AYESHA RASCOE, HOST:
The Trump administration is projecting confidence even as the war with Iran causes global oil prices to spike. During a recent interview with Fox News, Energy Secretary Chris Wright argued the U.S. is in a better place to deal with the crisis than most countries.
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CHRIS WRIGHT: Fortunately, the United States, we produce more oil than we consume. We're a net oil exporter. So overall, for the U.S. economy, this isn't bad news.
RASCOE: But the U.S. does import a good chunk of the oil it consumes, meaning higher prices at the pump for the average driver. To understand why, we turn now to Hugh Daigle. He's an engineering professor at the University of Texas at Austin, where he researches oil production and resources. Thank you for being with us.
HUGH DAIGLE: Thanks for having me, Ayesha. Glad to be here.
RASCOE: So Secretary Wright is correct when he says that the U.S. exports more oil than it imports. So why don't we just use the oil we already produce here?
DAIGLE: When we say that we export more oil than we import, that's referring specifically to crude oil plus what we call refined products. And so those are going to be things like jet fuel, gasoline, diesel fuel, that sort of thing. And the big picture here is that the global oil industry is this big, globally traded commodity. Products are moving around between different countries, within the same country, and so there's a very complicated flow of product and cash that go along with that. And so when you look at supply versus demand, you know, we're bringing oil in here, we're refining it, and then we're sending those products overseas, or maybe we're keeping those products at home. You can't just say, well, the stuff that we produce here, we just keep it here. Just - that's not the way the market works.
RASCOE: Because, as you were saying, it's a global system, and part of that system is refining. We don't want to get too technical here, but when you're refining different products, you need different types of oil, right? And different types of refineries can process different types of oil, which comes from different places, right?
DAIGLE: That's absolutely correct. So you can think of crude oil like a cookie batter. So it's got all kinds of different chemicals in it. And when we put that into a refinery, it's like, we want to get the eggs back out, we want to get the flour back out. And so depending on what the composition of that crude oil is, what chemicals are there to start with, you're going to use different types of refining processes to get those end products out. We're set up to refine a particular type of crude oil that comes from places like western Canada and Venezuela and Mexico. But other refineries around the world are set up to process different types of oil. And so there are some constraints based on that.
RASCOE: But we do have refineries here. So why can't we just process the oil that we produce here, right? Like, why is there a disconnect?
DAIGLE: Well, some of it is historic, and some of it just has to do with infrastructure. So the history is that there was a lot of refinery construction, you know, here along the Gulf Coast in the 1970s and '80s in response to the oil price shocks that we experienced back then. And at the time, a lot of oil was coming out of Venezuela. So they were set up to process all that Venezuelan crude. And once that started to dry up back in the 1990s, they were able to replace that with this heavier crude from other places.
Now, there's also an infrastructure problem. Let me give you a good example. Refineries in California generally are processing crude oil that comes from the Middle East and Asia. And you might ask why, you know, if we're producing all this oil in the U.S. And the reason is that there's just not enough pipeline capacity to move oil produced here in Texas over to California where it could be refined. And the same is true for a lot of places on the East Coast. There is a real lack of pipeline capacity to move oil around within the country.
RASCOE: Well, I know some people may be thinking, well, why don't we just build refineries that will refine the oil that we actually produce? Why don't we just do that?
DAIGLE: There's a couple of reasons. One is that building refinery is a really expensive proposition. It's, you know, many billions of dollars to do that. Even retrofitting an existing refinery to refine a different type of crude oil, you're spending tens to hundreds of millions of dollars to do that. And the problem with having that type of capital expenditure of that amount is that if you're a business, you're only going to do that if you see a long-term demand for the products that are going to come out of your refinery. If we're looking at a relatively short-term change in the demand for your product, you're not going to go ahead and spend that money. You're just going to try to weather it out. And so that's the situation we're in right now.
RASCOE: What effect does the U.S.'s large amount of oil exports have on the current crisis?
DAIGLE: Well, one thing that we can do is we've been releasing oil from the Strategic Petroleum Reserve, and, you know, it's on the order of a few percent or fractions of a percent of, you know, global demand, but at least we can put additional crude on the market that's going to be traded internationally. The other thing to think about is that we're producing still a significant amount of oil here within the U.S. But if you compare this to the price shocks back in the 1970s, we've got more fuel-efficient vehicles. Our heavy industry isn't as dependent on oil. And so, you know, our economy has gotten to the point where we're a little bit more insulated from these shocks. That's not to say that people aren't going to feel it personally, but we can be producing oil here that gets out on the global market, and, you know, at this point, every little bit helps to satisfy that demand.
RASCOE: That's Hugh Daigle, professor of engineering at the University of Texas at Austin. Thank you so much.
DAIGLE: Thank you for having me.
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