The United States’ Gulf Coast, and especially Houston, is bursting at the seams with crude oil.
Stockpiles centered in the Houston area, reaching as far east as Alabama and west as New Mexico, rose to an all-time high of more than 200 million barrels during the week of April 4, according to the Energy Information Administration. The total U.S. oil stockpile is about 380 million barrels.
Record pipeline shipments keep the area stocked beyond capacity with sweet crude oil from American shale formations. Over 10 million barrels of oil were delivered to the Gulf Coast in January.
Current U.S. law prevents most of it from being exported. The Energy Policy and Conservation act of 1975, implemented to address a 1973 oil embargo, bans almost all sales of crude internationally. Although exports to Canada are allowed, the northern country’s burgeoning tar sands industry meets most of its needs, and the US only sells about 3 percent of its annual oil production to its neighbor.
What’s more, the Merchant Marine Act of 1920 mandates that only ships built, crewed and owned by American citizens may carry domestic trade goods. Only 13 ships currently meet these standards and may move oil from port to port, and those are booked solid for the foreseeable future.
Statistically speaking, whatever comes to the gulf stays there.
Matters were made even worse in the aftermath of last month’s barge collision in Galveston Bay’s Houston Ship Channel. Efforts to clean the 168,000-some gallon leak forced port activities to halt for nearly a week, multiplying stockpile growth to 5 times what was expected.
The extreme surplus means West Texas Intermediate crude oil is forecast to sell at $13 per barrel cheaper than Brent oil, which is used as the international standard. WTI has historically hewn close to Brent in price, but is now forced to sell at a discount, despite rising demand.
US senators have begun pushing to allow natural gas exports in the wake of Russia’s annexation of the Crimean peninsula. Doing so would be mutually beneficial, they argue, creating business for American companies and freeing Ukraine from the burden of dependence on Russian energy. President Obama has expressed tentative approval of the plan.
Oil exports are another story. Critics of a ban repeal fear that allowing exports could lead to an increase in domestic gas prices. They cite the 1996 approval of Alaskan oil exports that raised prices from 5 to 15 cents higher than the national average, then saw a return to normal level when they ceased.
Labor unions, such as United Steelworkers and AFL-CIO, also oppose trade reform, saying they depend on legally assured work for their livelihood, and claiming that allowing non-American companies to handle energy assets compromises national security.
There is one ray of hope pointing to a forthcoming reduced hoard: US oil imports are falling at an unprecedented rate. 2013 saw the lowest rate of import since 1996, and a recent study by the Energy Information Administration suggests it could fall to zero by 2037. If the boom sees production continue to rise up to the level of demand, we could meet all energy needs domestically and exports would be unnecessary.
Until then, Houston will be the end of the road for sweet crude that’s all dressed up with no place to go.