‘A child who is born grows to wait for others behind him” is a popular axiom of the Igbos of the South eastern region of Nigeria. When the US leaders started clamouring for oil and gas independence, least did they know perhaps that “the sound of a bitter kola” like my people would also say “is usually not as its taste.”
The US has been positioning itself as a major player in the global crude market, claiming a place it last held more than a century ago, apparently attributable to its tight oil production that has continued to grow in leaps and bounds.
With onshore lower 48 output expected to exceed 11 million b/d by 2023 according to a team of analysts – Wood Mackenzie, the US is poised to become the world’s largest oil producer. For Woods, this is a healthy development. But the questions according to them are, where will this volume of oil production go and what will the impact be on global oil markets?
In Wood Mackenzie’s new study – US Crude Exports – Making Waves, Ed Rawle, Chief Economist at Woods said: “The global crude trade landscape continues to shift as the US Lower 48 pumps more light sweet crude into the market. US exports are forecast to approach 4 million b/d by the mid-2020s, likely making the US a top five global crude exporter, with similar export volumes to Iraq and Canada. However, with limited additional demand for these volumes in the domestic refining system, future US production will need to clear into export markets.”
Most of this new output Ed Rawle says will be light sweet and ultra-light crudes, however, most US refineries are configured to process medium and heavy crudes – in 2016, just 32% of the crude processed by US refineries were light crudes. Adding that without large-scale capital investment, the US domestic market can only absorb about a quarter of the additional 4 million b/d of US crude expected to enter the market in 2023, leaving the rest for export.
“In the near-term the US will look to Europe to absorb most of its crude volumes,” Rawle said. “US crude oil refining values are higher in Europe and transport costs are lower compared to say, Asia. However, US crude grades will be fighting African crudes for European market share, requiring discounts to stay competitive. Once European demand is sated, the marginal barrel will then shift to Asian markets in 2022, where higher transport costs will require even further discounts to capture market share.”
Rawle further posited that the US crude producers with operations in the Permian basin could see higher values for their crude than peers earning premium prices over the next decade versus Eagle Ford and Cushing blend crudes. The Permian Basin – the jewel in the US Lower 48’s crown – is forecast to account for half of all US onshore oil production by 2023, or approximately 5 million b/d.
John Coleman, Wood Mackenzie’s Senior Analyst North American Crude Oil Markets, said: “Not all US light crudes are created equal. Differences in quality suggest a strong appetite for Permian crude in Europe and Asia, where it may receive a premium of ~$0.50/bbl relative to WTI Cushing blend and Eagle Ford crude.”
Maintaining that as US producers and midstream operators assess their portfolios, questions about specific crude streams will arise as they assess which are most attractive to international buyers, and which export hub is best positioned to not only reach the right markets, but to handle the highest volumes.
“With additional Permian takeaway pipes headed for Corpus Christi, and potential for massive port infrastructure enhancements to accommodate larger crude vessels, Corpus Christi is best positioned to see significant volume increases. We forecast Corpus Christi will surpass 1 million b/d of exports by 2020, doubling to 2 million b/d by 2023,” Coleman added.
These experts also opinionated that the growth in US production was set to reshape the global oil market, urging producers, midstream operators and investors to capitalise on this transformation to be well positioned to thrive as the transformation proper gets under way.