Implications of Increasing U.S. Crude Oil Production
Transcript of Implications of Increasing U.S. Crude Oil Production
www.eia.gov U.S. Energy Information Administration Independent Statistics & Analysis
Implications of Increasing U.S. Crude
Oil Production
By
John Powell
June 18, 2013
U.S. crude oil production is up dramatically since 2010 and will
continue to grow rapidly; this has implications for:
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• Refinery operations
• Refinery investment
• Logistics infrastructure investment
• Exports of petroleum products
• Exports of crude oil
Increased U.S. crude oil production has resulted in:
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• Declines in U.S. crude imports
• Changes to refinery operations
• Logistical constraints in moving crude from production areas to
refining areas
• Discounted prices for domestic “landlocked” crude vs. international
seaborne crude
U.S. Crude Prices (dollars per barrel)
2008 2012 Change
WTI crude (U.S.) 99.67 94.05 (5.62)
Brent Crude (International) 96.94 111.63 14.69
Difference 2.73 (17.58) (20.31)
Crude import qualities have shifted as refiners replace imported
crude with domestic production
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Source: U.S. Energy Information Administration
0
2000
4000
6000
8000
10000
12000
2007 2012
Light sweet
Medium and heavy sweet
Light sour
Medium sour
Heavy sour
Crude imports by quality
thousand barrels per day
Refiners have increased processing of light sweet domestic tight
oil by:
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• Increasing crude runs to use any “unused” light sweet capacity
• Backing out imports of light sweet crude
• Blending different qualities of crude
• Depending on relative pricing of different qualities of crude,
bypassing units designed to process heavy crude
• Depending on financial incentives, investing in refinery hardware
to accommodate more light crude
Discounted prices for tight oil
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• Discounted prices result from lack of logistics infrastructure to
move domestic crude to refining centers
• Pipeline capacity increasing but still inadequate: crude is moving
via pipeline to the Midwest and the Gulf Coast
• Crude-by-rail is expanding quickly: crude is moving to the Gulf
Coast as well as to refining centers on the East and West Coasts
Discounted prices for “landlocked” domestic tight oil have
incentivized refiners
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Crude oil prices, rolling 5 day average
dollars per barrel
Source: Bloomberg
Logistics infrastructure: rail is expanding to serve the East and
West Coasts as well as the Gulf
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East Coast rail projects Location Operating
capacity
Planned
capacity
Planned
operating
Midstream Terminals (thousand barrels per day)
Global Energy Partners Albany, NY 160
Buckeye Albany, NY 130
Plains All American Yorktown, VA 130 2013
Sunoco Logistics Eagle Point Westville, NJ 40
Eddystone Rail (Enbridge &
Canopy Prospecting) Philadelphia, PA
80 2013
80 2014
Refinery Terminals (thousand barrels per day)
Philadelphia Energy Solutions Philadelphia, PA 140 2013
PBF Refining Delaware City, DE 110 40 2013
Phillips Bayway Linden, NJ 60 Developing
Totals 440 530
Source: Industry announcements
-4
-3
-2
-1
0
1
2
3
4
1949 1956 1963 1970 1977 1984 1991 1998 2005 2012
Discounted crude prices and low natural gas prices have
supported product exports
9
Annual U.S. net imports of total petroleum products, 1949 – 2012
million barrels per day
Source: EIA, Petroleum Supply Monthly and Annual Energy Review
net
product
exporter
exports
imports
net imports
Others (e.g. petroleum coke, residual fuel oil, propane)
Distillate fuel oil
Gasoline (including components)
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How much more tight oil can be absorbed by changing refinery
operations and blending different crude oil qualities?
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• Varies by refinery
• Light end processing capability could be stressed
• Heavy end processing units could be underutilized
• Total crude processed could decline
• Product yields could shift - more gasoline / less diesel
Will market conditions support capital investment?
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• What about capital investment to increase light crude processing
capability?
– Some refiners have announced capital investment plans to support processing
additional light crude
– Decision to invest depends upon expectations about duration and magnitude of
economic incentives and access to tight oil
– Varies by refinery
• Will discounts for “landlocked” crude persist?
– Price discounts will vary as infrastructure bottlenecks come and go
– Pipeline projects to expand capacity will be completed but tight oil production will
increase
– Rail projects will continue but unclear whether long term rail will be competitive
– Impacts incentive for upstream investment
Will the export market for petroleum products continue to
absorb U.S. refinery production?
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• Exports principally supply Latin America and Europe
• Projected growth in Latin American gasoline and diesel demand
could be supplied by increased local refinery production, limiting
growth in U.S. supply to the region
• European demand projected to slow
• U.S. refineries not currently competitive to supply Asia with diesel
and gasoline
Export licenses not generally required for petroleum products
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• Petroleum products include both finished products and
intermediates
– Finished products include motor gasoline, diesel fuel, jet fuel, etc.
– Intermediates include naphtha, reformate, vacuum gasoil, etc.
• Petroleum products include topped/split crude
• Condensate is subject to Commerce Department export licensing
rules
– Note: EIA treats condensate as a natural gas liquid, which is considered a
petroleum product
Crude oil exports require licenses
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Others Export
License
Required
Crude Oil
1. Alaska Cook Inlet
2. To Canada for consumption there
3. Heavy California crude up to 25 MBPD
4. Strategic Petroleum Reserve oil in
connection with an exchange of refined
products
5. Foreign-origin crude oil where the
exporter can demonstrate that the oil is
not of U.S. origin and has not been
commingled with oil of U.S. origin
Pre-qualified
Presidential determination
that it is consistent with
national interest
U.S. crude exports to Canada have doubled since 2005 and
could continue to increase as pipeline and rail capacity expands
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Monthly U.S. crude oil exports to Canada and rest of world
thousand barrels per day
Source: U.S. Energy Information Administration
0
20
40
60
80
100
120
140
Canada Rest of World
U.S. dependence on imported liquids depends on both supply
and demand
16
U.S. liquid fuel supply
million barrels per day
Source: EIA, Annual Energy Outlook 2013 and Short-Term Energy Outlook, April 2013
0
5
10
15
20
25
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040
Reference case supply
Reference case consumption
Low/No Net Imports supply
Low/No Net Imports consumption
Consumption
Domestic supply Net imports
37%
Projections History
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Petroleum exports
-8%
32% STEO
forecast for 2014
2014
40%
2012
For more information
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