Shale: down sides as well as up

The shale phenomenon has had massive impacts in the US and these are now starting to spread across the globe. The focus of one presentation at Tank Storage Asia was how shale is going to impact Asia and its storage market in particular.

Driscoll decided that his talk would only focus on crude, condensate and light distillates. He said that forecasts have underestimated the shale oil production levels that we have already seen and are likely to see, and consumers and refiners in the US want the export ban to stay. Driscoll voiced that an output discrepancy of 3 million bpd is in play in the outlook for oil and new predictions due to the shale revolution. But also stated, ‘want me to make a prediction? Give me a dart board.’ However in some form, the US shale boom is going to impact Asia’s energy fortunes, but he asked the question will Asia benefit or not? After all, so far only certain US refineries have been the beneficiaries of the shale boom as margins improve along with stock prices for companies such as Valero, which have and are expected to increase by over 300% to 2015.

Create and destroy

Driscoll did not seem 100% convinced by shale and called it ‘a disruptive technology’ with the ability to create value and destroy value. Refiners are disposing of and converting refining assets that are either not equipped to process light shale oil, or that are not competitive enough to stand strong in the market shale has brought with it. Companies on the east coast of the US in particular are exiting the refining business completely as they can’t compete with those with easy and cheap access to shale assets.

But will US crude and condensate get to Asia, Driscoll asked. There has been a one off temporary motion and 2 export loads are being allowed to be sent to Asia, but as Driscoll opined, how long will it be until the US reverts to, ‘ponder, delay and deliberate,’ when it comes to exporting crude oil. It is possible that if there is a ‘proactive leap of faith’ in US Congress, then 1 million bpd will be shipped from the US to Asia by 2016.

Infrastructure

In the US, infrastructure development is on the up due to shale and Kinder Morgan in particular has become a big player, especially when it comes to condensate storage. When it comes to Asia, Driscoll said, ‘Singapore is running out of space,’ and it is easy to see how this is the case. Singapore has started reclaiming land and to build up and down as expanding outwards is no longer an option.

The Panama Canal was discussed by Driscoll and was deemed to no longer be a necessity. It is the delay and increasing budget that he believes will negate all benefits from it and in the end, this piece of infrastructure will most likely never be a game changer.

Imports and exports

Import routes, and products are expected to change, said Driscoll. The US is expected to have plenty of naphtha to export to 2020 and Asia will continue to import LPG to a high level this year, however, that is expected to tail off in 2015. LPG exports from the US are however expected to hit 400 000 bpd by 2020, which is double that seen in 2012. Asia isn’t expected to be a big importer of US LPG, not only due to a drop in demand as mentioned above, but due to the fact that Asia is, according to Driscoll, going to begin looking for a diversification of supply more than anything else. China is however set to remain a big importer of LPG from America and 2014 figures are already on their way to double the levels seen in 2013.

Conclusion

To conclude Driscoll made a few further comments on shale, saying ‘shale is here to stay but could be a victim of its own success.’ He expanded upon this statement pointing out that shale has the ability to power down prices and there is a lot of politics involved across the globe that could stand in its way in the long term. Also he said that there is a global imbalance in the shale market, and some needs to be moved out to Asia, however, he said that shale, whilst it has the potential to become an important part of the oil market, it is not going to replace the base Middle East exports to Asia.

Written by Claira Lloyd

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/13102014/shale-ups-downs-tsa/