With all of the political posturing about drilling for oil on the the Continental shelf or in ANWR, I have yet to see any politician provide a guarantee that any/all oil extracted from the Continental shelf/ANWR/Florida will stay within or be sold only within the United States market.
Where is my guarantee? Will we spoil our natural wonder just to ship the oil to East Asia at market prices? Before we go any further in this debate, I want a Drill Here, Sell Here guarantee!
Any and all new leases must pay reasonable royalties and ship the crude to US refineries/processors only. If a refinery can not handle the capacity, the oil is sent to the Strategic Oil Reserve. Now, don't even get me started on price. Should this crude be sold at market rates? Hmmm. The oil companies have wanted these leases for years. How about they sell it to us at 2002 rates? It was a good deal back then at those rates, why not now?
Many may say that the Drill Here, Sell Here movement smacks of price controls and nationalization. I say it is about cooperation and breaking our dependence on foreign imports. It is a national security issue. I am certain that all parties can agree on that. This isn't about profits, it is about patriotism!
Now we all know that oil is fungible. However, there are different grades of oil and thus they have different refining needs. Although there is a huge incentive for the oil companies to provide oil to market in a "nearest first" fashion, a softening US market may not have the need for the additional oil or may not be able to pay what Chinese/Indian buyers can afford (will they pay the transportation costs?)
From the Department of Energy
The easy flow of petroleum from the Gulf Coast to the Midwest and the East Coast mean that incremental supply is more readily available to those markets in the event of a demand surge or supply drop. In contrast, the West Coast, and the California market in particular, cannot so readily attract incremental supplies. Thus, the California refinery outages that occurred in the Spring of 1999, resulted in a large price increase as market players scrambled for additional supply, none of which was available close at hand, or cheaply. The California market's isolation is more than just geographic: the State imposes unique and stringent quality restrictions on both its gasoline and its off-highway diesel, making what otherwise might be available to augment California product supplies unsuitable.
If California can not refine the Continental shelf output, where will it go? Here again, the DOE
The cost of moving oil into a particular market can be further distorted from the principle of nearest first by government policies such as tariffs,
I guess refining capacity or the type of refining done would also make a difference, would it not?
Can the Gulf Coast pick up the extra refining capacity, especially since they are set up for low-grade Mexican/Venezualan crude?
Both countries therefore targeted their nearest markets, the U.S. Gulf Coast and the Caribbean, for joint venture refinery investments. They began with refineries that had traditionally run their crudes, and then with refineries that might be upgraded to do so. This policy has turned poor quality crudes into the preferred crude at these sites, significantly increasing the crude oil self-sufficiency of the Western Hemisphere.
Now I know that the Drill Here portion of this movement may be unpopular with many of you. However, I think the Sell Here portion brings a clarity of purpose to all interested parties. How important are those leases? How necessary is it to drill? Do we have the capacity? Who needs the oil? Who is going to be favored - will it be us or East Asia? Right now, it is all rhetoric on both sides. With the Drill Here, Sell Here approach, we will find out very quickly whether or not the Republicans and their oil company masters really think the extra capacity is necessary for national security.
The Drill Here, Sell Here movement is going to be huge. We have secured the websites - we have the policy advisors, we have the "recipe" for success. Let no one say that the Drill Here, Sell Here movement is about nationalization of the oil companies or price controls - it is about patriotism. We can get behind that - can we not? It is America First at its best.