Boom in exports of U.S. shale crude brought big change
Five years ago on New Year’s Eve, the Theo T left the Texas Gulf Coast with the first U.S. shale crude shipment overseas. The oil, gathered from nearby Conoco Phillips wells and sold to trading giant Vitol Group, set sail for Italy just two weeks after lawmakers lifted a long-standing ban on exports.
It was the start of a trade that would reshape global oil markets, shift geopolitical power and upend entire economies.
The shale boom has turned the U.S. into the world’s largest oil producer and has moved it closer to a dream of ending dependence on Middle East oil. But the export boom created an entirely new market, sending crude pulled from the shale fields of Texas, New Mexico and North Dakota to more than 50 countries, with shipments often surpassing those of any OPEC nation aside from Saudi Arabia.
These past five years could go down as the best years that U.S. shale oil exporters will ever see. COVID-19 has obliterated global fuel demand and bankrupted more than 40 drillers across America. Exactly how much oil leaves U.S. shores in the coming years will largely depend on how quickly the world can recover from the pandemic and how aggressively politicians work to shift the world away from fossil fuels.
But the global reach of U.S. shale has changed oil markets for good and remains a potent diplomatic weapon for the U.S.
“Opening the shale revolution to the world through the export ban lifting helped shift the global oil market psychology from supply scarcity to abundance,” said Karim Fawaz, director of research and analysis for energy at the global consultant IHS Markit. “It unshackled the U.S. industry to keep growing past its domestic refining limitations.”
Perhaps no two groups have gained from the export of America’s shale boom more than producers of U.S. oil and the giant commodities merchants who trade it. Wildcatters including billionaire Harold Hamm of Continental Resources Inc. and Scott Sheffield of Pioneer Natural Resources Co. saw their revenues more than double as exports took off.
“Today the U.S. has its own petrodollars,” Hamm said in August 2018 as U.S. oil shipments overseas boomed.
Trading giants including Trafigura Group, Vitol, Gunvor Group and Mercuria Energy Group profited from buying cheaper shale oil, shuttling it to theU.S. coast and shipping it to eager buyers in Europe and Asia. Betting that shipments would surge, they expanded their trading desks in the U.S. and invested in ports, pipelines and export facilities. By the last week of 2019, exports of U.S. oil had reached nearly 4.5 million barrels a day.
U.S. shale’s gain was OPEC’s loss. As shale oil flooded the market, OPEC
was forced to cede market share. The U.S., which had been one of OPEC’s biggest customers, has cut its monthly imports by about 50 percent since mid-2006.
Exports have turned U.S. shale into a permanent thorn in OPEC’s side. OPEC has had to join forces with Russia, Mexico and other major producers to ratchet back production several times in the past five years while U.S. shale expanded its reach into key markets.
Shale now shares the fortunes — and misfortunes — of being a major exporter. The strongest evidence of this yet came in March when President Donald
Trump joined leaders of the world’s largest oilproducing nations to hammer out an unprecedented accord to save oil markets from total collapse as the pandemic slashed demand.
As long as the world moves mostly on fossil fuels, shale will continue to fight for its share of the global market.
“The lifting of the export ban and the incredible growth and resilience in domestic shale will keep the U.S. a crucial exporter of American crude oil for the foreseeable future,” said Shirin Lakhani, a senior oil analyst at Rapidan Energy Group.