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Revolution Part 1: US shale feedstock processing

Hydrocarbon Engineering,

The global oil market had grown comfortable with the idea of the US as the world's largest oil market and the largest crude importer. US crude production had peaked in the 1980s, and it had been falling gently, and apparently inexorably, for over 30 years. US crude imports of 3.2 million bpd in 1985 rose to surpass the 10 million bpd mark in 2003, and most believed that US import requirements would continue to grow. Since then, many things have changed. Oil prices remained high, and a price shock hit the market in 2008. The US economy, already faltering, toppled into a long lasting recession. US oil demand fell by 2.3 million bpd between 2005 and 2012, before rising by 0.4 million bpd in 2013. But a bright spot emerged in the upstream sector: the ‘shale boom’. Production from the Eagle Ford shale play in Texas and the Bakken shale play in North Dakota are causing a huge resurgence in US oil production. Geologists had known for many years about deep rock formations rich in oil and gas. The Bakken formation is part of the larger Williston Basin, which underlies parts of the US states North Dakota and Montana, as well as parts of Canada's Saskatchewan and Manitoba provinces. The Eagle Ford formation underlies much of southern and eastern Texas, and it extends into Mexico as well. Recent commercial successes in these shale plays have been made possible because of advances in horizontal drilling and hydraulic fracturing, or ‘fracking’. The shale oils also are known as ‘tight oil’, in part to avoid confusion with oil shale, which is shale containing kerogen. Oil shale requires its own type of mining, retorting and processing, and it is not fully commercialised.

The shale boom is causing dramatic changes in the US oil market. The impacts are so far reaching that the term ‘shale revolution’ is not an overstatement: the upstream sector has been reinvigorated, populations have swelled in towns near producing areas, pipelines and infrastructure are being built, new transport modes are emerging, and refinery construction and modifications are underway. The shale revolution is not affecting all US regions equally. The new production is mainly in Petroleum Administration Defense District 2 (PADD 2), which is the US Midwest and Great Lakes region, and PADD 3, which is the US Gulf Coast region. The shale boom is also affecting PADD 4, the Rocky Mountain region. But refiners in PADD 1 (the East Coast) and PADD 5 (the West Coast) have very limited access to the new crude. Most refiners in these PADDs lack pipeline access to the new tight oils. The US has reduced its reliance on foreign crude imports, with the exception of trade with Canada. Canadian reserves of oilsands are vast enough that Canadian shale oil resources still remain largely untapped. The majority of both resources are concentrated in the centre of the country, where the least cost export option is pipeline transport to the US. In this article, the author will discuss the growth in US crude production, the reduction of foreign imports and the rise of Canada, the immense changes in oil transportation, and the impacts on refining and trade.

Reduction of foreign imports, and the rise of Canada

The strength in domestic production, coupled with flat demand, has allowed a drop in foreign crude imports. The AEO forecasts that foreign crude imports will fall by 1.6 million bpd between 2013 and 2019, though as noted, the reference case forecast assumes that 2019 will be the peak year of US crude production, and that imports will rise slowly thereafter. Net oil imports of 5.76 million bpd in 2019 are forecast to grow to 7.74 million bpd in the year 2040. However, this is still well below the peak levels experienced before the shale boom, when US crude imports exceeded 10 million bpd.

The US already has seen a major shift in oil imports and sources of foreign supply. The oil price shocks of 1973 - 1974 and 1979 - 1980 left a lasting impression on US consumers, and there was growing concern over oil supply security. US crude imports hit a peak of 6.6 million bpd in 1977. Imports dropped significantly after the second price shock and the US recession, falling as low as 3.2 million bpd in 1985. After oil prices collapsed by 1986, the US began to import larger volumes of crude. The sources have changed significantly, and Canada has emerged as a vital source. Imports of Saudi Arabian crude have been stagnant or shrinking for the past two decades.

In contrast, imports of Canadian crude have grown steadily for over three decades, and Canada surpassed Saudi Arabia as a crude source in the year 2004. In 2013, Canadian crude exports to the US were 2.569 million bpd, while Saudi Arabian crude exports to the US were 1.325 million bpd. The majority of Canadian exports to the US are heavy sour crudes and bitumen based products from oilsands. The crude bitumen in Canada may be upgraded into synthetic crudes of varying grades, or they may be sold as ‘dilbits’, a shorthand expression for blends of diluent and bitumen. The diluents are condensates and natural gas liquids added to raw bitumen to improve flow properties so that pipeline transport is possible. The diluent to bitumen ratio is approximately 30:70. These crudes compete with heavy sours from other Western Hemisphere sources, particularly in the central part of the country where pipeline delivery is the norm.

Part 2 of this article is available here.

The full article can be found in the June issue of Hydrocarbon Engineering

Edited by Claira Lloyd

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