Experts Who Sold the Idea of Oil Exports Proven Very Wrong Very Fast

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Asย Bloomberg put itย recently, todayย โ€œcrude oil gushes out of the U.S. like never before.โ€ย U.S. exports of crude oil just hit a new record:ย nearly two million barrels per day. And while at DeSmog we predicted that โ€œlifting the oil export ban will result in large increases in fracking for oil in the U.S.,โ€ย most industry experts at the time were making very differentย claims.

โ€œItโ€™s universally agreed in the short term that we wonโ€™t see a flood of ships leaving for foreign ports because the economics arenโ€™t right,โ€ Sandy Fielden, director of energy analytics at respected consulting firmย RBN Energy, said in December 2015, just before the ban on crude oil export lifted. Fielden was explaining why lifting that ban wouldn’tย result in a sizable and ongoing rush to exportย Americanย crude.

Columbia Universityโ€™s Center on Global Energy Policy (CGEP) was instrumental in pushing to liftย this export ban. The CGEP report, โ€œNavigating the U.S. Crude Oil Export Debate,โ€ co-authored by the centerโ€™s leader Jason Bordoff, said, โ€œwe estimate lifting current crude export restrictions could increase U.S. crude production anywhere between 0 and 1.2 million barrels per day on average between now andย 2025.โ€

Zero increase by 2025? Could they have really believedย that?

The U.S. Energy Information Administration (EIA) had its most optimistic prediction for U.S. oil exports reaching two million barrels per day by 2050. They were only off by three-plusย decades.

Industry champion IHS predicted โ€œU.S. crude oil exports reaching 1.4m b/d by 2020.โ€ And Forbes ran a piece titled, โ€œWhy lifting Americaโ€™s ban on oil exports wonโ€™t matter,โ€ in which the author argued that it wasnโ€™t economically feasible to export oil from the U.S.

And yet, here we are in 2017: All of them proven wrong in short order. The EIA, for its part, is consistently criticizedย for its โ€œforecasting flawsโ€ which have produced predictions that are โ€œreliably and obviously wrong.โ€ Researchers have regularly acknowledged that predicting energy markets is really, really hard and often goes โ€œwildly wrong.โ€

Wrong on Amounts, Wrong onย Destination

In addition to being wrong about how quickly oil companies and commodities traders would begin exporting U.S. crude oil, energy experts also got wrong where that oil would go. Harold Hamm, CEO of Continental Resources and major Trump donor, testified in Congress that it was unlikely U.S. oil would be exported to China. And he was wrong. Asย Bloomberg notes,ย โ€œ[m]uch of the U.S. outflow is going toย Asia.โ€

To be fair, Hamm was one of the few people predicting explosive growth in the U.S. fracking industry should the export ban be lifted.ย He just was not right about where that oil would beย going.

Yet it seemsย pretty obvious to anyone who could do math. American oil consumption has been flat and is not predictedย to increase. Meanwhile,ย Chinaโ€™s consumption is growing rapidly at twice the rate of just a yearย ago.

If you are in the business of selling oil, China is the biggest potential growth market. And now, withoutย theย export ban in the way, American shale reserves can be fracked using government subsidies and commodities traders canย sell oil to the highestย bidder.

Commodities Traders Donโ€™t Care Aboutย You

These days the justifications for lifting the ban look a lot more like mythsย โ€” or an outright gift to the U.S. oilย industry.

The first myth was that lifting the ban was in the name ofย U.S. national security. But this is easily debunked because whereย oil goes is up to commodities traders. The largest traders like Vitol and Trafigura are global companies with no interest in aligning withย American securityย priorities.

The second myth was that the oil wouldnโ€™t be going to China, just to strategic American allies. But that’s not true either: U.S. crude oil is flowing to countries like China andย Venezuela โ€” the latter nation not exactly a strategic ally at this point. But traders need to trade, so the oil goes to the highestย bidder.

The third myth was thatย the oil industry was motivated to lift the ban out of consideration forย the average American, in order toย โ€œhelp consumersโ€ by lowering prices at theย pump.

However, that would require belief that commodities traders care about anything other than making money at any cost. Remember Enron? At least they were an Americanย company.

But as we have heard on recordings of Enron traders, released by CBS News in 2004, that is not necessarily the case either. Do these traders sound like people whose priorities are the well-being ofย their fellowย Americans?

โ€œHe just fโ€”s California,โ€ says one Enron employee. โ€œHe steals money from California to the tune of about aย million.โ€

โ€œWill you rephrase that?โ€ asks a secondย employee.

โ€œOK, he, um, he arbitrages the California market to the tune of a million bucks or two a day,โ€ replies theย first.

That was the case for Enron more than a decade ago.ย Is the industry that different today? Back then, we heard nothing about national security, the American consumer, or whether or not it makes sense to sell U.S. oil to a country like China. Is the energy industry having those conversationsย today?

In December of 2015 we posed the following question onย DeSmog:

Will December 2015 be remembered by energy historians for the historic outcome of the COP21 talks in Paris, or will it be better known as the time in history when U.S. politicians once again caved to the oil industry and unleashed decades of fracking on the country and theย climate?

Current evidence would seem to support the latter, particularly as the Trump administration continues makingย moves to lessenย U.S. support for the Paris climate accord. And it looks like the โ€œexpertsโ€ are now agreeing withย DeSmog.

Theย Houston Chronicle recently reported:ย โ€œThe volume of U.S. crude exports should rise to 3 million a day by 2025, driven by Permian production and pipeline growth, said Kurt Barrow, vice president of oil markets for IHS Markit.โ€ย That is quite aย bit higher than the IHS estimate (1.4 million barrels a day by 2020) before the ban wasย lifted.

That article also notes that โ€œ[t]he most bullish projections have the U.S. exporting more crude oil than it imports as soon as 2019.โ€ย  That means the U.S. would be exportingย approximately five million barrels per day, less than two years fromย now.

But we know how accurate those kinds of predictionsย are.

Main image: Oil industry Credit:ย Rennett Stowe, CC BYย 2.0

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Justin Mikulka is a research fellow at New Consensus. Prior to joining New Consensus in October 2021, Justin reported for DeSmog, where he began in 2014. Justin has a degree in Civil and Environmental Engineering from Cornell University.

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