Shale Boom Lowers U.S. Trade Deficit by $250 Billion

The U.S. is now on track to become a net exporter of petroleum for the first time since at least 1949, writes IHS Markit, a development leading to additional expected trade deficit gains. The boom in U.S. oil and gas produc- tion over the past decade has exerted a moderating force on what is a large domestic merchandise trade deficit by helping to reduce the country’s net petroleum imports, a new report by the business information provider observes.

The total U.S. merchandise trade deficit in 2017 was nearly $250 billion lower than it otherwise would have been if the petroleum—crude oil, refined products, and natural gas liquids—trade deficit had remained at its 2007 level, the report finds. IHS Markit projects that the U.S. petroleum trade balance will further improve by roughly $50 billion between 2017 and 2022.

The findings are part of the report Trading Places: How the Shale Revolution Has Helped Keep the U.S. Trade Deficit in Check. It examines the impact of rising U.S. oil, natural gas, and chemicals production on the domestic trade merchandise balance and how the U.S. position in energy and chemicals may evolve in coming years.

“The improved U.S. trade position in petroleum has been a counterbalancing force helping to keep the U.S. trade deficit in check over the past decade,” says Daniel Yergin, vice chairman at IHS Markit. “The resurgence of domestic oil and gas production has flipped the trade posi- tion of several products along the energy value chain on their heads, while that of other products such as crude oil have been significantly reduced.”

U.S. output of liquids—crude oil and natural gas liquids—nearly doubled from about 7 MMbbld in 2007 to 13 MMbbld in 2017, and jumped to 14.8 MMbbld in the first nine months of 2018. Crude oil alone rose from 5 MMbbld in 2007 to 9.4 MMbbld in 2017 and averaged 10.6 MMbbld in the first nine months of 2018—and hit- ting 11.2 MMbbld in October of this year.

This rise, combined with a slight decline in domestic demand, contributed to a sharp fall in U.S. petroleum net imports as a share of total consumption— from a high of 60% in 2005 to 19% in 2017 and 14% in the first nine months of 2018. IHS Markit estimates that the U.S. petroleum trade deficit in dollars fell from about $320 billion in 2007 to about $75 billion in 2017 as net imports declined. During this same period, when the petroleum trade deficit was shrinking dramatically, the trade deficit for non-petroleum merchandise grew by about
$230 billion.

The continued growth of U.S. and NGL production, along with relatively flat domestic liquids demand, are expected to make the U.S. a net petroleum exporter by early next decade, the report says. This would be the first time since at least 1949 that the U.S. was not a net petroleum importer.

“The United States moving from net imports to being a net petroleum exporter would be an historic shift, something not achieved since at least the Truman admin- istration,” says David Witte, senior vice president and division head of energy and chemicals at IHS Markit. “It speaks to the profound and continued impact that the U.S. shale boom has had in terms of investment, job creation, manufacturing, GDP, and now trade.”

The resurgence of U.S. oil and gas production has already altered the domestic net trade position of a number of energy products over the same 2007-2017 period, according to the report. IHS Markit expects exports of these products to continue to increase. They include:

Refined Products—from about 1 MMbbld of net imports in 2007 to about 2 MMbbld of net exports in 2017, a positive change of about 3 MMbbld;

Natural Gas Liquids—from 0.2 MMbbld of net imports in 2007 to 1.1 MMbbld of net exports in 2017, a positive change of more than 1 MMbbld;

Natural Gas—from 10.4 Bcfd of net imports in 2007 to 0.4 Bcfd of net exports in 2017, a positive change of nearly 11 Bcfd;

Gas- and NGL-Based Chemicals—from about 6 million metric tons a year of net imports in 2007 to about 4 million metric tons a year of net exports in 2017, a positive change of more than 9 million metric tons a year;

Crude Oil—from about 10 MMbbld of net imports in 2007 to about 7 MMbbld of imports in 2017, a positive change of about 3 MMbbld.

However, the report cautions that trade tensions between the U.S. and its trading partners could introduce new risks and therefore alter the trajectory of global energy trade and energy demand. In particular, the report notes recent frictions with China, which is a growth market for U.S. exports of LNG, crude oil, NGLs, and gas- and NGL-based chemicals.

“Overall turmoil in world trade patterns could not only dampen trade along the energy value chain but also affect global economic growth and thus impact demand for the many hydrocarbon and chemical products that depend on economic growth,” says Jeff Meyer, director of oil markets at IHS Markit.

(SOURCE: The Weekly Propane Newsletter, December 3, 2018)