As U.S. Tight Oil Production Grows, Can the Nation’s Refineries Process It or Will It Soon be Exported?

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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.


US Export of Petroleum Products 1975-2015

US Imports of Petroleum Products 1975-2015

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.

US Consumption

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.

US Crude Oil Production by API Gravity

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.

Natural Gas Liquids Production 1975-2015
The U.S. Energy Information Agency has responded with a study of the problem. These are the questions their report answers:

  • 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!

http://www.eia.gov/analysis/studies/petroleum/lto/?src=home-b2

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David Donohue

Dr. David A. T. Donohue is the Founder and President of both IHRDC and Arlington Storage Corporation. Dr. Donohue is a technical specialist, businessman, attorney, and lecturer who is highly regarded for the teaching of management programs devoted to the business of oil and gas. He has successfully designed and taught these “business game” programs to more than 10,000 members of the international oil and gas industry on both in-house and public bases. He was the developer of an innovative video-based learning system for the upstream petroleum industry, which has now been converted to IPIMS, a widely licensed e-Learning system. Dr. Donohue is also the developer and owner of independent underground gas storage facilities in New York State. In his early career he held various positions in engineering and research for Exxon and, for four years, served on the faculty of Pennsylvania State University. Dr. Donohue holds a Ph.D. in Petroleum and Natural Gas Engineering from Pennsylvania State University and a J.D. from Boston College Law School. He is active in public affairs in his hometown, a Distinguished Member of the SPE, and Alumni Fellow of Pennsylvania State University.

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3 comments on “As U.S. Tight Oil Production Grows, Can the Nation’s Refineries Process It or Will It Soon be Exported?
  1. Zito Manuel Campira says:

    Dear Dr. David A.T. Donohue,

    Thank you for the economic information, it is very important for me to know how American oil and gas sector are develop.

    Best regards

    Campira

  2. Matteo says:

    Great article sir, I hope you are doing well!

  3. great submit, very informative. I wonder why the opposite specialists of this sector do not realize this. You should continue your writing. I’m confident, you have a huge readers’ base already!

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