Your Question: Why don’t we just embargo Saudi Arabian oil? Wouldn’t that be an easy fix to save our oil and gas industry?
Answer: An armada of 20 large crude carriers with 2 million barrels of oil each has been approaching the U.S. from Saudi Arabia since March. That has led to calls for President Donald Trump to stop them for unloading.
While that sounds like a neat and simple solution, there are some complications along the way, not least of which is the fact that some of the cargo ships are likely on their way because an American refinery has purchased them.
The oil and gas market is a fairly complex, global landscape, and, as Ron Ness with the North Dakota Petroleum Council points out, Bakken producers want to sell their oil elsewhere in the world.
“If we react with a tariff here, then someone reacts with a tariff somewhere else,” he explained. “We sell our oil to the world, so we are world players.”
Many refineries are also set up to process a particular type of crude oil and cannot readily process different crudes.
“Refiners on the Texas coast are using a lot of heavy crudes, and so do refiners up through the Midwest,” Ness said.
Mandan, meanwhile, is one of the only plants in North America thata’s using high-quality light sweet crude, which it sources from the Bakken. The plant, which is owned by Marathon, can process 71,000 barrels per day, and the finished products are generally shipped via truck and rail.
The switch to heavy crudes on the Gulf and other coasts occurred a decade or so ago, Ness added. Switching back is costly, and given that many refineries are aging, probably doesn’t make good economic sense for any of them.
“You cannot just flip that switch,” Ness said. “It was costly to convert, and they are geared that way now. They’re using a different method to crack those light ends out of that barrel and their supply chains are all set up that way.”
In any case, because of the low commodity price, converting now is probably next to impossible. There would be no way to adequately justify the financing for such a project to a lender until prices improve substantially.
“We are set up to supply the world with high-quality crude oil,” Ness said. “That is the avenue where we have added value to markets like the Bakken, so that is likely where we will continue.”