Deal to lift oil ban fits NM’s multiple choice energy agenda

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Oil Rig New Mexico

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Congress had enacted the restrictions in 1975 in response to a global oil crisis two years earlier that had drastically increased gasoline and other energy product prices in the United States. The ban kept U.S. produced raw oil, or “crude”, within U.S. borders to help manage those prices.

But industry leaders and Republicans, including New Mexico Gov. Susana Martinez, have urged congressional action to lift the ban for years. It had become unnecessary, they argued, as companies produced an increasing amount of oil from shale deposits within the U.S. using new technologies such as hydraulic fracturing and horizontal drilling.

In a May 2015 letter to President Obama, Martinez and nine other Republican governors asked the president to end the federal ban on crude oil exports and also ease restrictions on liquefied natural gas exports. “The United States oil and gas industry is literally fueling economic growth in our states,” they wrote, adding that lifting the ban would create as many as 300,000 jobs nationwide.

Lifting the crude oil ban won’t immediately increase low oil prices that are hurting states like New Mexico, where budgets are dependent on oil and gas drilling revenues. And both industry leaders and drilling opponents in New Mexico agree it won’t have a significant impact on the state’s oil industry any time soon. But, the congressional move might end up being a job booster after all: the spending bill that lifted the ban also included provisions to make wind and solar energy increasingly competitive.

What lifting the ban means for New Mexico

Wally Drangmeister, the New Mexico Oil and Gas Association’s vice president and director of communications, says lifting the export restriction won’t have an immediate impact on the oil industry in New Mexico.

What Congress really accomplished, he says, was reducing the price gap between what crude oil brings in on the US market, called the West Texas Intermediate or TWI, and the international market, called the Brent Crude.

“In recent years, Brent Crude has been between one and five dollars higher than the WTI,” says Drangmeister. In other words, US producers had been earning less than if they had been allowed to sell their oil on the international market.

The gap has already nearly disappeared, he says, checking the numbers: In early January, the price difference between a barrel of Brent Crude versus WTI oil was only a dime.

“But that pales compared to the fact that all oil prices worldwide are extremely low,” Dragmeister says. “On the whole, oil prices are the biggest challenge that the industry is facing right now.”

While talking, he checks the price of oil online. “About 15 months ago, it was in the ninety, one-hundred dollar price range. The price today….Ouch!” he says: “It’s $31.30 for oil.” The day after NMID’s interview, oil prices dropped to below $30 for the first time in more than a decade.

Although Erik Schlenker-Goodrich, executive director of the Western Environmental Law Center, agrees lifting the ban won’t change how business is being done on the ground in New Mexico right away, he says the move did give the fossil fuel industry a boost.

The number of drill rigs won’t change while oil prices remain so low. But, he says, removing export restrictions on crude gives companies and politicians the continued incentive to invest in oil, rather than moving toward cleaner technologies that are not contributing dangerous amounts of methane, carbon dioxide, and other greenhouse gases to the atmosphere.

“Put differently, the lifting of the crude oil ban makes it easier for politicians and entrenched fossil fuel interests to invest even more of our limited capital into fossil fuels and to claim they’re doing something for our economy when they’re actually risking turning New Mexico into an antiquated, fossil-fuel soaked backwater,” he says. “I mean, we’ve always produced lots of fossil fuels, yet have always been one of the poorest states in the country. Here’s a crazy idea: let’s try something different!”

Congressional climate-deniers ensure change will happen in stages

One member of New Mexico’s federal delegation played a key role in getting Congress to lift the oil export ban. And it wasn’t Rep. Steve Pearce, R-NM, from the oil-rich Permian Basin.

Sen. Martin Heinrich, D-NM, an established environmental advocate who serves on the Senate Committee on Energy and Natural Resources, says he started working with Sen. Kathryn “Heidi” Heitkamp, D-ND about a year ago to carve out an energy deal that both Republican and Democratic caucuses could support.

As a result of their work, the spending bill that lifted the ban on oil exports also included a boost for the wind and solar industries.

The package included a five-year retroactive extension of the Production Tax Credit for wind energy projects, a five-year extension of the Solar Investment Tax Credit, and a three-year extension of the Land and Water Conservation Fund, which provides grants for the protection of public lands and conservation projects on private lands.

Heinrich doesn’t believe the two agendas—lifting the oil export ban and renewing incentives for renewables—were counterproductive.

With “verifiable climate deniers” in leadership positions in both the House and Senate, large-scale action on climate change won’t occur, he says. That means a “decarbonizing” of the US economy can only happen in stages—through things like congressional tax incentives, new federal regulations, investments in electric vehicles and battery storage, or increases in fuel efficiency standards for cars and trucks.

“Together, those things have a remarkable impact on how we grow the economy, while we’re dialing down our carbon emissions,” he says. “Historically, expanding the economy meant more carbon pollution. Now, for the first time, emissions are going down and economic production is going up.”

Extending solar and wind tax credits gives both industries more certainty, says Heinrich—and will help wind and solar outcompete other power sources throughout the US, and in New Mexico.

The solar incentive will ensure that installation of solar panels doubles in the next five years, he says: “That will have an impact on the 98 or so businesses in New Mexico and the 1,600 people who work in that industry,” he says, “and we’re going to see that same kind of impact in wind.”

Nationwide, he says, the solar and wind industries account for almost 300,000 jobs.

Despite New Mexico’s ample solar and wind resources, he says that the state isn’t moving forward as quickly as it should. Diversification has occurred, he says. But very slowly.

“At the state level, too much focus is on traditional sources of energy at the expense of renewables,” Heinrich says “And I think we can do a better job.”

One thought on “Deal to lift oil ban fits NM’s multiple choice energy agenda

  1. Good and very interesting, salient article!

    Like Sen. Heinrich I think this deal was the right one to make. The benefits to the solar and wind industries are tremendous and the environmental cost in (and from) the oil patch will be relatively small. Relatively, I said.

    Why? Because U.S. oil exports will never amount to much on a net basis. The U.S. is one of the largest oil importing countries in the world and will remain that way for the foreseeable future. U.S. oil imports are increasing.

    Why? Because U.S. oil production is in rapid decline, a decline which may well be permanent given the limited resource base of the very recent expansion in production and the very rapid depletion inherent in shale oil, now a large fraction of total U.S. oil.

    One of the underlying realities is that U.S. refineries have absorbed about all the light “oil” from shale fields that they can. Much of the new shale “oil” being produced is so light it is what used to be called “field condensate.” It does not produce many middle distillate products and there is just too much of it for U.S. refineries’ taste. They have taken to trucking in real oil to fix their input mix.

    But rest assured, production of this light oil and condensate from shale deposits will now decline. Overall, considering all sources, the U.S. has passed “peak oil,” again. (The highest peak was in the early ’70’s, though we just came close to reaching it again.)

    At the moment, declining production is due to the low price of BOTH WTI and Brent. Erasing the $5 difference will not be enough to rescue shale oil, not by a long shot, which needs prices above $100/bbl to be profitable.

    Beneath and beyond changing prices, depletion reigns, and it is fast — roughly -60% for a new shale well after 12 months. And there are only so many “sweet spots.” It is a race the industry cannot win.

    Growth in the solar and wind industries, by contrast, will be here to stay for the foreseeable future.

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