May the 4 accompany you! Today, Star Wars Day for many of us, we borrow (and bastardize) one of the most memorable quotes from that epic collection of movies, “May the Force be with you.” to clarify that, as the “Force” that shapes events War of the galaxies universe, for the US oil patch, exports are the lifeblood of today’s market. US refineries are operating at more than 90% of rated capacity and are using as much domestically produced light and sweet shale oil as their sophisticated equipment will allow. This means that virtually all incremental U.S. light and sweet unconventional crude production will have to be transported to export terminals along the Gulf Coast, loaded onto tankers and sent to refineries in the foreigner In today’s RBN blog, we discuss what this undeniable link between crude oil exports and production growth means for US E&P and midstream companies, and the future of the oil industry and gas
Yoda, the super-wise Jedi Master who understood the Force that binds the universe together more than most, may not phrase things like the rest of us, but as energy market forecasters it’s hard to argue with his aphorism. [in Star Wars: Episode V (The Empire Strikes Back)]: “Hard to see; the future is always in motion”. What could have predicted 20 years ago, for example, that the US was about to enter a new golden age of hydrocarbon abundance. And who in 2019 could have predicted a global pandemic, or a brutal ground war in Europe that would turn one of the world’s three largest oil-producing countries into an international pariah.
We must forecast, however, basing our predictions on what we know and how things are today. What we do know is that US crude oil production (dark green bar segments in Figure 1) has increased almost without pause since the beginning of the Shale era, reducing the need for crude oil imports ( blue bar segments), although the US still matters. significant (and very important) volumes of Canadian heavy crude. We also know that during the 2010s US refiners added incremental refining capacity and did everything they could to increase their use of domestic crude to an economic advantage: the orange line in the bar chart shows the increase refinery constant for most of this decade. The problem was (and still is) almost all the incremental barrels produced were (and still are) light, sweet crude, and there are limits to how much of that stuff can be processed in the complex refineries that populate the Gulf Coast. As a result, produced volumes in excess of domestic refinery needs, i.e. the portion of segments in the green bar above the orange line (also shown in Figure 3), must be exported. There really is no alternative.
