Two years almost to the day after Alaska Sen. Lisa Murkowski, chair of the Senate Energy and Natural Resources Committee, issued her white paper promoting exports, "Renovating The Architecture of U.S. Energy Exports," she got her wish. On December 31, 2015, a tanker departed NuStar Energy LP's dock at Corpus Christi, Texas, loaded with Eagle Ford crude oil produced by ConocoPhillips.
A day later, a second cargo of Texas crude was shipped by Enterprise Products Partners out of its facilities on the Houston Ship Channel. And on Jan. 20, history was made as the first vessel arrived in the harbor at Fos-sur-Mer near Marseilles, France. The buyer in both cases, global commodity trading giant Vitol Group, planned to move the oil by pipeline to two refineries it operates in Europe under a joint venture it arranged last year with The Carlyle Group.
The total volume shipped by the two vessels amounted to about 930,000 barrels (bbl), according to Genscape estimates.
By any stretch of the imagination, it was not a lot, given that U.S. production in November was about 8.7 million barrels per day (MMbbl/d) in the Lower 48 alone, and 9.3 MMbbl/d in total. But lifting the 40-year-old ban was a huge step forward—one of the most significant policy changes benefiting the U.S. oil industry in years, with long-term ramifications. Pressure to do this built up over the past two years as U.S. light, tight oil production soared and study after study said exports would be good for the economy.
Despite that, many pundits warned that nothing would happen until after the presidential election. Luckily, they were wrong. But now that the dog has caught the car, what will he do with it?
In the first four months of 2016, 21 shipments left U.S. shores for international markets, per Genscape. Lifting the ban has already brought West Texas Intermediate (WTI) prices back in line with Brent and other world market prices, as experts predicted, narrowing the usually wider spread. In fact, for the first time in years, WTI has traded at a premium to Brent. This phenomenon increases the value of every barrel we can produce—an incentive to produce even more, were it not for the oil price crash that has altered the equation in other ways. In the meantime, experts say, transportation costs will hamper the economics of U.S. oil exports versus competing sources of crude.
Still, the fact that the ban is dead is good news, if not now, then especially in the longer term. Experts say as much as 1 MMbbl/d could be available for export if the economics justify it.
"For producers, this is tremendous," said Continental Resources Inc. chairman Harold Hamm. Indeed, Hamm is one relieved, happy warrior—he personally met with 250 people one-on-one during the fight to lift the ban: senators, congressmen and staffers, coalitions and caucuses, the media.
"First of all, this gives us a future—without it we were all about dead. We didn't have enough refining capacity here for all the sweet crude we were producing. Now, you're not just going to be shipping it to the coasts, you're going to go beyond the coasts."
Continental Resources has been shipping its Bakken crude by rail to the West Coast in Anacortes, Washington, and it "certainly intends to be exporting by the end of the year, or as soon as practical," Hamm told us.
Not surprisingly, he said the company is considering exports to Asian buyers. It already has relationships there because since late 2014, it has had a gas development joint venture in the Cana-Woodford Shale in Oklahoma with SK Group, the South Korean firm. That company has a refinery that is configured to handle Continental's grade of light crude oil. "But they couldn't buy it from me before, even though we were already partners in Oklahoma. So after the ban was lifted, they were the first to call and congratulate me," Hamm said.
The U.S doubled its oil production from 2008 to 2014, and Hamm believes we have the capacity to double it again and go up to 20 MMbbl/d.
"You get into a rare league then. How many 20-million-a-day producers do you know? This is a real transformation of the world's oil supply: We have the highest quality oil, and this ends OPEC dominance once and for all."
The differential between WTI and Brent was as wide as $42/bbl at one time, and Hamm had said that once the ban was lifted, that would go away. "In the first 11 hours of trading, it did," he said. "It was history. So that was an immediate benefit. And we said gasoline prices at the pump would go down, and that's exactly what's happened."