2014

In a keynote speech at the Brookings Institution today, Sen. Lisa Murkowski (R-Alaska) called for an end to the decades-old ban on U.S. crude oil exports.

Murkowski, the top Republican on the Senate Energy and Natural Resources Committee, also released a white paper on U.S. energy export policy, A Signal to the World: Renovating the Architecture of U.S. Energy Exports.

Total U.S. energy production reached its highest level ever in July 2013, Murkowski noted in her speech. As a consequence, U.S. exports of coal, dry natural gas, and finished petroleum products are at their highest levels on record.

However, those welcome developments came about “in spite of the federal government, not because of it, as the president frequently seems to imply,” she said.

More importantly, U.S. energy trade rules “were written long ago for a now bygone world in which scarcity, not abundance, was the prevailing mindset,” Murkowski noted. Outmoded regulations hamper exports of liquefied natural gas and virtually prohibit exports of crude oil and condensates. This antiquated policy architecture holds back the leading source of new investment, job creation, and competitive advantage in the U.S. economy.

Worse, the current regime creates significant economic risk. U.S. refineries were not built to handle the light sweet crude produced in the Bakken and Eagleford shale plays. The export ban could soon create a glut, forcing producers to choose between losing money on sales or leaving the oil in the ground. The oil boom could become a bust, warns International Energy Agency executive director Maria van der Hoeven, whom Murkowski cites.

Status-quo defenders claim lifting the ban would increase gasoline prices by reducing the discount at which crude oil trades in U.S. markets. That reasoning is flawed. As Blake Clayton of the Council on Foreign Relations points out, the discount currently benefits a handful of refiners, not consumers, because gasoline prices reflect global crude and finished petroleum product prices, not domestic refiners’ production costs:

As it stands, the primary beneficiaries of the export ban are a few fortunate oil refineries in the central United States—not U.S. consumers—that are able to buy crude oil at depressed prices before selling it at prevailing market rates. Current law arbitrarily works to the benefit of these companies.

Crude oil exports would likely benefit consumers not only by fueling GDP growth but also by moderating gasoline prices. By spurring investment in production, freedom to export would accelerate the increase in global petroleum supply. That, in turn, would put downward pressure on global petroleum prices — the chief factor determining gasoline prices. As Murkowski’s white paper explains:

First, gasoline is a petroleum product and petroleum products are subject to global pricing, just like crude oil. To the extent that greater U.S. production of crude oil puts downward pressure on inter-national oil prices (e.g., the Brent benchmark), then production increases have benefited U.S. consumers by marginally lowering gasoline and crude oil prices.

By the same token, retaining the ban puts consumers at risk. A shale oil glut would depress production and slow the growth in global supply, putting upward pressure on gasoline prices:

To the extent that the crude oil export ban contributes to supply disruptions and decelerating oil production (which affects employment), then the American consumer will suffer the consequences. If the refining mismatch causes production to become shut-in, as some analysts suggest, then prices could actually rise and increase U.S. dependence on imports.

Murkowski believes the Obama administration already has the authority to lift the ban: [click to continue…]

Today’s Climatewire (subscription required) reports that in the UK last year, “more than 30,000 winter deaths were thought to be caused by fuel poverty, up by a third from the previous year, according to the Office for National Statistics.”

What makes fuel poverty deadly? “Poor heating and a lack of insulation are known to increase the likelihood of strokes in the elderly and to exacerbate asthma and rheumatic disease in all age groups,” explains Climatewire correspondent Erica Rex.

Until last month, UK law defined fuel poverty as a household that spends more than 10% of its income “to maintain an adequate level of warmth.” The law now defines it as “above average fuel costs” that leave households with “a residual income below the official poverty line.” That seems obfuscatory. Implicitly excluded from the revised definition are households that can’t afford to heat their homes because of high average fuel costs.

As Rex notes, the redefinition instantly reduced the official tally of fuel poor in the UK from 3.2 million to 2.4 million, or from 15% to 11%. The reclassification does not mitigate the hardship of people like “Gemma,” a single mother of three interviewed for the article, who skips meals “just to keep the heating on.”

Regardless of how fuel poverty is defined, the issue is heating up, partly because Britain is facing the worst winter in 60 years, but also because government policies mandate increasing reliance on renewable energy.

According to Department of Energy and Climate Change figures, so-called green policies account for “only” 10% of the UK heating bill. On the other hand, DECC projects those policies to increase electricity prices 33% by 2020 and 41% by 2030.

Although commonly associated with the UK and Ireland, fuel poverty is more pervasive. The map below shows the percentage of European households that cannot afford to keep their homes adequately warm.

Source: EU Statistics on Income and Living Conditions (EU SILC) [click to continue…]