WoodMac: Issues for consideration in the US crude oil export debate

Wood Mackenzie

The likelihood of another step-change in US light tight oil (LTO) production technology is increasing and, given current research efforts, closer to fruition. According to Wood Mackenzie's latest analysis, this step-change ties into the ongoing debate of whether the US should ease current restrictions on exporting US crude oil production.

"As development and growth of US LTO continues to impress the industry, there is concern over the ability of the US refining system to absorb this production," says Harold York, principal analyst, Americas Downstream, Midstream & Chemicals for Wood Mackenzie.

York adds that policy makers need to catch-up with the development of US crude oil production for the nation to fully capture the benefits and potential, as easing crude oil export restrictions will have implications beyond the US oil industry.

The US crude export ban is highly politically sensitive with limited overt calls from either Republicans or Democrats for its rescission. However, Wood Mackenzie emphasizes that three converging elements may move the political process to action:

  1. Economic stimulus. Tight oil will account for over US$70 billion of investment spending in 2014, which is about 60% of total US upstream investment. This investment is an economic stimulus, creating large scale employment growth in the oil sector with an investment and jobs multiplier for the rest of the economy. Eliminating the export ban would allow US producers to move growing US supplies to global markets and mitigate the effect of falling prices—a dynamic which improves wellhead economics and improve the likelihood that current high levels of investment in domestic tight oil continues.
  2. Sanctioned 'leakage' already occurring. The Commerce Department's approval to allow exports of minimally processed crude/condensate is a sanctioning of exports. BHP's recent action to export 600,000 barrels of light condensate without Commerce Department approval is recognition the private sector will now utilize this sanctioning.
  3. Changed political landscape leading to compromise. The recent mid-term election results have left President Obama facing an opposition led, Republican congress for his remaining two years in office. Like predecessors in similar situations, most recently ex-President Clinton, President Obama may use this issue to work with Republicans to keep his legislative influence viable in the last two years of his term.

“These drivers will be sustained for the next two years such that if a political accommodation is not reached next year, conventional wisdom suggests the dynamics of an election year in 2016 would likely pause the debate until 2017,” York explains.

Easing US crude oil export restrictions would have implications beyond the US oil industry, starting with the knock-on effects on retail consumers of products, such as gasoline and diesel.  Understanding these impacts depends on global industry reactions, including if and how US crude oil exports affect the global price of oil. In either case, Wood Mackenzie expects US petroleum production to grow substantially for the foreseeable future.


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