How high will U.S. oil exports go?
When President Barack Obama relented on lifting the Nixon Administration embargo (1973) on U.S. crude oil export shipments, it was considered a gesture of compromise to facilitate an overall congressional treasury budget agreement. It should be noted Canada was not included in the original embargo.
This embargo had stood in place since the 1973 Arab October war against Israel, which the U.S. had militarily facilitated in favor of Israel. This caused a Saudi Arabian embargo against the U.S. for about a year and a half.
Since the pre-fracking breakout did not occur until the last 10 years, U.S. demand absorbed all the supply domestically available — less than half of overall U.S. usage. The remaining supply demand, refined in America’s 140-plus refineries, included regular imports from Saudi Arabia, Venezuela, Nigeria and Canada’s fast-growing oil sands.
However, this scenario changed dramatically as hydraulic fracturing (fracking) reached lower cost-effective levels a decade ago, tripling the production of West Texas Intermediate, which hit a high point of 10 million barrels a day. This light crude also provided the advantage of minimal refining. Since WTI availability, like crude-oil production worldwide, suffered a major price crunch from $145 per barrel in June 2007, to the low $50s range today, this served to cut back U.S. exploration and implementation. This caused a current cutback to below the available and potential shales, whose supply was outstripping demand.
However, with production technology suppliers cutting costs dramatically, much of the U.S. energy sector has again become cost-effective at current prices. This has potentially opened up more of the U.S. demand market, but also foreign markets, such as Asia, that are primarily dependent on light crude from Nigeria. But U.S. refineries prefer heavy crude oil from Mideast, African and North Sea sources that requires more sophisticated refining because they already are equipped for it.
But with oil prices hovering in the low to middle $50 per barrel range, the U.S. energy sector has opened up new export markets as never before. As early as mid-February this year, U.S. West Texas Intermediate sources were starting to set new export records. These are now bordering on the 500,000 barrel-a-day level, awaiting a new expansion of the major shales that have recently been discovered.
With technology suppliers, such as drilling rigs for deep sea access, maintaining competitive pricing, the U.S. oil industry is expected to gain substantial export business. With a more benign U.S. administration reversing the regulations and restrictions of the Environmental Protection Agency, a new heyday of domestic oil production plus a giant leap forward in global light oil demand may add unexpected revenues and profits.
Once the Nixon embargo was lifted, and the Canadian Keystone, as well as North Dakota pipelines, approved by the Trump administration, are operational, this substantially increased light crude will only be inhibited by current supply outpacing demand.
LNG increases expected
According to a recent article in Oil & Gas Journal, demand for natural gas is expected to increase 2% per year between 2015 and 2030. But liquid natural gas, currently in development, will more than double that increase during the same time period, according to Royal Dutch Shell’s projections.
Furthermore, the report expects the size of the global liquid natural gas market to soar 50% within the next five years. This anticipation is based on LNG facilities now in the process of construction or recently completed.
In 2016, global liquid natural gas demand reached 265 million tons, which includes an increase in net LNG imports of 17 million tons a year earlier.
Prestigious oil giant Shell previously expected new LNG supply availability would exceed demand; but greater than expected demand in Asia and the Mideast absorbed such strong supply increase, mainly generated from Australia.
China and India, the world’s fastest-growing economies, were leading LNG buyers in 2016, boosting their current and anticipated LNG usage by impressive amounts in the immediate future.
Such demand growth has further been bolstered by the addition of six new importing countries since 2015 — Colombia, Egypt, Jamaica, Jordan, Pakistan and Poland. This increases the number of LNG importers, up from 10 at this century’s beginning, to the current 35.
While Egypt, Jordan and Pakistan were the fastest growing world importers in 2016, most of the LNG export growth continued to emanate from Australia.
Shell’s optimistic LNG outlook is currently bolstered by ever-increasing oil prices, LNG supply growth limitations and the prohibitively higher cost of additional facilities.
While LNG is benefitting the U.S. markets as a main staple of the growing chemical industry that increasingly is focusing on domestic production, much of the future demand potential of liquid natural gas will emanate from Southeast Asia, the global area destined to become the world’s overall economic leader in the years ahead.
Is the U.S. economy on the verge of a breakout?
Despite the tumultuous presidential cabinet restructuring and personnel glitches during the first 100 days, the doddering U.S. economy appears ready for its biggest jump forward since the turn of the current millennium.
Although the post-financial crisis (2008-11) witnessed eight years of less than 2% growth per annum during this period and a gross domestic product growth that held its world lead but barely moved up at $18 trillion-plus, all signs point to a record “upshot” going forward.
Record financial reserves held by American companies here and abroad look to be the spark promised by a business-oriented administration to give them the psychological and regulatory support to go all-out. Such attitudes seem to be bearing fruit as manufacturing, construction and the greatest gigantic infrastructure development since the mid-1960s are topping the presidential list of urgencies.
What leading business executives are hearing and believing include the following:
1) A just and meaningful tax reform act, not seen since the Reagan years in the mid-1980s.
2) An abolishment of most of the EPA’s regulations and others aimed at shrinking energy development.
3) The rebuilding of America’s sadly-neglected infrastructure, desperately in need of upgraded dams, bridges, pipelines, highways, railroad tracks, port development, etc.
4) Focus on businesses’ ability to improve profitability by negating the mandates on unrealistic minimum wages and the need for hiring excess personnel, etc. These are especially anathema for small businesses, which make up more than 50% of the nation’s employment.
5) Rebuild America’s military capacity, the lowest since World War II, to put new teeth in the U.S.’s weakened foreign policy strength, which the free world looked to for global stability.
Whether by ignorance or neglect, these five mandatory salients are necessary to rebuild the status of the United States of America, the only nation in the world given the global mandate to protect the civilized world.
The growing global disruptions of the last decade can be said to be attributable to the unfortunate belief by negativists that America has given up its dominant status.