The intersection of too much U.S. light-oil production and too little refining capacity for it is near.
The debate is on.
The U.S. Senate’s energy and natural-resources committee has booked a hearing for 10 a.m. EST, Jan. 30, on lifting the ban on exporting U.S.-produced oil as the clock is quickly ticking toward more U.S. light-oil production and too little U.S. refining capacity for it.
Michael Webber, deputy director of the University of Texas’ Energy Institute, told the Wall Street Journal earlier this month about what already appeared to be an imminent, national debate, “I think it will be a huge, knockdown fight because it pits environmentalists against national-security hawks against producers against consumers.
“It's a cage match for a multi-hundred-billion-dollar market."
The EIA reported today that its 2014 Annual Energy Outlook “projects declines in U.S. oil and natural gas imports as a result of increasing domestic production from tight-oil and shale plays. U.S. liquid-fuels net imports as a share of consumption (are) projected to decline from a high of 60% in 2005 and about 40% in 2012 to about 25% by 2016.”
U.S. gas exports as LNG are already set to commence in 2018 as newly constructed, liquefaction facilities come online, the EIA notes.
“Conversely, other major economies are likely to become increasingly reliant on imported, liquid fuels and natural gas. China, India and OECD Europe will each import at least 65% of their oil and 35% of their natural gas by 2020—becoming more like Japan, which relies on imports for more than 95% of its oil and gas consumption.” (Note: Click for the webcast of a U.K. House of Lords economic-affairs-committee hearing last week on development of the U.K.’s shale-gas potential. Testimony includes that of Chris Wright, founder of frac-mapping and -diagnostics firm Pinnacle Technologies Inc.)
The U.S. currently allows some export of U.S.-produced oil to Canada; there are a few, additional exceptions.
In short, forecasts are for yet more growth in U.S. production of light crude. Where is the intersection of too much light oil for indigenous refining capacity, will that make U.S. oil “stranded” and what effect would that have on WTI?
Garry Tanner, managing director for energy private-equity investor Quantum Energy Partners LP, was presented this question Friday during energy M&A group ADAM-Houston’s membership meeting.
“I think you’re already seeing that to a certain degree,” he said. “In any area, basin or country where you have dramatic growth, generally you see a bit of a disconnect from the market.
“It takes time to build that infrastructure and solve those issues.
“We definitely saw North American gas (prices) disconnect with the rest of the world; we have a discount on gas in the U.S. (now) versus everywhere else. You’ve started to see the differential between Brent and WTI and we’ve come to the point where we have, basically, pushed all of the light, sweet crude coming into the country away.
“There is a little bit still coming in on the (Gulf) coast and some long-term (contract) oil coming in from Saudi Arabia.
“But we are concerned about what that’s going to do.
“That is one of the risks you have (in investing in U.S. oil right now). There is a global risk of oil demand and then we have a localized risk, which is ‘What’s going to happen as we continue to grow light-oil supply when the refineries are built for heavy?’”
(Note: Also see the Jan. 9 blogpost: “U.S. Oil Exports Seem Premature But The Issue Is With The Type Of Oil Refineries Can Process.”)
–Nissa Darbonne, Author, The American Shales; Editor-at-Large, Oil and Gas Investor, OilandGasInvestor.com, Oil and Gas Investor This Week, A&D Watch, A-Dcenter.com, UGcenter.com. Contact Nissa at firstname.lastname@example.org.