US crude oil exports set for further growth

According to Business Monitor International (BMI), the record rate of US crude exports in November 2914 marks a milestone for the industry and underscores the ability of producers to work within the current legislative framework to export their oil, undermining the case for an outright reversal of the crude ban. According to EIA estimates, at 502 000 bpd, average US crude exports surpassed the monthly record of 455 000 bpd set in 1957, and nearly doubled the November 2013 rate of 253 000 bpd.

With lower oil prices unlikely to impact the core of US crude production, in addition to sustained demand for light feedstock in neighbouring Canada, its primary destination, BMI believes crude exports from the US will continue to rise over the next several years. BMI forecasts US oil production will grow by 6.0% year on year in 2015 despite a 44.0% year on year decline in the price of WTI. Thereafter, modest production growth will continue to support exports, with Canada likely to continue displacing more costly seaborne imports for less expensive US crude.

Shale oil production will remain resilient in a lower price environment due to technological innovation and efficiency gains, which BMI believes have further room to develop. As such, Business Monitor holds that crude output will continue to grow over the coming decade, albeit at a more modest rate than in years past, averaging 2.6% year on year from 2015 to 2024.

Upstream producers will continue to adjust their focus away from developing more marginal, higher cost plays in favour of fertile ‘sweet spot’ acreage. In turn, this will generate a growing source of exportable light crude, particularly as the rate of petroleum consumption growth in the US remains negligible through 2024.

This supply demand dynamic has driven the rapid growth of US crude exports over the past several years as higher rates of production have freed up greater trade volumes, with significant growth out of the US Gulf of Mexico (PADD 3). As production growth continues, this trend will grow more pronounced.

As the only country explicitly permitted to receive US crude exports through current regulations, having received 455 000 of the 502 000 bpd exported, Canada will remain the primary recipient of light American crude in the years ahead. While BMI forecast oil production in Canada to increase an average of 6.0% year on year through 2018, BMI believes a continued deficit of pipeline infrastructure connecting western resources to eastern consumers will bolster the need for US crude imports.

Although total crude imports to Canada have declined an average of 5.0% year on year since 2010 as a result of the recent growth of rail transport capacity, BMI believes that this has primarily disincentivised more costly seaborne imports in favour of less expensive US imports. This is clearly illustrated by the 30.0% month on month increase in imported US crude in November and a steady increase over the course of 2014.

In December 2014, the US Bureau of Industry and Security (BIS) clarified its export policy, which classifies minimally processed (stabilized) condensates as refined products, exempting them from the crude ban. Representing approximately 25% of natural gas liquids (NGL) exports in 2014, increased shipments of US condensate, or pentane plus, will likely take on a greater share of liquids exports, boosting the overall total in the coming years.

Adapted from a report by Emma McAleavey.

Source: BMI

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