Free Energy Markets Will Benefit Americans

Americans have recently become painfully aware of the international scope of oil markets. 

The war between Russia and Ukraine, being fought across the Atlantic Ocean more than 5,000 miles from America’s East Coast, has disrupted the global supply of oil – and thus gasoline. As a result, gasoline prices have risen dramatically in the last few weeks; regular gasoline now costs $4.32 a gallon on average, up from $3.48 before the war.

One way to overcome the problems caused by the war is to further develop international markets for oil to limit harm caused by supply disruptions. One step in that direction was Congress’ 2015 decision to allow U.S. oil exports, which, enhanced by the value provided by efficient international transportation of oil via supertankers, encouraged increased and more stable supplies of oil. But despite these advancements, several challenges are slowing progress in this area.

The most economical way to transport oil long distances over water is with supertankers, often referred to as Very Large Crude Carriers (VLCC) and Ultra-Large Crude Carriers (ULCC). However, these tankers are not only very large but also very heavy, with draughts that keep them from accessing oil export terminals in ports along the shallow Gulf Coast. 

The only way these tankers can be filled along most of the Gulf Coast is by using smaller tankers that can fill up at Texas ports and then ferry the oil to the supertankers waiting further out in the Gulf. This process, reverse lightering, is expensive. It can add as much as $600,000 in chartering fees to transportation costs. It also has negative environmental effects because of the emissions from the tankers ferrying back and forth from the shore to the tankers.

One way to reduce both the economic costs and environmental effects of loading oil onto supertankers is through VLCC terminals. These terminals employ pipelines that run offshore into the Gulf, where it is deep enough for VLCCs to be loaded.

Until the ban on exporting American crude oil was lifted, there was not much of a market for VLCC terminals. Now, however, a number of companies have begun the permitting process necessary to begin construction of additional terminals. 

One such VLCC terminal in the works is Texas GulfLink, which would operate out of Freeport, Texas. GulfLink, about 30 miles off the coast near Freeport, would be able to fully load VLCCs to export crude oil to international markets.

One obvious benefit of GulfLink or other VLCC terminals would be a reduction in transportation costs. While not inexpensive to build, the terminals’ elimination of chartering costs for tankers ferrying oil out to the VLCCs make them very cost-effective.

A major environmental benefit of VLCC terminals like GulfLink is a significant reduction of emissions. This occurs by the elimination of tankers shuttling back and forth to load the VLCCs. The emissions reductions achieved by VLCC terminals include those associated with air quality, such as ozone and particulates. GulfLink also estimates that the terminal will reduce “carbon dioxide (“CO2”) and carbon dioxide equivalent (“CO2e”) emissions by approximately 83% when compared to the cumulative effects of reverse lightering.”

The environmental effects of VLCC terminals are the subject of a years’ long permitting process conducted by the U.S. Department of Transportation’s Maritime Administration. One researcher at Columbia University’s Center on Global Energy Policy suggested in 2018 that “five years for permitting and construction seems realistic, if very ambitious.”

Texas GulfLink applied with the Maritime Administration for its license to construct, own, operate, and decommission a crude oil export terminal in May 2019. At this point, about three years in, the Maritime Administration has issued a Draft Environmental Impact Statement, but the process has slowed down of late.

One reason the permitting/construction process for GulfLink may extend beyond the five-year timeline is opposition from those who ignore its potential economic and environmental benefits because of a desire to eliminate all use of fossil fuels. This approach, also embraced in part by the Biden administration, has contributed to higher gasoline prices; prices increased more under Biden’s restrictions on developing oil and gas ($1.32) than they have since the Russian invasion of Ukraine ($0.84).

Those who want to eliminate fossil fuels ignore the vast human benefits associated with fossil fuel use, as spelled out by Kathleen Hartnett White: 

Use of the energy in fossil fuels unleashed economic productivity on a scale previously unimaginable. … Fossil-fuel powered mechanization revolutionized economic productivity, increased incomes, population, and life expectancy across all classes.

People benefit from markets because markets allow them to fulfill their needs efficiently. Today, markets are pointing toward VLCC terminals as one way to meet America’s and the world’s energy needs. The Biden administration should follow the market – and the science – and allow the building of VLCC terminals to proceed.

Bill Peacock is the policy director at The Energy Alliance with more than 30 years of public policy experience. This op-ed was originally published in ShaleMag.