanction on Iran that has been lifted; it means more oil tankers on seas. This affects countries that depend on oil for much of their revenue. Nigeria feels it as things stand, even though OPEC’s Secretary General, Abdalla El-Badri, has been sounding bold. There would be no market impact from the US exports because it is also an importing country, he has said.
If its crude oil goes out as much as its other goods do, America would be in a stronger position in world’s oil market. This is another kind of gun in the hands of the world’s policeman. Its allies across the world would feel more comfortable, naturally. Without exporting oil, the US had taken interest in maritime security in Nigeria’s Gulf of Guinea, as well as other oil shipping flashpoints across the world; now, it has more excuses to police these areas. There are other benefits as well. The domestic benefits have been the major interest of the US lawmakers in all of this. Most important are the economic figures cited by lobby to convince them. The US producers and consumers will gain as there is an increase in domestic oil production, lawmakers were informed. This will translate into lower fuel prices. One million jobs will be added. Between 2016 and 2030, close to a trillion dollar worth of investment in the production end is estimated to be available, with an average of over a million barrels of oil per day. The US motorists would save about $300bn in the same period, compared to the time the ban was in operation. These and more had been part of the domestic calculation.
In all of this, my main concern isn’t America, but Nigeria. With the lifting of oil export ban, the US has made itself more of a presence on the global stage. This is one country that’s not regulated by OPEC. It can therefore cause significant ripple in the market. Nigeria with its dependence on oil revenue is at the mercy of a product which price it cannot determine. The point is that we need to seriously consider the situation in which we find ourselves. Leadership would need to do some critical thinking, and follow the path of what might be painful now but beneficial to the nation in the longer term. We can’t continue to be comfortable where we are, merely lamenting falling oil prices. What should be done about it concretely should be the concern of everyone. Let’s consider what we need to cut, what we need to add, and where best to add it. At this point, all arms of government should be seen to be working together on how to navigate the nation away from the dilemma into which reduced crude oil revenue has thrown us.
PUNCH
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