Will U.S. Remain A Net Oil Exporter?

Thanks in part to the Trump administration’s energy revolution, America recently became a net exporter of oil for the first time in approximately 75 years. The country reversed this negative trend of dependency on OPEC and others in a very big way, exporting 3 million more barrels of oil than combined imports.


Hold your breath, though, because analysts are already projecting that this welcome step in the right direction is not going to last long, with the U.S. going back to being at the mercy of other countries for its energy needs in no time at all.

It doesn’t have to be this way. There is plenty that policymakers can do to keep the positive momentum going and prevent this trend from reversing. Their efforts should start with scrapping failed policies that oftentimes make foreign dependency an inevitability.

Unfortunately, it seems that the EPA headed by Andrew Wheeler has a knack for doing just that. For example, on Nov. 30, the agency kicked new life into the big government Renewable Fuel Standard (RFS), increasing the amount of renewable fuel needed for 2019 to 19.92 billion gallons. Over a decade’s worth of history has shown that this move will make America less competitive with the rest of the world in the energy sector, and yet Andrew Wheeler’s agency just plowed ahead, continuing the yearly trend of sharpening the teeth of the beast.

The RFS, which requires refiners to mix approximately 10% of ethanol into motor fuel, was created to reduce the U.S.’s dependence on foreign oil. By diluting the fuel mixture, many onlookers thought that imports would have to be reduced because there would be more U.S. supply to go around.

Unintended Consequences

It may have seemed like common sense at the time, but we all know that when it comes to government intervention, nothing is fool-proof. Unintended consequences often make even the best of intentions turn sour, and this case is of no exception.

When it comes to mandating the mixing of ethanol into fuel, bureaucrats seem to overlook the fact that most refineries do not do so. The biofuel mixture deteriorates quickly, making it irrational for any company that doesn’t physically pump it into consumers’ tanks to take part in the process. Those companies, which are few and far in between, can blend the ethanol at the eleventh hour. The rest must find alternative means to obtain an adequate number of government compliance credits, known as Renewable Identification Numbers (RINs), to comply with the law.

To the joy of the big institutions, many refineries opt to purchase their surplus RINs credits. Since so few companies can produce the renewables mix themselves, the RINs marketplace has become an inherently captive one, now costing some refineries over half-a-million dollars a day.

Soaring Costs

In many cases, this exorbitant price tag amounts to tens of millions more each year than it initially cost to purchase the given refinery. It’s leading to bankruptcies, particularly in the northeast, causing some to fear that the U.S. will become overly reliant on Texas to protect America’s energy security.

If the U.S. does not reform this law soon, and more and more refineries go bankrupt, it seems inevitable that the U.S. will kiss its net oil exporter status goodbye. In fact, the high price tags of RINs are already causing some refineries to purchase renewable imports from overseas — not because they need the fuel, but because it’s in some cases a more efficient way to obtain the RINs credits that Washington bean-counts.

It’s clear that the status quo needs reform. That means capping the price of RINs credits, attaching RINs to ethanol exports, or changing the renewable fuel standards law in some other way to ensure that America remains on top. The ball is in Andrew Wheeler’s court.

Click here for more Commentary and Opinion from Investor’s Business Daily.

Want to make more money in the stock market? Start with IBD University.

Want More IBD Videos? Subscribe To Our YouTube Channel!

Source link

Originally posted 2019-09-19 23:29:09.


No comments.

Leave a Reply

error: Content is protected !!