America's export machine cranks up
Shipments of oil and gas hit new highs in 2016. As drilling picks up and new infrastructure is built, 2017 could be another record breakerOil tankers and liquefied natural gas carriers are not a new site in ports along the US' Gulf Coast, long a vital hub in the global energy trade. But the direction of traffic is new. Those ships now often leave US shores laden with American crude, fuel, liquefied natural gas and natural gas liquids. US energy is making its way to all corners of the globe, disrupting long-established trade routes.
One morning in late March, for instance, saw the Gallina and Valencia Knutsen LNG tankers—both members of Shell's fleet—filling up at Cheniere Energy's Sabine Pass export facility in Louisiana, ready to ferry more super-chilled US shale gas to consumers in Europe and Asia. At the same time, just up the coast in the Houston Ship Channel, two newly built very large ethane carriers were being loaded down at Enterprise Product Partners' Morgan Point ethane loading terminal—the JS Ineos Ingenuity bound for northern Europe and Reliance Industries' Ethane Emerald, destination India. Neither facility existed 18 months ago, but they've been built as part of a multi-billion-dollar export infrastructure construction boom. It's turned a surge in US oil and gas production into a flood of exports.
The numbers are staggering considering how little energy the US exported just a decade ago. Last year was a record one for US energy exports on all fronts, even as domestic output slipped for the first time in six years. Refiners sent 2.97m barrels a day of refined products abroad after sucking in a record 16.2m b/d of crude. Oil shipments also hit a fresh high after export restrictions were lifted in late 2015, with 0.52m b/d being sent abroad. Booming NGL exports have been mostly overlooked. But the rise has been dramatic, reaching 1.2m b/d, more than twice what it was just three years ago, shaking up the global trade in petrochemical feedstocks.
Total liquid fuel exports were 5.19m b/d, nearly four times higher than a decade ago. Natural gas exports also hit a fresh high of 6.3bn cubic feet a day, nearly 10% of total US consumption.
America's refiners, sucking record amounts of cheap crude from domestic and foreign fields, have unleashed a wave of fuel products onto global markets. They've found especially strong demand in nearby Latin American and Caribbean countries, where US refiners have filled the gap left by the region's struggling national oil companies. Of the 0.63m b/d of gasoline exports in 2016, 330,000 b/d—more than half—went to Mexico. There, Pemex's financial woes have left its creaky refineries producing the least amount of product in more than 20 years: output is down 400,000 b/d since 2013 alone. Most of the rest of America's gasoline exports went to Brazil, Colombia, Ecuador and Canada, with just a trickle finding its way to Asia, where Chinese and Indian exports are more competitive. It has been a similar story for diesel, with most of the 1.19m b/d in exports going to nearby Latin America markets.
Heavy demand from Latin America should linger through 2017, at least. State oil companies, the region's main fuel suppliers, are struggling to recover from the downturn, and what little cash they have is going towards their upstream businesses, leaving little left to invest in refineries that aren't able to meet demand. An end to price subsidies in Mexico could see demand fall over the course of the year, though data from Pemex shows fuel sales held up well even amid violent protests over the higher prices in January and February. Margins for US refiners have remained strong, giving them an incentive to keep running at around 90% of capacity. Maximising output should translate into yet more foreign sales.
Although US fuel products have seen higher volumes, crude oil exports have drawn the headlines. Last year was the first full year of unbridled crude exports after congress lifted the 1970s-era restrictions. The fall in US output—around 1m b/d from the peak in April 2015 to mid-2016—likely hurt overall volumes. So too did a narrow Brent-WTI premium of around $0.41 a barrel, after blowing out to as much as $20/b in recent years, which left little room for arbitrage. But the 0.52m b/d in exports was still up 12% from 2015, and a record.
New exports, new markets The bigger change, however, was that US oil was able to find its way to markets around the world, reflecting broad demand for the light sweet crude coming out of US shale oilfields. Before the lifting of the ban, nearly all exported US crude went to Canada, which held a valuable exemption from the long-standing restrictions. In 2016, US oil found its way to 26 different countries, though Canada remained the biggest buyer, pulling in nearly 60% of exports. The Netherlands, which funnels crude throughout Europe, was the second largest buyer at 38,200 b/d.
Italy and the UK were also sizable importers. Curaçao, where Venezuela's PdV blends its own heavy oil with US light oil for re-export or to feed its refinery on the island, was the third-largest buyer.
Early 2017 figures point to rising crude exports as production picks up and new infrastructure is built as oil fills the gaps left by Opec's cuts. Exports for the first quarter were 0.775m b/d, compared with 415,000 b/d over the same period in 2016. Rising output from the Permian is helping push crude exports to new highs. Most of the Permian's 2m b/d-plus in output is linked via pipeline to the Gulf Coast, which is saturated with light tight oil. Domestic supplies have already backed out virtually all imports of other light grades in the Gulf Coast, leaving the new Permian barrels little space except for the export market.
With activity and output picking up in the Permian, more barrels are likely to be pushed onto international markets from the Gulf Coast. Nearly 100 new rigs have been added in the basin over the year and, according to Energy Information Administration projections, output is up around 200,000 b/d from January to April, putting it on pace for a rise of around 0.6m b/d from end-2016 to end-2017. That is in line with the double-digit growth the basin's largest drillers see this year.
Midstream companies are racing to keep up with Permian producers, building new pipelines from the fields to new and expanded storage facilities and terminals on the coast. Enterprise Products Partners is building a 450,000-b/d pipeline from Midland to its storage hub in Sealy, Texas, where the crude can then be sent on to refineries or export terminals. It's the largest new pipeline out of the Permian and is due to start up later this year. At least a half dozen other companies, including Phillips 66, Magellan Midstream and Centurion, are expanding their ports to add millions of barrels of new storage and new docks—all expecting that exports will rise sharply in the coming years. Enterprise Product Partners said in a recent presentation that exports of light oil could top 2m b/d by 2020 if output continues to rise.
NGL surge A byproduct of the shale revolution has been a surge in the production of natural gas liquids—especially propane and ethane. Propane is used by consumers as a heating and cooking fuel and as a petrochemical feedstock, while ethane is used almost exclusively in petrochemical facilities to make ethylene. US demand for propane has been stagnant, however, so as shale drilling has picked up over the years, producers have increasingly had to look abroad. Just five years ago, a trickle of US propane shipments to Canada and Mexico were the only exports. By December 2016, exports topped 1m b/d as Asian petrochemical facilities, keen to diversify from their reliance on Middle East suppliers, tapped into the US' relatively cheap and abundant supply.
Large-scale ethane exports are being made possible by investment in new export terminals and specialised ships to transport the volatile fuel across oceans. Enterprise Product Partners opened its 200,000-b/d Morgan Point facility in September last year, which followed the opening of the smaller 35,000-b/d Marcus Hook terminal in Pennsylvania, to take advantage of rising ethane output from the Utica and Marcellus shales. The facilities have tripled the US' export capacity, adding to existing pipeline infrastructure into eastern Canada, to around 400,000 b/d. Ineos, a European chemicals company, and Reliance Industries, the Indian conglomerate, have both built first-of-their-kind large ethane carrying ships to ferry a steady supply of American ethane to their facilities back home. Ethane exports hit a record 168,000 b/d in December 2016, up from zero in 2012, after the Morgan Point terminal opened, and should continue to rise over the next couple years.
Last year also broke new ground for US LNG exports, with the first shipments from the Lower 48 starting up at Cheniere's Sabine Pass plant. Combined with rising exports via the pipeline south into Mexico, it helped flip the US into becoming a net gas exporter for the first time ever, at least temporarily. LNG exports will continue to rise this year thanks to the commissioning of Sabine Pass's third and fourth trains, which will see the plant sucking in as much as 3bn cf/d of gas at times, around 5% of total US gas consumption, with an average of around 2.2bn cf/d, according to Barclays, a bank. In the latter half of the year, eyes will turn to Dominion's Cove Point export plant in Maryland, which the company says is 84% complete and due to start up in late 2017.
As Sabine Pass and Cove Point ramp up, the US is on pace to flip to a net gas exporter in 2018. It would be the first time since the 1950s and a potent symbol of the US' changing energy fortunes.
http://www.petroleum-economist.com/articles/upstream/exploration-production/2017/americas-export-machine-cranks-up |
