During the past ten years, thanks to hydraulic fracturing of horizontal wells and the high cost of crude oil, the U.S. has gone from being the world’s largest importer of petroleum products to the leading exporter of these same products worldwide. Exports now amount to 5 million b/d.
At the same time, there has been a general decline in the US consumption of those same products, creating a historic domestic oil glut. This glut inspires questions about how U.S. refineries can handle it all and the sharp impact on WTI pricing.
Not only has the crude production rate increased sharply in recent years to 9 million b/d but the crude quality has changed to a much lighter barrel. The 40-50oAPI has now reached 35% of the make-up of the average barrel. Local refineries are designed to handle more complex crude oils.
In addition to the lighter ends of the barrel being produced in the crude oil the daily production of natural gas liquids has also increased in the last five years.
- How large is the opportunity to further increase the utilization of existing refining assets to process more Light, Tight Oil (LTO), and what are the economic costs associated with such increased utilization?
- What is the actual opportunity for LTO to displace non-similar grades of imported crude oil?
- At what rates of return and payback periods would investments in additional processing capacity become attractive, given the risks associated with future changes to policy, prices, and production?
- How might the costs associated with processing more LTO in domestic facilities be reflected in prices paid to LTO producers? How would any price discount affect projected LTO production?
Of course, all of this may be moot if the budget bill signed by President Obama in December really opens the doors for operators to export crude oil in the future. Now let’s see how the markets respond to additional crude exports, this time coming from the US – a new member of the crude exporting countries!