Gulf Coast refineries need heavy oil while growing, new U.S. production is light oil.
Exporting U.S. oil while the U.S. still imports 8 million barrels of crude a day to meet indigenous demand for gasoline and other products seems premature. But the issue is with the type of oil U.S. refineries can process.
Most new U.S. oil production is light and sweet, notes Andy Lipow, president of advisory firm Lipow Oil Associates LLC. “The majority of U.S. refining capacity, particularly on the Gulf Coast, is set up to handle heavy sour. There are equipment limitations in switching from heavy sour to light sweet, although some refiners are updating their equipment to handle more light sweet.”
If more than half of U.S. refining capacity is for processing heavy sour, then is the intersection near of too much U.S. light sweet production and too little refining capacity for it? “I wouldn’t say that,” he says. “Some switching can go on. There are a variety of things that can be done.”
Sen. Lisa Murkowski (R-Alaska), who is the ranking member of the Senate’s energy and natural resources committee, issued a white paper Tuesday, calling for an end to the ban on exporting U.S.-produced crude oil. Currently, oil may be traded with Canada as it ships more to the U.S. than U.S. producers ship to it. Oil that has been imported to the U.S. can be sent to other countries, such as China. And there are a few other exceptions.
What Murkowski’s and others’ reports have not yet explained is how near the U.S. is to that flashpoint of too much light sweet. Murkowski, who provides several citations to other, credible work, writes only that “many producers, however, fear that rising light crude production will soon exceed not only the nation’s light refining capacity, but also the ability of refiners to adapt to the new production slate. When this point is reached, the U.S. oil resurgence will collide with the de facto ban on crude oil exports.”
East Coast refineries, such as one in Philadelphia that was to be shuttered before The Carlyle Group bought it in 2012, are benefitting from new light sweet supply. Refineries in the area had not switched to refining heavy sour crude in the 1990s while Gulf Coast refineries did.
U.S. oil production has grown from 4.21 million barrels a day in September 2005*—while many Gulf of Mexico and Gulf Coast oil wells were shut in as a result of Hurricane Katrina—to 7.04 million barrels in January 2013. In that month, the U.S. imported nearly 8 million barrels per day, while producing 7 million a day.
By October 2013, U.S. production had grown further to 7.75 million a day, the last month for which data is available from the Energy Information Administration.**
Meanwhile, U.S. imports of crude oil by gravity declined to some 1% for light, 40.1- to 45-degree oil in 2013 and had been 7.7% in 2010 and 12% in 1984, according to the EIA. Imports of yet-lighter, 45-plus declined to about 0.2% in 2013 and had been about 2% during much of the 2000s.
Imports of 35.1- to 40-degree oil have fallen to 8.8%, down from up to 20% in the 2000s. As for 30.1- to 35-degree oil, imports have fallen to about 26%, down from as much as 42% in the 2000s.
Heavier crudes of 30 degrees or less now represent the majority of imports: 7.7% is 25.1 to 30 degrees; 35.5% is 20.1 to 25 degrees; and 19.7% is 20 degrees or less. The lattermost had represented just some 6% of imports entering the 2000s.
“Over the past 15 years, the API gravity of crude oil processed in U.S. refineries has averaged between 30 and 31 degrees,” the EIA reported in its annual energy outlook this last spring. “As U.S. refiners run more domestic, light crude produced from tight formations, they need less imported light…crude to maintain an optimal API gravity. With increasing U.S. production of light crude…, the average API gravity of crude-oil imports declines.”
Platts reported that Department of Energy Secretary Ernest Moniz said of the oil-exports ban in December, "Those restrictions on exports were born, as was the Department of Energy and the Strategic Petroleum Reserve, on oil disruptions. There are lots of issues in the energy space that deserve some new analysis and examination in the context of what is now an energy world that is no longer like the 1970s."
–Nissa Darbonne, Editor-at-Large, Oil and Gas Investor, OilandGasInvestor.com, Oil and Gas Investor This Week, A&D Watch, A-Dcenter.com, UGcenter.com. Contact Nissa at firstname.lastname@example.org.
*The September 2005 production was the least U.S. oil production in a month since July 1943. **The highest level of U.S. daily oil production was 10.04 million a day in November 1970.