It’s the Trump narrative that vastly increased US oil and gas production has made us energy independent. This has led to policies that try to ramp up US oil/gas production and consumption while curtailing renewable power from solar and wind, undoing vehicle mileage standards, and so on. These policies are anathema to battling climate change, but they’ve also harmed American households. Why, if we’re energy independent, has the Iran War pushed up the price of US gasoline and diesel by 70%?
The independence argument is that while we consume more crude oil in the US than we produce, we produce and export a lot more natural gas than we consume. The two balance out on a BTU basis so we’re supposedly fossil fuel independent. This ignores the fact that the markets for crude oil and for natural gas are entirely different. We refine crude oil to make gasoline, diesel and jet fuel. We use natural gas for electric power generation, heating buildings and manufacturing. The assumption to combine them is that they’re interchangeable and can be substituted for one another. They can’t be (at least over the short and medium term). They each serve independent, disconnected markets. You can’t fill a car’s gas tank with natural gas and you can’t run a natural gas fired power plant with gasoline. Truly interchangeable products are more like Coca Cola and Pepsi Cola.
The US produces about 13 Million barrels of crude oil a day and consumes the equivalent of 21 Million barrels a day (in refined products from crude). Of the 13 Million barrels we produce, we also now export 4 Million of those barrels to offshore refiners. Clearly, we are not crude oil independent. Our shortfall of ~11 million barrels of crude and refined products need to be imported from Canada, Mexico, Venezuela, Saudi Arabia and other oil producers. With the Straits of Hormuz closed, 20% (20 million barrels) of crude supply came out of the market. Now, the US must import over half our crude and refined crude products at the global market price. Thus, the higher pump price.
If the US was truly crude independent, we’d produce and refine all our own crude and consume US made gasoline, diesel and jet fuel. It wouldn’t matter that Iran closed the Strait of Hormuz. Instead, crude oil was at $57 a barrel on January 1 and is $100 per barrel this week, a 70% increase — the same for gasoline and diesel. In contrast, US natural gas was at $3.62 on January 1 and is now at $2.60, a 27% decline.
But it’s even worse. After the 1970s oil embargo the US banned crude oil exports from our shores. But that ban was lifted in 2015 and, as noted, we now export 4 million barrels a day. We do so while we are already heavily short what we need here at home. Almost all the US crude oil exports are from ports on the Texas Gulf Coast and are piped into them from the Texas Permian basin, which is responsible for most of the growth of US production the past decade. As this production came online in West Texas, the oil/gas companies neither owned nor built refineries to process this Texas crude oil into refined products. Instead, free to export to the highest bidder anywhere in the world, they sold the Permian crude to offshore markets.
We tend to think of US oil/gas companies as domestic companies serving the US markets. But they don’t operate their businesses to benefit America. They operate their businesses to benefit their shareholders and their corporate executives seeking to drive up stock prices to make themselves wealthy. The US companies, unsurprisingly, lobbied to export their US crude to international markets, where they could sell their crude at higher prices than at home. Now the Iran War has driven up their stock prices by 35%. Seems Trump’s policies benefit oil/gas companies at the expense of American households.
