U.S. Oil And Gas Import/Export Mix Poised For Continued Shift

on February 27, 2015 at 10:00 AM

Louisiana Oil Industry Recovers From Katrina Devastation

Continued growth of U.S. unconventional oil and gas production has made oil and gas exports attractive for industry.

On February 10, 2015, the Energy Information Administration (EIA) issued a report highlighting the significant decrease in light crude oil imports to the U.S. Gulf Coast area, with light-sweet crude imports virtually eliminated in 2014.  Since 2010, crude oil distribution system improvements and sustained production increases in the Permian and Eagle Ford basins have significantly reduced the need for light-sweet crude imports.  Historically, Gulf Coast refineries have imported up to 1.3 million barrels per day (bbl/d) of light-sweet crude oil, more than any other U.S. region.  Gulf Coast imports of light-sweet crude and light-sour crude have been less than 200,000 barrels per day (bbl/d) since September 2012 and July 2013, respectively. The drop in light sweet imports and an increase in domestic refining capacity economically supports the push for lifting the crude oil export ban.

The market value of a crude stream reflects its density and sulfur content. Density ranges from light to heavy, while sulfur content is characterized as sweet or sour. Crude oils that are light (lower density) and sweet (low sulfur content) are priced higher than heavy, sour crude oils, because gasoline and diesel fuel, which typically sell at a significant premium to residual fuel oil, can be more easily and cheaply produced using light, sweet crude oil.  Processing of light sweet grades is relatively less sophisticated and less energy-intensive. Sweet crude is the most common type of oil produced from domestic shale plays; however, numerous U.S. refineries have invested heavily to also process slates consisting primarily of heavy, sour crudes. Major refiners like Valero (1.9M bbl/d)  and Marathon (1.7M bbl/d) have announced plans to add or alter units at existing refineries to increase domestic light sweet crude refining capacity.

The Gulf Coast broadly imports crude oil from Mexico, Venezuela, Colombia, and Canada in the Americas; and Saudi Arabia, Kuwait, and Iraq in the Middle East. The most significant reductions of light sweet crude from these countries include Venezuela (98 percent reduction), Canada (85 percent reduction), and Colombia (75 percent reduction). Imports from other countries, particularly Africa, have declined significantly from an average of 1.7 million bbl/d in 2009 to 0.26 million bbl/d in October 2014.  By comparison, in the U.S. midwest nearly all of the more than 2 million bbl/d of crude oil imports came from Canada in 2014, with imports from other countries remaining historically low (125,000 bbl/d in 2009 to 34,000 bbl/d in October 2014).

Global Crude Supply Will Continue to Outpace Demand in 2015 
In 2014, crude oil price decline was primarily driven by global supply outpacing demand – which grew by approximately 0.5 million bbl/d. The EIA projects this trend to continue in 2015. The EIA data shows that crude oil prices were relatively stable during the first eight months of 2014, then showed a steep decline, recording the largest drops in November and December, and ending on five-year lows of below $60/barrel. The price decline was exacerbated in November 2014 after the Organization of the Petroleum Exporting Countries (OPEC) announced its intention to maintain production targets. The EIA projects this trend to grow in the first half of 2015, with projected global production exceeding demand by approximately 0.8 million bbl/d and then scaling back to an annual level of 0.4 million to 0.5 million bbl/d inventory level.

Originally published by EnerKnol.

EnerKnol provides U.S. energy policy research and data services to support investment decisions across all sectors of the energy industry. Headquartered in New York City, EnerKnol is proud to be a NYC ACRE company.