US oil ex­ports pour into mar­kets world­wide

The Myanmar Times - Weekend - - Business | International -

IN the two years since Wash­ing­ton lifted a 40-year ban on oil ex­ports, tankers filled with U.S. crude have landed in more than 30 coun­tries, rang­ing from mas­sive economies like China and In­dia to tiny Togo.

The re­peal has un­leashed a flood of U.S. shale oil, un­der­cut­ting global crude prices, erod­ing the clout of the Or­ga­ni­za­tion of Pe­tro­leum Ex­port­ing Coun­tries (OPEC) and seiz­ing mar­ket share from many of its mem­ber coun­tries.

In 2005, be­fore the shale revo­lu­tion, the United States had net im­ports of 12.5 mil­lion bar­rels per day (bpd) of crude and fu­els - com­pared to just 4 mil­lion bpd to­day.

U.S. pro­duc­ers are mak­ing new cus­tomers out of some of the world’s big­gest oil-im­port­ing na­tions in Asia and Europe, pos­ing a se­ri­ous com­pet­i­tive threat to the only other coun­tries that pro­duce as much crude: Saudi Ara­bia and Rus­sia. At home, the ex­port boom has filled pipe­lines and sparked a surge of in­vest­ment in new ship­ping in­fra­struc­ture on the Gulf Coast.

U.S. pro­duc­ers now ex­port be­tween 1.5 mil­lion and 2 mil­lion bar­rels of crude a day, which could rise to about 4 mil­lion by 2022. The na­tion’s out­put is ex­pected to ac­count for more than 80 per­cent of global sup­ply growth in the next decade, ac­cord­ing to Paris-based In­ter­na­tional En­ergy Agency.

Much of the in­creased flow will go to China, the world’s top im­porter and, since Novem­ber, the largest buyer of U.S. crude other than Canada.

Chen Bo, pres­i­dent of Unipec - China’s largest buyer of U.S. crude - told Reuters that the firm ex­pects to dou­ble U.S. im­ports this year to 300,000 bpd as it seeks to ex­pand sales in Asia and find new cus­tomers for U.S. ex­ports in other re­gions, in­clud­ing Europe.

Unipec - the trad­ing arm of Asia’s largest re­finer, state-owned Sinopec - is also con­sid­er­ing long-term crude sup­ply deals with U.S. pipe­line and ter­mi­nal op­er­a­tors. The firm may also part­ner with such firms to ex­pand and im­prove U.S. ex­port in­fra­struc­ture, Chen said in an in­ter­view.

“U.S. crude flow­ing to Asia is a ma­jor trend in global oil trad­ing,” Chen told Reuters.

Sep­a­rately, China’s state-owned chem­i­cal and oil con­glom­er­ate Sinochem Group plans to open a trad­ing of­fice in Hous­ton later this year to source U.S. crude for China’s in­de­pen­dent re­finer­ies, five sources fa­mil­iar with the plans told Reuters.

Be­tween 2010 and 2017, U.S. oil pro­duc­tion rose from 5.5 mil­lion bar­rels a day to 10 mil­lion bpd - ap­proach­ing a record set in 1970 - as shale fields in west Texas and North Dakota lured mas­sive new drilling in­vest­ments. That brings na­tional pro­duc­tion in line with Saudi Ara­bia and close to top-pro­ducer Rus­sia’s 10.9 mil­lion bar­rels a day. Saudi Ara­bia cut out­put last year as part of OPEC’S 2016 deal to re­duce sup­ply - af­ter los­ing a price war with U.S. shale pro­duc­ers that cre­ated a global glut.

Most fore­casts show U.S. crude out­put grow­ing about 500,000 to 600,000 bar­rels per day through the end of 2018, said David Fyfe, chief econ­o­mist at global com­mod­ity trad­ing firm Gun­vor Group in Geneva, Switzer­land. The U.S. En­ergy Depart­ment is even more op­ti­mistic, now ex­pect­ing growth to rise by 1.2 mil­lion bpd - hit­ting 11 mil­lion bpd by year-end.

“The bulk of that growth will likely be ex­ported,” Fyfe said.

U.S. pro­duc­ers are also dis­plac­ing for­eign oil at home.

To­tal U.S. crude im­ports have dropped to 7.6 mil­lion bar­rels a day from a peak of 10.6 mil­lion bpd in 2006. OPEC’S share has de­clined from more than half of U.S. im­ports to about 37 per­cent as the United States re­lies more on do­mes­tic pro­duc­tion and neigh­bor­ing Canada.

OPEC mem­bers Saudi Ara­bia, Nige­ria and An­gola have been among the hard­est hit. In the sec­ond half of 2017, U.S. im­ports from Saudi Ara­bia av­er­aged 709,000 bpd, low­est since 1987 and down from a peak of 1.73 mil­lion bpd in 2003.

Big buy­ers in in­dia, europe U.S. pro­duc­ers have also bro­ken into the mar­ket in In­dia - the world’s third­largest oil im­porter and home to the world’s largest re­fin­ing com­plex, op­er­ated by Re­liance In­dus­tries.

Seek­ing to di­ver­sify its for­eign sup­plies, In­dia first im­ported U.S. crude in Oc­to­ber and bought a to­tal of 8 mil­lion bar­rels of U.S. oil last year, ac­cord­ing to Thom­son Reuters ship-track­ing data and ship­ping data pro­vided by sources.

In Europe, as of Novem­ber, the United States had be­come the fifth­largest oil sup­plier to France, ac­cord­ing to cus­toms data, ex­ceed­ing Nige­ria, Libya, Iran or the North Sea. In Novem­ber 2016, the U.S. didn’t even make the top ten.

China stopped im­port­ing Nige­rian crude in the fourth quar­ter, ac­cord­ing to Chi­nese cus­toms fig­ures, and while China’s over­all im­ports rose by 12 per­cent in 2017, im­ports from Saudi Ara­bia rose just 2.3 per­cent.

“They’re tak­ing mar­ket share re­ally from OPEC na­tions,” said Olivier Jakob, man­ag­ing di­rec­tor of Petro­ma­trix. Gulf coast ship­ping boom Surg­ing U.S. ex­ports are rip­pling through the rest of the do­mes­tic en­ergy econ­omy. Ship­ping ter­mi­nals Texas and around the Gulf Coast are build­ing out in­fra­struc­ture to han­dle larger tankers.

“If we didn’t have the op­tion to send that crude to ex­port mar­kets, I think crude oil pro­duc­tion would have been much more dis­tressed,” said Jarl Ped­er­sen, chief com­mer­cial of­fi­cer at Port Cor­pus Christi in south Texas, re­fer­ring to 2016, when oil prices were still in the 40s.

Pipe­line and lo­gis­tics firms are among the big ben­e­fi­cia­ries, as boom­ing crude de­mand means stead­ier prof­its for com­pa­nies send­ing oil to the Gulf and stor­ing it for ex­port.

En­ter­prise Prod­ucts Part­ners which op­er­ates more than 5,000 miles of crude oil pipe­lines and 38 mil­lion bar­rels of crude stor­age - re­ported record prof­its in 2017, boosted by record vol­umes for its pipe­lines and marine ter­mi­nals.

Mag­el­lan Mid­stream Part­ners, which op­er­ates key pipe­lines from Texas’s Per­mian Basin to the Gulf, ex­pects to spend more than $1.7 bil­lion in the next two years on con­struc­tion projects. Among those are new docks, stor­age and marine ter­mi­nals in the Hous­ton area to meet grow­ing de­mand.

Ter­mi­nal op­er­a­tors and ship­pers in the U.S. Gulf are ramp­ing up in­vest­ment to guard against sup­ply bot­tle­necks as more bar­rels leave the U.S. It can take 18 to 24 months to build an ex­port dock.

Gulf Coast ter­mi­nals han­dle three­quar­ters of U.S. crude ex­ports, but only one - the Louisiana Off­shore Oil Port (LOOP) ter­mi­nal - can han­dle su­per­tankers that can carry up to 2 mil­lion bar­rels of oil.

Most ship­ping chan­nels are too shal­low. Last year, Oc­ci­den­tal Pe­tro­leum Corp’s In­gle­side ter­mi­nal at Cor­pus Christi test-loaded a su­per­tanker - but that chan­nel is cur­rently not deep enough to fully load such a ves­sel.

In late Jan­uary, the CEO of the Cor­pus Christi port for­warded a let­ter from six en­ergy ex­ec­u­tives press­ing the Trump Ad­min­is­tra­tion for $60 mil­lion in fed­eral fund­ing for ship chan­nel im­prove­ments as part of a $320 mil­lion project to widen and deepen the port’s ship chan­nel. Lift­ing the crude ex­port ban al­lowed for $50 bil­lion in in­dus­trial projects in south Texas alone, the ex­ec­u­tives wrote.

“If that project for some rea­son should stall,” said Cor­pus Christi’s Ped­er­sen, “that would re­ally make U.S. crude less com­pet­i­tive in Asia.”

– Reuters

Work­ers hired by U.S. oil and gas com­pany Apache Corp drill a hor­i­zon­tal well in the Wolf­camp Shale in west Texas Per­mian Basin near the town of Mert­zon, Texas. Photo: Reuters

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