Op-ed: Taking long view of the Texas energy industry

“Texas is now poised to lead the US back into the global marketplace where our producers can compete with anyone, anywhere” – Craddick

For 40 years, Texas oil producers were locked out of the global market, their West Texas Intermediate crude (WTI) instead stockpiled awaiting refinement as prices were artificially controlled. At the same time, foreign producers flourished as American refineries were built or modified to refine the heavy Brent crude the U.S. was importing.

As a point of clarification, WTI is essentially the benchmark for oil produced in the U.S. and Brent is the benchmark for foreign oil.

The answer to this unleveled playing field has in fact been the U.S. shale boom, led by Texas producers whose innovation and investment in revolutionary oil and gas production techniques made them cost competitive with producers around the world. But with Texas and U.S. producers barred from international markets, domestic stockpiles grew.

Foreign producers, led by OPEC, responded by turning their artificial price controls upside down, flooding the world with oil. As an expected result, prices were sent crashing in an effort to punish increasingly efficient U.S. producers who were prohibited from selling their crude anywhere but at home.

The long-term solution: Congress acted to lift the U.S. crude oil export ban late last year.

It has been almost three months since the Theo T, the first oil tanker carrying U.S. freely traded crude oil, left the Texas port of Corpus Christi in the final days of 2015. The cargo, named ‘liquid American freedom’ by the U.S. House Energy and Commerce Committee, arrived on the shores of Europe three weeks later much to the delight of our allies and the shipments have steadily continued.

While the overall decline in oil prices has led to falling revenues for the energy sector and job loss in the oil fields, it seems we are touching the bottom of this market cycle on our way to a bigger upside.

Now that Texas producers can truly compete and sell their product worldwide, economic forces have helped WTI garner better prices that are almost level with the Brent price. Historic market principles tell us that a mounting resurgence in the Texas energy industry is sure to follow in time.

History has also shown, repeatedly, that competition unleashes the very best in the Texas oil patch. These new market dynamics are driving the Texas energy sector to develop even greater efficiencies, more advanced technologies and slimmer production costs.

At the same time, port cities like Corpus Christi are expanding their harbor and channel facilities to accommodate increased export volumes and larger tankers. Pipeline companies have built up their networks to connect new shale fields to these trans-shipment points. Huge investments in Texas infrastructure continue to be made.

The ability to sell crude worldwide alleviates existing domestic production-distribution constraints and improves our overall energy economy. The U.S. Energy Information Administration (EIA) predicts that total U.S. crude oil exports could increase by 2-3 million barrels per day over the next 10 years. Companies are holding strong to their investments in Texas oilfields knowing they will stand to benefit greatly.

In the meantime, we are seeing early hints of the shift now. Last month, OPEC leaders visited Houston and remarked they were scratching their heads in their miscalculation of the strength and resilience of U.S. shale producers. They have lost control of the world oil market and now, the financial and political repercussions of U.S. exports for OPEC members are crippling as it was recently reported that Saudi Arabia is seeking a $6-8 billion loan to support its economy.

The U.S. has also begun its first shipments of liquefied natural gas (LNG) onto world markets. It has been estimated that the two LNG facilities under construction in Texas now will export enough natural gas to supply entire countries in Europe for a year at a time.

U.S. LNG cargoes will add about 43 per cent of daily supply to global markets in the next few years. Across the board, energy exports are a win-win for Texas, the U.S. and our allies.

It has been 40 years since Texas crude could be sold around the world. Texas is now poised to lead the U.S. back into the global marketplace where our producers can compete with anyone, anywhere.

The groundwork has been laid and Texas producers are ready for the competition and unleashing of true U.S. shale potential. In 40 years, historians will look back upon the decision to lift the ban on U.S. crude oil exports as a victory for free markets and a long overdue economic shot in the arm for Texas and our nation.

This op-ed originally appeared in the Midland Reporter-Telegram on March 19, 2016. Christi Craddick is a commissioner of the Railroad Commission of Texas.