Global U.S. refinery derivatives eye record-high levels.
This column often delves deep into all aspects of the United States’ energy revolution as it carves a path to practical independence in the next decade.
But we seem to have been relatively isolated by other analysts who ignore the massive upward climb in refined derivative exports, which surged past 3 million barrels a day in 2013. That output is expected to reach an incredible 5 million barrels a day by the end of the decade.
Without any new refineries built from the ground up during the past 25 years, the 20 to 25% capacity increase that America’s world-leading individual units have achieved has allowed these 140-plus refineries to increase output to accommodate both domestic and export sales opportunities.
It’s remarkable to learn that Valero Energy, Exxon Mobil and Phillips 66, the three largest U.S.-based refineries, together can process more than 5 million barrels of crude each day. In effect, the United States is on the way to becoming the world’s main fueling station, as both current and developing world economies are proceeding to greatly increase their consumption of both crude and such derivatives as gasoline, diesel, heating oil, jet fuel and the vast number of consumer products using crude as their base resource.
While the refining revolution has achieved an export tripling in the past five years from 1 million to 3 million barrels per day, another doubling is in the cards within the next decade. America’s unique advantage in this critical energy arena is based on the fact both the fracking-induced shale oil surge and the unexpected refining capacity growth through technological expertise are occurring simultaneously. This also puts refineries in the position of generating unanticipated revenue growth since the spread between domestic West Texas Intermediate and ultimate finished product customers (U.S. retail and global exports) primarily is based on the substantially higher world-standard Brent crude.
While no additional greenfield refineries are contemplated due to the grueling expense and years needed for completion, 2014 likely will witness massive upgrading and additional building of pipelines to tie in with the burgeoning shale oil activity. While railcar transportation has somewhat alleviated the growing logjam, this only provides interim relief and cannot replace the nationwide effectiveness of a massive upgrade to match America’s production of crude oil reaching a potential quadrupling from the low point to which it had dropped at the turn of the millennium.
While the Trans-Canada XL oil pipeline could make revenue generating and additional employment benefits even more pronounced, it no longer is the critical factor to alleviate the hang-up of the widening inventory bulge at Cushing, Okla. A reverse pipeline from that over-inventoried center from deep-sea Gulf of Mexico sites now is in place to directly ship to refineries along the Louisiana coastline and greater Houston area.
With Obamacare problems bogging down the administration’s aggressive Environmental Protection Agency slowdown of fossil-fuel development, it’s likely that 2014 will witness a strong green light for oil and natural gas and its derivatives, at least more so than earlier anticipated.
Southern California hotbed
A former CNBC business commentator calls it “one of the best-kept secrets of the U.S. fossil-fuel renaissance.” Recent reports from the Energy Information Agency and the U.S. Geological survey indicate that the central California-based Monterey Shale’s total reserves may quadruple the celebrated Bakken Belt’s estimated 3.65 billion barrels and the Texas-based Eagle Ford’s 200 million barrels. No other shale comes close.
Even the San Joaquin Basin component, in the center of this super-giant shale stretching from Modesto up north to Bakersfield down south, alone is expected to hold 6.5 billion barrels. Both EIA and USGS confirm the San Joaquin Basin sites may have three to four times the productivity of the technological advancement that has made the once obscure North Dakota energy miracle a household world. Bakken rightfully has gained that recognition by providing the cost-effective production experience making such previously unbelievable oil recovery projects possible.
Confirmed reports indicate top-producing oil companies, such as oil giant Occidental and its $72.1 billion New York Stock Exchange price tag, already are buying billions of dollars-worth of San Joaquin leases to get to the oil shale that has stood untapped for decades under California’s prolific conventional oil.
The Golden State can regain the stature it attained when it had the reputation as the genesis of technology, entertainment, fashion and entrepreneurial prowess, and generated the most national state revenues while employing most of the candidates for existing jobs. In fact, job-filling shortages frequently were a factor in California’s incomparable growth over the past 75 years.
But despite the conclusion of a study by the University of Southern California showing at least $75 billion of taxable revenues with the possibility of 200,000 new jobs, it would be a conservative estimate as to what could be expected in the state during the rest of this decade — if exploitation of California’s fossil-fuel reserves could be engineered forthwith.
Any other nation in the world would not hesitate one minute before going full-steam ahead to immediately generate the miraculous, multi-trillions of dollars of coal/oil/natural gas that has been discovered as potentially productive — especially when its slow growth economy needs such a shot in the arm. If left unimpeded by the climatological extremists, the “fracking miracle” could supersede any concern with the U.S. economy — especially in California, the once-leading regional engine of America’s cultural and economic growth.
With the answer to the enigma reposing in the Southern California study, why the State Assembly, Senate and state government don’t quickly move toward a solution to resolve problem No. 1 — economic and employment growth — one can only assume to point to the growing array of business antagonists who wish to burnish their “green” credentials at all costs, no matter what damage is done to economic opportunity.
U.S.oil/gas superiority angers Russia
The growing U.S. fracking revolution is generating unexpected fury — reflecting erstwhile flickers of the mercifully forgotten nightmare of the 1945-1991 Cold War. Although this Russian frustration likely has been instigated by America’s fracking revolution capturing the world lead in oil and natural gas (Russia’s only economic “ace” card). U.S. fracking success also has given its “breakaway republics” and former satellites an alternative to Russia’s leverage in bringing these former dependencies to heel.
With winter fast approaching on the Eurasian tundra, Russia Foreign Minister Sergei Lavrov has put excruciating pressure on Moldova, a former Rumanian province Moscow had absorbed during its abbreviated pre-World War II part with Nazi Germany. In threatening Moldova, which has been called “the poorest little country,” with a cutoff of Russia’s wine exports (Moldova’s only viable import) and potential Russian natural gas cutoffs, the Russian bear has, in effect, warned its Eurasian dependencies, including populous Ukraine, “that a cold freezing winter is on the way.”
As was strongly displayed during the Russia-U.S.-Syrian chemical warfare crisis, President Vladimir Putin’s anger with the United States could only have been heightened by the enormous economic advantage that America has gained by its upcoming liquid natural gas capability. This provides not only alternative price and availability competition, but loosens Russia’s grip over its former republics, satellites and even much of Central Europe.
In the meantime, the greater fracking efficiencies provided by the United States’ ongoing technology are lowering the cost and increasing the rapidity with which production of oil and natural gas is coming to the fore, both in existing and new shales that are increasingly being developed. Ironically, the U.S. production of both crude oil and natural gas is expanding so quickly that a surplus of West Texas Intermediate and natural gas gain is fast developing as winter approaches.
This has led to more than one-third of natural gas generated by shale development being flared off, while the price of oil derivatives, especially gasoline, are coming down, and less drilling rigs are being used as efficiency constantly increases.
This may cause short-term profit problems, as this unexpected surplus drives prices down. But the long-term outlook for U.S. oil independence and liquid natural gas exports has never seemed brighter.