Burying the lede

The New York Times had a story today about the changing geographic location of U.S. oil imports. We’re importing more oil from Saudi Arabia.

The problem with the story is that it began with an argument that makes no sense at all. “This reversal is driven in part by the battle over Iran’s nuclear program. The United States tightened sanctions that hampered Iran’s ability to sell crude, the lifeline of its troubled economy, and Saudi Arabia agreed to increase production to help guarantee that the price did not skyrocket.”

Huh? The U.S. didn’t buy Iranian oil. So having Saudi make up for a boycott of Iranian oil shouldn’t increase U.S. imports from Saudi Arabia. That is just a seriously dumb pair of sentences.

Later on there is another nonsensical statement: “Domestic oil production has been surging the last three years and is up 10 percent this year. But most of the new production is coming from shale oil fields in North Dakota and Texas that produce high-quality sweet grades. Many of the refineries on the Gulf of Mexico coast are designed to refine the heavier oils that the United States has traditionally imported from Venezuela, Mexico and Canada.”

Uh ... nothing in that paragraph is false, but Saudi oil isn’t heavy either. Why then would refineries prefer Saudi crude over American? Surging production in the United States is not going to suddenly cause refineries to import oil from Saudi Arabia. That is another weird statement.

So if it isn’t the Iranian situation, and it isn’t surging U.S. production, why are we importing more Saudi oil? Well, the answer is buried down in the story: Mexican and Venezuelan exports are dropping, and the pipelines don’t exist to move U.S. and Canadian crude to the Gulf refineries. “Mexican and Venezuelan production has been sliding the last few years, and much of that oil has been replaced by Canadian oil from oil sands. While Canadian production has been increasing rapidly in recent years, there is not enough pipeline capacity.” (They didn’t mention U.S. crude, it’s true, but the point still holds.)

In fact, when you look at the numbers (which the article in fact does), it is entirely driven by a fall in imports from Mexico. Refineries are buying Saudi crude (over U.S. production in faraway North Dakota) to make up for Mexican shortfalls.

I am not sure that there is a big national security impact from this, given that as long as North America is a net importer, there is not a whole lot that will protect us from price fluctuations. But it does highlight Mexico’s problem.

Reforms are afoot ... but it is unclear if they will work. More on that eventually. The point for this post is that the Times buried the main part of the story in a fog of words.

Comments

[Peter]

A couple of weeks ago I read in a rail-related forum that some refineries on the east coast are getting crude oil from North Dakota via tanker cars, given the lack of pipeline capacity. It's uncommon and not particularly efficient for crude to be shipped via rail, but without enough pipelines it's the only choice.

[Noel Maurer]

You're right about the rail cars. In fact, the United States has run out of rail capacity to move crude oil.

The bottleneck is temporary: production has already ramped up. But moving oil by rail is nonetheless expensive.

That said, the quote in the NYT article still doesn't seem to make any sense. Am I missing something obvious?

[Bernard Guerrero]

Sounds temporary anyway, right? The spread between WTI and Brent is still there, there's still oil piling up at Cushing. Somebody's going to build pipelines....

[Noel Maurer]

Agreed. First the railcars will come on-line, and eventually a pipeline.

The big food fight will be over allowing exports, which I oppose.

[Bernard Guerrero]

Why? Assuming you kept the stuff on-shore, it's just going to keep world prices a bit higher and thus (presumably) tempt some Canadian crude to go elsewhere directly rather than through our pipes.

[Noel Maurer]

Good question. Let's take the conversation over to this post: I wrote about the topic in a bit more detail.

It might answer your query; if not, let's talk over there.