U.S. Will Have Buffer Against Severe Weather Events As Oil Exporter

(September 11, 201) — As a net oil exporter, the U.S. will have a larger buffer against any extreme weather events, as seen with Hurricane Harvey, notes Paul Sheldon, senior oil analyst at S&P Global Platts Analytics’ Pira Energy. According to the latest Pira Energy August 2017 special report, the U.S. is set to become a net oil exporter by 2023, as rising shale liquids output continues to outpace oil demand growth.

In the meantime, rising Canadian imports will make the U.S. a net oil exporter to the world outside North America by 2019. Lower oil import dependence will likely have political implications, including a growing temptation to use Strategic Petroleum Reserve (SPR) sales to fund non-energy items. Calls for a reduced military presence in the Middle East could also grow louder.

Pira Energy explains that U.S. net oil imports, as simply measured by total liquids supply minus oil demand, peaked in 2005 at 12.5 MMbbld. By 2017, total U.S. liquids production rose by 87% to 15.6 MMbbld and net oil imports fell to 4.4 MMbbld. Pira Energy estimates the U.S. will shift to a net oil exporter by 2023, with net exports forecast to reach 3.3 MMbbld by 2031. Sheldon emphasizes that the headline net oil import figure does not tell the complete story of U.S. oil trade flows.

The U.S. remains a large net importer of crude at more than 7 MMbbld in 2017—3 MMbbld from Canada and approximately 2 MMbbld from both Latin America and the Middle East. At the same time, in 2017 Pira forecasts the U.S. will be a net exporter of 0.9 MMbbld of the four major refined products—gasoline, diesel, jet fuel, and fueloil. NGL exports are also growing as a result of higher shale production, reaching 1.4 MMbbld in 2017.

One likely implication of an improving oil trade balance could be on the Strategic Petroleum Reserve (SPR). The government created this emergency stockpile in the wake of the Arab oil embargo in 1973-1974 in order to alleviate the economic impact of oil supply disruptions. But since late 2015 three pieces of non-energy legislation have mandated 149 MMbbl of SPR sales from 2017 through 2025. With U.S. shale production projected to nearly double from 7.4 MMbbld in 2017 to 14.2 MMbbld by 2025, the temptation for lawmakers to tap the SPR for unrelated items will likely grow.

Political discussions over potential SPR sales extend beyond Congress to the White House as well. In March, a Trump administration budget proposal included $16.6 billion in SPR sales between fiscal 2018 and 2027. The proposal is unlikely to pass in its current form, but demonstrates how many politicians view non-emergency SPR sales as more politically palatable than tax hikes to plug spending gaps. This is unlikely to change as oil import dependency continues to diminish. To the extent that other policies—CAFÉ standards, biofuel mandates, EV subsidies—were at least partly driven by import dependence concerns, political support could weaken for these as well.

SOURCE: The Weekly Propane Newsletter, Sept. 11, 2017.
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