Is The US Heading Toward Crude Exports?
BMI View: Rapidly increasing domestic oil production on the back of the shale boom is igniting debate in the US over whether to overturn a multi-decade ban on crude exports. We see some scope for the eventual removal of the ban as US refiners begin to near the limit of domestic crude they can refine, and a recent shift in tone by a number of major players suggests potential for greater acceptance of crude exports. That said, given the high degree of politicisation such a debate will engender, it is likely to be a drawn out fight.
Huge gains in US production in recent years have begun to call into question a ban on exporting crude oil abroad. The law, created in the wake of the 1970s oil embargoes, allows for crude exports only in certain, very specific cases, such as exports from Alaska's Cook Inlet, 25,000 b/d of Californian heavy crude or exports of foreign-origin crude. In all other circumstances, exporters are required to obtain a license (valid for one year) with the requirement that it be granted only in cases when the exports are consistent with the national interest and the purposes of the Energy Policy and Conservation Act.
However, in recent quarters, with ever-increasing amounts of domestic light, sweet oil output, the Commerce Department has been faced with a surge in companies looking to secure licenses to export crude abroad. Indeed, although we believe that integrated companies generally prefer to export fuels rather than crude given that they are a higher value add product, and this underpins our view that refined products exports will expand by 40% over the forecast period, (see 'Structural Shift In Fuels Trade To Gain Momentum', November 22), we also acknowledge that in some circumstances, refining the crude is less desirable, for example because of a lack of sufficient infrastructure. This has seen the government grant 103 licenses to ship crude abroad in FY 2013, and exports rising to 132,000 b/d earlier this year. While miniscule in comparison to total US production (an estimated 11mn b/d in 2013), we note that this is the largest level of exports in more than a decade, and the clamour for licenses is unlikely to die down in the near future.
|Shale Boom Boosts Exports (A Little)|
|US - Crude Oil Exports, '000b/d|