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The question of US oil exports

The question of US oil exports
The Society of Maritime Arbitrators (SMA) began its 2014 luncheon series with a presentation on “US Energy Independence” by Ken Bogden, director- global oil, at the PIRA Energy Group. Under the leadership of SMA board member Bob Flynn (tasked with responsibility for the lunches), top partner at tanker broker MJLF, recent events have considered topics related to energy.

The “Shale Revolution” in North America is well known, but Bogden’s presentation slides and his remarks during the lengthy discussion following the talk, brought some additional colour to the topic. From a shipping standpoint, one important question concerns the ability of US oil producers to export crude oil - presently permitted only under very limited circumstances. The US Jones Act trades have benefited from coastwise oil movements, and tanker watchers have expressed a concern that crude exports would take the bloom off the rose for the small but currently highly profitable US Jones Act tanker fleet.

Bogden explained that as he and his colleagues have studied they export issue, a feeling has begun to emerge that nothing will happen until after the 2016 elections and, after that, permits would be granted incrementally, much like we’ve seen with regard to exports of LNG that will be starting in 2016. The question comes days after US Senator Diane Murkowski (Republican- Alaska) called for an end on exports of crude oil and condensates, the first prominent politician to take a stand on the topic.

In the bigger picture, US oil production from shale has grown by 1.6m barrels  per day since 2005, when only minimal quantities were produced. Looking 11 years out, to 2025, Bogden suggested that PIRA was looking for US production of oil from shale, which tends to be light- with API gravities circa 45, to have grown to 6.7m per day.

The production increases already seen represented a “buffer against supply disruptions,” with Bogden commenting that: “Without the shale boom in the US, we might have seen oil prices at $150 per barrel…” given supply issues in Africa and the Middle East. In terms of oil flows, Bogden described the Atlantic Basin as the “epicenter of supply” with the Pacific representing the “epicenter of demand,” especially as Chinese oil consumption increases (though not all by water). Bogden’s slides showed future crude oil tonne miles growing only modestly, roughly 0.5% per annum, in the coming years.

During the luncheon remarks, two bright spots emerged from the various forecasts and prognostications. LPG trades, which Bogden pegged at 1.7m barrels per day presently, are expected to rise to 2.4m barrels per day by 2020. US liquids exports, helped by the coming Panama Canal expansion (now pushed back into 2016), will play a big role in this growth, as will movements that would end up as feedstocks in Europe (where refineries have been closing). He saw middle distillates, especially out of new refineries in the Middle East, as another growth area, against the backdrop of product tanker trades that will grow- but nearly as rapidly as the “Golden Age” which ended abruptly in late 2008.

Though Bogden was suggesting that US crude imports will have been cut in half, by 2020, a more nuanced view comes from ratings agency Standard & Poors, where analyst David Lundberg and his team expressed a view that US refiners will not simply scrap their capabilities for processing heavier crudes. Rather, according to S & P, “…they are making adjustments where feasible. For example, some U.S. refiners blend in domestic light crudes with heavier imported oil to match their designed feedstock slate more closely.”