There’s good reason Ryan Lance is the CEO and Chairman of ConocoPhillips. He’s a smart and charismatic guy who can paint a very rosy picture based on data. I was on the fence before I listened to him talk on Wednesday, but at the end of his presentation, I was pretty much sold on the idea that opening up the US to crude exports was a good idea. The data that supported opening the U.S. to crude oil exports simply made sense to me, but I had a few concerns such as the protection of U.S. refiners and the Jones Act shipping trade.
Anonymous gCaptain Forum member “smoker” had some interesting insight to share on the subject from his/her experience as a trader:
There are more factors involved in selling crude oil, then only shipping. Crude oil from different regions are all different in terms of chemical characteristics, viscosity, etc. no crude oil from one geographical region is the same as another.
1. A refinery has to be retooled to accept shale oil. A refinery is geared to accept and process crude oil from one region. It’s not a simple matter as turning off the switch and sending in hundreds of cheap Asian labor all armed with brooms and mops to clean their pipelines and storage tanks. There is a reason why all tank ships are cleaned after every load and why tank ship crews are the highest paid in the maritime world.
Retooling is expensive business and why would a refinery do that, when you look at the map of the global oil trade and the easy availability of cheap oil being carried on cheap bottoms?
2. Shipping is just another factor in the global oil trade. There was a time when we’d look out of our port holes/bridges/fan tails/whatever, see fleets of tankers carrying the colors of Shell/BP/Chevron/whoever, crisscrossing the world trade routes and crewed by Americans and Europeans and be envious, wishing we were on that ship. Today, in this age of globalization, those fleets have been out sourced to someone named Diana and crewed by cheaper Asians.
BP must be the only legacy fleet owner left and the Saudis, Kuwaitis, Iranians and Omanis have their own, subsidized fleets crewed with cheaper Asians. How is USA going to fight & survive that cost?
3. The final product has to meet that importing country’s standards and grades. Given that US shale has never been exported and additives, etc will have to be added at the processing level to meet those standards, the cost of the final product goes up. Allow me to also remind you that the world is on an even more strict standard than USA.
4. Crude oil is always sold at a discount. Whether it’s a plus or a minus, all depends on the supply & demand circumstances. Today, it’s at a minus. Given the above costing & pricing realities, you do realize that any US oil producing co would have to offer a hefty discount to sell that tax payer subsidized oil and shipping is the only barrier left to overcome that stops from that tax payer subsidized crude oil being sold away at throw away prices? The US oil company can offer hefty discounts because WE subsidize it. But, they no longer controlling shipping.
Hence, this attack on Jones Act.
5. If you accept all of the above, then it goes by corollary that, with no refinery processing US crude oil, the US Gulf geographical location working against it, the US refinery capacity hamstrung by decades of not investing into it, then where is the demand and why are people like John McCain after Jones Act?
Let’s go back in history.
The Britishers, Spaniards, Dutch, etc, all small countries with even more smaller populations and ALL controlling a major part of the world with bigger populations.
All started with trading companies like The Dutch India Co., The British East India co, etc and supported by the network of Franciscans & Xaverites. All raped the colonized country of its raw material, shipped it back home, added value by processing that raw material and sold it back to the natives with an even bigger margin. In the current context, go to any scrap yard in USA and they’ll tell you that they’re contracted to either a mill or a trading house.
All that waste material that we produce & throw away for free like paper, cartons, glass, plastic, metal, computers, etc is contracted and sold to a US based co like SIMS or some int’l co, who then sell it to recyclers abroad, re-processed and sold back to us. We end up paying through our nose several times over for the same product/packaging. Another e.g., John McCain gave over the copper rights on the ancestral Apache lands in Arizona to Resolution Copper, a subsidiary of Rio Tinto and BHP Billiton. All 2,400 acres of it. That copper will be sold to China, value added and sold to us at a higher price. What did we Americans get in return? See history being repeated? The corporates are already making the laws in USA, either ways.
Given the above reality plus the history of corporates, when it comes to their profits and undermining the security of a country, and the fact that there is no absolutely effin demand for US crude oil or a refiner to process it, what guarantees exist that the subsidized crude oil that is being exported, won’t be processed, shipped back and sold to us for a premium? The US oil companies are already bypassing the Jones Act by shipping crude oil to Bermuda, adding additives, claiming value addition, shipping it back to USA cheaper on FoC ships and selling it back to the US tax payer at a profit. Go to marinetraffic.com, start making a note of the same FoC tankers going up and down the East Coast and wonder why!
For US crude oil to be exported, the Jones Act in its present form will have to be amended to allow foreign made ships with a foreign crew and you can say good bye to your job. And, you can’t even cry, ‘coz you enabled that outsourcing of the last remaining US based industry. That is the fucking reality and the oil co does not give a hoot about you waving the flag.
Before everyone jumps on the bandwagon to open the flood gates of U.S. crude oil, it’s important for Americans to look at crude oil as not just a constantly diminishing domestic resource, but as a tool for growth.
Regulators must understand they have a key responsibility to create a market environment that not only enables energy companies to invest in domestic exploration and production, but allows the entire U.S.-based value chain to invest to include U.S. refiners and the U.S. merchant marine.
This is an important discussion. If you have something to add, I encourage you to create a profile and comment in the gCaptain Forum HERE.
Further Reading: Build a Refinery and You May Answer the U.S. Crude Export Question