Times are changing due to the lifting of the U.S. oil export ban back in December of 2015 and US oil exports are on the rise. From 2000 to 2013, U.S. oil exports seldom topped 100,000 bpd to countries that were not included in the list of restricted countries. By 2015, the U.S. was exporting approximately 448,000 bpd to six unrestricted countries, mainly Canada who received the lion’s share U.S. oil at 422,000 bpd.
In the first five months of 2016, U.S. oil exports rose to 501,000 bpd as shipments reached 16 countries. We will now take a closer look at U.S. oil exports and the countries receiving those shipments.
US Oil Exports to Curacao
Interestingly Curacao, a Dutch Caribbean island, was among the leading importers of U.S. oil in 2016, bringing in 54,000 bpd through May of 2016. Curacao was the second leading importer of U.S. crude, led only by Canada. A Venezuelan state-owned company, Petroleos de Venezuela, operates a 330,000 bpd refinery on the small island and likely uses the U.S. crude as a blending stock.
The Netherlands was another leader in U.S. oil imports, purchasing 39,000 barrels of U.S. crude per day. The two major cities serving as the hub for U.S. crude in the Netherlands are Amsterdam and Rotterdam. These two cities are located in close proximity to the North Sea and serve as a gateway to inland cities across Europe. Add Belgium’s Antwerp to the Netherlands’ Amsterdam and Rotterdam and you have what is collectively known as the ARA to inland markets.
Japan is also on the list of top importers of U.S. crude at 17,000 barrels per day through May of 2016. Japan’s total import of crude oil was around 3.7 million bpd in 2015, which was over a 2% drop from the previous year. Japan’s oil demand reached its height in 1999, but since has been in decline largely due to auto manufacturers producing more fuel efficient vehicles. It is not uncommon in Japan for automobiles to exceed 60 miles per gallon in fuel consumption. While in the U.S., the average mpg was only 25.5 in May of 2015. With that kind of disparity in mpg, it’s easy to see why Japan’s oil demand has been in decline.
Behind Japan is Italy in U.S. crude imports at 15,000 barrels per day. Italy was the destination of the first shipment of U.S. crude after the lifting of the crude oil export ban. The shipment was sold to the Swiss trading house, Vitol Group and departed NuStar Energy LP’s facility in Corpus Christi aboard the Theo T tanker on December 31, 2015. Forbes reported on the event:
Let the era of U.S. oil exports begin.
ConocoPhillips and NuStar Energy LP on Thursday plan to finish loading what will be the first tanker of freely traded U.S. crude oil in 40 years.
The companies have jumped ahead of Enterprise Products Partners LP, which last week said it would load the first cargo of American crude in Houston during the first week of January.
It has been less than two weeks since President Barack Obama signed legislation lifting the long-standing ban on exporting U.S. oil, which was put into place during the 1970s.
NuStar’s CEO Brad Barron said, “Based on our investments in Corpus Christi and our South Texas pipeline system, NuStar was well-positioned, equipped and staffed to immediately begin loading cargoes for export. And we plan on further expanding our Corpus Christi operations to provide more options to our customers to move Eagle Ford Shale crude oil, whether it is being moved domestically or internationally. In fact, we are currently in the process of developing a second private dock in the Port of Corpus Christi.”
With Italy ranked number 14 in the world for oil consumption, it is highly likely that we will see a rise in U.S. oil exports to Italy.
Close behind Italy in U.S. crude oil imports was the Marshall Islands averaging 14,000 barrels per day. What makes this an unusual development is that the Marshall Islands have no refineries to process the oil. The EIA said, “With no refineries, the Marshall Islands are unlikely the final destination, but rather may be the location of ship-to-ship transfers for delivery to destinations in Asia, or a point at which a cargo of crude oil would await a buyer in Asia.”
It is believed that the Marshall Islands are being listed as the destination of exporters to comply with U.S. regulations requiring a specific destination for the shipment of goods. However, arbitrage opportunities may arise while the shipment is in route and the crude may not even reach the Marshall Islands but instead be rerouted while in transit to an alternate destination. For this reason, the Marshall Islands are likely to remain a popular destination for U.S. oil exports.
France is next on the list of top importers of U.S. crude averaging 11,000 bpd. However, that pales in comparison to France’s imports of Iranian oil which surpassed 200,000 barrels per day in September of 2016. Iran is now a top exporter to France since the removal of international sanctions against Iran in January of 2016.
Iranian oil production reached 3.68 million bpd in October of last year which is up more than 800,000 bpd since the United States and other countries agreed to lift sanctions that had been in place since 2012 because of UN violations regarding Iran’s nuclear program.
Saudi Arabia remained a top crude supplier to France, but their market share was down by 29%. The Saudis supplied 160,000 bpd of crude to France in the first three-quarters of 2016 compared to 225,000 bpd in the same period from the year prior.
The United Kingdom is on the list of importers of U.S. crude, importing over 10,000 barrels per day from January through May of 2016.
Due to the steady decline of U.K. oil production, consumption outpaced production in 2005, and the U.K. became a net importer of oil to compensate.
Over 97% of the U.K.’s oil and condensate production comes from offshore fields where the lead times from development to production are much longer than that of onshore projects. The number of field development projects (FDPs) approved in 2015 was less than half of the number approved in 2013 and 2014. This will lead to a further drop in production in 2017 and 2018 and could open the door for increased shipments from the U.S.
The Bahama Islands are yet another importer of U.S. oil, averaging 10,000 bpd in January through May of 2016.
The Buckeye Bahamas Hub Limited (BBH) is located on the southern tip of the Grand Bahama Island and is the largest storage facility in the Caribbean. The BBH has a storage capacity of 21.6 million barrels.
The Bahama Islands are known as a shipping corridor with the region crossed by numerous international shipping lanes. Just one of those lanes, the Old Bahama Channel, carries over three million barrels a day through its waters.
With the combined storage capacity and easy access to international shipping lanes, the Bahama Islands are a prime candidate to be a hub for U.S. oil exports.
Predictably, China has become a consumer of U.S. crude and purchased an average of 10,000 barrels per day from January through May of 2016. China is second only to the U.S. in oil consumption, consuming over 11 million bpd. In 2015, China surpassed the U.S. and was the number one oil importer in the world, accounting for 16.7% of global crude oil imports.
The top ten suppliers of crude to China in 2015 were (in order) Saudi Arabia, Russia, Angola, Oman, Iraq, Iran, Kuwait, Brazil, United Arab Emirates, and Venezuela.
However, one problem that exists with China is that they may be close to capacity in their strategic petroleum reserves. During the plunge in oil prices, China had been doubling its purchases to replenish its reserves while the prices were down. According to JPMorgan Chase & Co. analysts, stopping shipments for their strategic reserve would lower the countries crude imports by as much as 15%.
According to Orbital Insight Inc., China may have stored more oil than official estimates.
Orbital Insight believes that China, as of May 2016, had 600 million barrels of crude in its strategic reserve, which is almost as much as the U.S. Strategic Petroleum Reserve.
As a result of this, 2017 will likely see a slowdown in oil purchases from China. Nonetheless, China remains number two in the world in oil consumption. So, there is plenty of market-share available to U.S. crude exporters.
The Central American country of Panama has also become an importer of U.S. crude since the lifting of the export ban and from January through May of 2016 imported an average of 5,000 barrels per day.
Refined petroleum is one of the top exports of Panama, second only to Passenger and Cargo Ships, so it would stand to reason that Panama would become a consumer of U.S. crude. Crude imports make up 15.1% of the total imports of Panama.
It’s also interesting to note that the recent Panama Canal expansion will not accommodate oil supertankers. Very Large Crude Carriers (VLCC) and Ultra-Large Crude Carriers (ULCC) are too large to navigate the Panama Canal while fully laden. However, this may serve as an advantage to crude exporters along the Gulf Coast. Oil shipments out of Corpus Christi and Houston are just a short hop to Panama.
Our Middle Eastern ally Israel is an importer of U.S. crude, purchasing an average of 5,000 bpd in the first five months of 2016. This tiny nation which is barely larger than New Jersey actually ranks number fifty-one in global oil consumption, consuming 241,000 barrels per day of crude.
Due to tensions in the region, Israel does not share any international oil pipelines with its neighbors. Therefore with its coastal ports on the Mediterranean Sea, tankers are the next best option.
Israel’s main sources of crude in recent years have been Russia, Kazakhstan, and Iraq’s semi-autonomous Kurdish region. While shipments to Israel from the U.S. would have considerably higher freight costs than their current suppliers, it would be in their national security interests to conduct business with one of their few allies in the world. In the past, oil has often been used as leverage over the Israelis in world politics.
The Central American country of Nicaragua imported an average of 5,000 barrels per day of U.S. crude in the first five months of 2016. Crude petroleum is the number one import of Nicaragua with refined petroleum coming in a close second. Their location along with crude being their top import makes Nicaragua a likely long-term customer of U.S. oil.
Argus Media reported on the first shipment of U.S. crude to Nicaragua:
Houston, 30 March (Argus) — The first shipment of US crude to travel through the Panama Canal since the December 2015 lifting of US export restrictions will also mark Nicaragua’s first-known oil import from a country outside of Latin America.
Trafigura is loading the Panamax DS Promoter in the Houston Ship Channel with 380,000 bl of US domestic West Texas Intermediate (WTI) crude for export through the Panama Canal, the company told Argus yesterday. The crude will go to Trafigura subsidiary Puma Energy’s 20,000 b/d Managua refinery (Manref) on the Pacific coast of Nicaragua.
Nicaragua does not produce its own crude, relying solely on imports. Most of those imports previously came through the PetroCaribe program, in which Venezuelan state-controlled PdV supplied oil to Caribbean and Central American countries through a low-interest loan in return for goods like rice or sugar.
But as Venezuela struggles during a deep economic crisis, PdV’s supply to PetroCaribe is declining. Nicaragua — along with several other PetroCaribe member countries — is increasingly seeking alternative suppliers.
Read the full report at Nicaragua diversifies crude imports.
Columbia, Switzerland, and Peru
The last three countries on the U.S. Energy Information Administration’s chart of U.S. crude oil exports from January through May of 2016 are Columbia, Switzerland, and Peru. They imported an average of 3,000 bpd, 3,000 bpd, and 2,000 bpd respectively.
Canada was not part of the original export ban that was lifted in December of 2015 and has been a top importer of U.S. crude for years. The shale revolution in the U.S. resulted in substantially increased shipments of crude to Canada in late 2013. While shipments have dropped a bit from their peak in May of 2015 at 16,131 thousand barrels, they remain incredibly high in comparison to previous years.
Interestingly, Canada is the top supplier of crude to U.S. refineries. Reason being, Canada produces heavy, sour crude that many U.S. refineries have the equipment to process.
The Canadian government website describes the unique relationship between the U.S. and Canada this way:
Canadians and Americans share the closest energy relationship in the world.
Canada is currently the leading and most secure, reliable and competitive energy supplier to the United States, including of crude oil and refined petroleum products, natural gas, electricity, and uranium. Canada also imports a significant amount of energy from the U.S., particularly electricity and natural gas.
In 2015, Canada’s energy exports were valued at C$102 billion, with 94% (C$96 billion) going to the U.S. In addition, Canada:
One thing to consider going forward, are the energy policies of the U.S. and Canada possibly going in different directions? Under the leadership of Canadian Prime Minister Justin Trudeau, Canada has embraced policies to address climate change. The Canadian government website says, “Canada and the U.S. are working together to strengthen North American energy security, phase out fossil fuel subsidies, accelerate clean energy development to address climate change and to foster sustainable energy development and economic growth.”
The U.S. under an Obama administration worked to address climate change, but that may be about to change under a Trump administration. Trump’s picks of former Exxon Mobil chairman Rex Tillerson as Secretary of State and former Texas Governor Rick Perry as Energy Secretary point to a different direction for U.S. energy policy. It remains to be seen what a Trump Presidency could mean for the oil and gas industry.
The cost of shipping will, of course, play a role in U.S. crude exports, but on a positive note, the price of booking a tanker for a spot shipment of crude is at its lowest cost since 2009. The shipping cost may further be defrayed by booking return shipments from refineries abroad.
Kenneth Medlock, senior director of the Center for Energy Studies at Rice University, said that “As long as infrastructure is available and exports are commercially viable, then they will grow. If, however, infrastructure is not available and exports are not profitable, then they won’t occur. At the end of the day, it is about the price of oil.”
The lifting of the U.S. crude oil export ban has opened the doors for oil exports, and those doors are expected to turn into floodgates as oil prices rise. The U.S. shale industry is sitting on untapped capacity waiting to be unleashed as the market permits. Oil price will be the key factor, and as we noted in November, oil prices are expected to recover somewhat in 2017. This will likely lead to an additional increase in U.S. oil exports across the globe.