Exporting Oil Without a Pipeline

            According to an article the December 29-30 issue of Wall Street Journal, "Disparity in Oil Prices Proves Pesky,"  Americans, particularly those living in the interior,  are now enjoying much lower oil prices than Europeans.  In Iowa, I just filled my tank with regular gasoline for $2.99 per gallon.  In some parts of America, prices are a bit higher, but all Americans have lower prices on petroleum and natural gas than anyone in Western Europe. Historically, the price for European crude oil (Brent Crude) is usually within a dollar or two per barrel of the price of American crude, (West Texas Intermediate).  But according to the article,  U.S. crude is now about $20.00 cheaper per barrel than European oil.

            The reason for this disparity is that we have a temporary glut of oil in the American interior due to shale oil produced by hydro-fracking.  This is temporary, in that the shale formations are shallow and will probably only produce for 10 or 15 years, as opposed to the 30-60 year life span expected for a conventional well.  But at the moment, this surge of production, combined with recent increases in the fuel efficiency of the American automobile fleet, means that there is more oil available than there are buyers, and this is driving down the price of crude.  This is bad news for the oil companies, because the new horizontal drilling and hydro-fracking technology that makes this production possible is extremely expensive. By some estimates, if the price of crude drops below $70.00 per barrel, which it easily could, the drillers won't even break even.

            The oil companies would like to sell this oil to the Europeans and get an additional $20.00.   But there is one problem--there is no practical way to get it there. This oil is produced in the northern mid-west, and the present pipeline capacity to ship this oil to gulf coast ports is inadequate to handle the volume.  In November 2011, the Seaway Pipeline, originally built to import oil from the gulf ports to the main storage hub in Cushing, Oklahoma, was re-fitted to pump oil in the other direction.   But this pipe can only handle about 400,000 barrels per day.  One part of the proposed Keystone pipeline, the Keystone XL Southern Leg, would increase this capacity by another 800,000 barrels.   Another Keystone leg would bring tar-sand oil from Alberta, Canada, into the U.S..   But the whole project has been plagued by delays and environmental concerns.   Ironically, the oil industry has been trying to paint the environmentalist opposition as obstructionists who are obstructing a pipeline that would bring in more oil and lower our prices. This propaganda effort has had some success---millions of morons are writing their congressmen demanding that this line be built.   But the part most likely to be completed is the Southern Leg, which will not bring in any oil but ship it out---which will raise prices.  And that's why the oil companies want to build it.  Along with oil, the new drilling is producing massive amounts of natural gas, which would be even harder to ship to Europe. But where there is a will,  there is a way.

            According to another WSJ article, "Kafkaesque Twist in U.S.-Europe Energy Gap", Dec 26, 2012,   Austrian steelmaker Voestalpine is planning to build a $659 million plant in the U.S. or Canada to produce a semi-refined iron product (hot briquetted iron) to be shipped back to Austria to be refined into steel.  The iron smelting done to produce these briquettes will be using cheap American natural gas instead of metallurgical grade coal.  American gas is now  priced at about $3.50 per million British thermal units--about a third of the European price.  Reducing iron from its ore is a very energy-intensive operation.  The fuel used, either natural gas or coke from coal, not only provides the heat but is the main chemical reagent in the process.  But by using cheap gas to produce an energy-intensive semi-finished product, they have found a way to export gas without a pipeline.  Amazing how history repeats itself.

            In Elizabethan England, the British isles were running short of chestnut trees, which was then the only source of charcoal suitable for reducing iron from its ore.   At that time, no one had yet developed a way to use coal to smelt iron. The trick is that you first have to change it to "coke", which is like charcoal, only made from coal.  But no one knew that then.  So the whole British iron industry was in peril.  But colonization of the Americas saved them.  North America had abundant chestnut forests, as well as iron ore.  The arrangement which the British preferred was to have the Americans make semi-finished iron to ship to England, which their own iron industry could turn into useful iron and steel consumer products which they could sell back to the Americans. But the Americans had a better idea:  instead of shipping this iron to England and then shipping consumer products back,  why not just turn the iron into consumer products right here in America?  Why accept low prices for our crude iron exports and pay high prices for all our consumer goods, and have all the money go to British shippers?  So we started making our own things.  To prevent this, Parliament passed the Iron Act.  Specifically, this act forbade anyone in the colonies from owning a "slitting mill."  A slitting mill  is a kind of shears that cuts red hot iron plates into narrow strips. Thick plates were not useful to anyone except an iron mill. They are a semi-finished industrial commodity.  But narrow strips could be sold to any blacksmith and converted into horse shoes, hinges, nails, or just about anything.  They were a consumer  good.

            The Iron Act was originally passed about 1750, but it was not enforced until after the French and Indian War was over. One cannot put a strangle hold on a population that one still needs to help win the war.   But after the war, a number of unpopular acts were enforced upon the colonials. The Stamp Act aroused the most ire among the working classes, but among the elites who actually planned the revolution, the most intolerable of all the so called "intolerable acts" was the Iron Act.  It clearly signaled the intention of the British government to insure that America would remain permanently under-developed industrially-- because British shippers and factory owners wanted it that way.  If we accepted these restrictions, we would remain a "third world country" forever.  So a decision was made to escape from British control while escape was still possible.

            Yet today, we cheerfully offer to the Austrians the precise arrangement which we fought a revolution to deny the British.