Since the U.S. lifted its restrictions on crude oil exports in December 2015, a dozen new countries have joined its long-term export partner Canada, which had been exempt from these restrictions.
The U.S. is currently exporting crude in the thousands of barrels per day, while importing in the millions of barrels per day. However, with oil prices now recovering from February’s ten-year-lows, some companies are ramping up drilling efforts, especially in shale plays that have stayed profitable even in the sub-US$45-50 oil price.
Healthy demand in Asia and an over-reliance on Russian oil in some parts of Europe are also steering potential buyers toward U.S. crude oil.
Of course, the U.S. is likely to embrace the opportunity that oil affords to form new alliances, boost ties with existing allies, or grab chunks of markets traditionally held by Russia or OPEC producers.
In the first five months after the export restrictions were lifted, U.S. crude oil exports averaged 501,000 barrels per day, or 9 percent more than the full-year 2015 daily average, the U.S. Energy Information Administration (EIA) said in August.
During those first five months, U.S. crude oil had been shipped to 16 different nations, and other than Canada, Curacao, the Netherlands, Japan and Italy became top buyers of U.S. crude.
These destinations are quite logical. Curacao hosts a refinery of Venezuela’s state-held PDVSA. The Netherlands is home to Europe’s largest port, the Port of Rotterdam. Japan needs energy imports as it struggles with the aftermath of the Fukushima disaster, while Italy, one of Europe’s largest energy consumers, depends on imports to meet around 90 percent of its oil and gas needs.
The U.S., for its part, imported 7.016 million bpd of crude oil in the week of October 21. That same week, it exported 415,000 bpd of crude. The exports are just a drop in the ocean, but it’s a start.
U.S. shale resources are enormous, estimated at 59 billion barrels of technically recoverable tight oil, which ranks the U.S. second in the world after Russia in terms of shale oil resources.
The U.S. shale companies are slashing costs, streamlining operations, and drilling in basins that are profitable, such as the Permian in West Texas. This Permian is expected to add another 30,000 barrels per day in November, which could take output in that play to record levels – over 2 million barrels per day. The combined decline in the Eagle Ford, Bakken and the other big shale basins is the smallest expected monthly decrease in a year and a half, a signal that the worst of the downturn may be over.
So when the shale industry starts to grow again (as it inevitably will), and with exports no longer restricted, the U.S. will be seeking markets for its crude and will be competing with both OPEC producers and non-OPEC members, including Russia.
The battle for market share will also be a battle for geopolitical influence— reducing Europe’s dependence on Russian imports being one example of this.
“The downturn in prices has forced producers to think carefully about the alliances they want to build,” Richard Mallinson at Energy Aspects told the Financial Times.
Shortly after the export restrictions were lifted in February of this year, Mark P. Mills said that the U.S. now accounts for the majority of the world’s new petroleum supply, in his report ‘Expanding America's Petroleum Power: Geopolitics in the Third Oil Era’.
Mills also argues: “If, in the next decade, the U.S. were to replicate the shale production growth of this past decade, the nation would reap not only a second shale boom, but also a tectonic shift in the geopolitical status quo.”
Until the U.S. ramps up its crude oil exports to some significant degree, the global glut may somewhat ease (which is expected in late 2017). Apart from shifting the geopolitical turf, however, the U.S. will also have to factor in tanker rates, WTI/Brent price spreads, and of course, crude oil prices.
By Tsvetana Paraskova for Oilprice.com
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