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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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U.S. Refiners Look Abroad As Domestic Competition Increases

LNG tanker

U.S. oil refiners are going global. That’s the message that has been coming from the industry over the past year when a lot of refining capacity abroad was shut down for various reasons, making way for imports from the U.S.

Bloomberg reports that in 2016, American companies exported 3 million barrels of refined petroleum products daily – a record high – and sector players seem determined to continue expanding their export capacity. Exxon, for example, recently announced a $20-billion investment program for the Gulf coast, to consist of refining and petrochemical production facilities and infrastructure. The output is planned to be exported.

Exxon is far from alone in this. According to Bloomberg, many are looking abroad for new markets to take advantage of the cheap supply of crude and gas domestically, which makes the product more competitive internationally.

For now, however, refiners seem to be focusing mainly on Mexico, where refining infrastructure is in dire need of repairs and upgrades, so the country last year relied on U.S. fuel imports for half of its consumption. However, this is a temporary market in all likelihood, as Mexico works to liberalize its energy sector and new players take over the refining capacity from former monopoly Pemex. What’s more, Bloomberg notes, Mexico’s fuel demand is not growing.

U.S. refiners are also exporting to Latin America and Africa, as well as to Asia, and have plans to start exporting to Europe. Asia is perhaps the most sought after regional market in the world as it contains all the major so-called emerging economies, which are the drivers of global fuel demand growth, led by India.

Europe is a riskier undertaking – American fuels and other oil products have to be really competitive to establish a solid presence there, where Russia, Nigeria, and Gulf producers have dominated the picture for decades. What’s more, imports of oil and products to Europe are falling – the green drive in the European Union is bearing fruit, and that fruit is not good for the energy industry.

So, Asia is the key market, along with Latin America and Africa. This sounds like a solid enough global market, and it’s not just about oil. The U.S. could become the world’s top supplier of liquefied natural gas over the next 20 years, according to Canada’s Enbridge and U.S. Tellurian Inc.

Currently, capacity totaling around 70 million tons annually is being built around the country, and low LNG prices are not deterring the companies behind these projects. LNG is largely considered the fuel of the future, or a bridge between fossil fuels and renewable energy, so its prospects are brighter than oil’s.

Reorienting themselves to exports is certainly a smart move on the part of U.S. energy companies with a view to the future, and it’s not just about taking advantage of suitable circumstances in various regional markets. It’s also about avoiding another slump like the one that started in 2014.

Shale boomers have been building production at a fast pace ever since OPEC announced its production cut deal that pushed prices up to the mid-$50-a-barrel range. Now this breakneck production boost is being viewed as the main headwind for prices. Again. Some believe another price crisis is looming unless the shale producers slow down. Indeed, even their very own Harold Hamm of Continental Resources warned against expanding production too fast.

So, exports are the natural choice: combining the advantages of cheap raw materials with growing demand. Competition will be tough because there are many vying for the same markets, but there seems to be no better alternative for the long term.

By Irina Slav for Oilprice.com

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