U.S. Crude Oil Production Set to Surpass Imports in 2013

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--U.S. domestic production of crude oil is expected to exceed imports sometime this year as surging production from domestic shale formations continues to displace imported crude, speakers said at an Oil & Gas conference earlier this month in Denver. This trend began in 2008, when U.S. crude oil production bottomed at about 5 million barrels per day (BBL/d). It increased to about 6.5 million BBL/d in 2012, and is projected to reach between 9 million and 11 million BBL/d in 2020, speakers told about 250 attendees at the 7th Annual Platts Rockies Oil & Gas Conference. Domestic production is expected to exceed imports sometime this year, speakers said.

Click on the image at right for a chart showing U.S. crude oil imports and domestic production from 1973 to 2013.

The widespread use of hydraulic fracturing has dramatically expanded production from several domestic shale formations, including the Eagle Ford, Permian and Williston basins:

• Production has increased rapidly in the Eagle Ford formation in south Texas, rising from less than 100,000 BBL/d in 2010 to 600,000 BBL/d in 2012. Assuming crude oil prices remain relatively high, production from this formation is projected to increase to more than 1.8 million BBL/d in 2020.
• The Permian Basin in West Texas, once thought to be a mature formation, also has significantly expanded production in recent years. That area produced about 900,000 BBL/d in 2009, but production increased to 1.2 million BBL/d last year. Production is predicted to exceed 1.9 million BBL/d in 2020.
• The same story is playing out in the Williston Basin, located in western North Dakota and Montana. Crude oil production there rose from less than 200,000 BBL/d in 2005 to about 750,000 BBL/d in 2012. By 2020, production from that basin is expected to exceed 1.8 million BBL/d.

Click images to see predicted production growth in the Eagle Ford, Permian and Williston formations.

Surging U.S. crude oil production, coupled with slowing economic growth in China, India and other industrializing countries, has overturned traditional dynamics of the global oil business, according to David Ernsberger, global editorial director for Platts, a division of The McGraw-Hill Companies (NYSE:MHP) (New York, New York). "Over the last 12 months, the penny has dropped and it's become apparent the global oil market is no longer a demand story. It's a supply story, and the next barrel of crude is more likely to be a U.S. shake-produced barrel, not a Saudi barrel."

Click the image at right to see actual domestic crude oil production (2000 to 2012) and projected production (2013-2020).

Closer to home, the displacement of imported crude oil is evident in several regions, according to Suzanne Evans, senior manager for projects and initiatives in Platts' price group. "Eight refiners in the Northeast are receiving crude oil by rail from the Bakken formation," she told the conference. Five of these refineries are in the U.S., while three are in Canada. These refineries have nameplate capacities totaling about 1.7 million BBL/d and are owned by Phillips 66 (NYSE:PSX) (Houston, Texas), Philadelphia Energy Solutions (Philadelphia, Pennsylvania), PBF Energy (NYSE:PBF) (Parsippany, New Jersey), Monroe Energy LLC (Trainer, Pennsylvania), Irving Oil (St. John, New Brunswick, Canada) and Imperial Oil Limited (NYSE:IMO) (Calgary, Alberta).

Bakken crude oil also is being transported by rail to four West Coast refineries owned by Tesoro Corporation (NYSE:TSO) (San Antonio, Texas), Alon USA Energy Incorporated (NYSE:ALJ) (Dallas, Texas), Chevron Corporation (NYSE:CVX) (San Ramon, California) and Phillips 66. These four refineries have aggregate nameplate capacity of about 538,000 BBL/d, she said.

Evans made some further observations:

• During the fourth quarter of 2012, Valero Energy Corporation (NYSE:VLO) (San Antonio, Texas) replaced all imported crude with domestic crude at it refineries in Memphis, Tennessee, and along the Gulf Coast.
• Phillips 66 is no longer importing light sweet crude at its three Gulf Coast refineries, and it plans to expand its processing capacity there this year.
• Marathon Petroleum Corporation (NYSE:MPC) (Findlay, Ohio) this year announced it was displacing crude imports at its Gulf Coast refineries, while transporting more Bakken and Canadian crude to its Midwest refineries.

Evans noted there is some unused refinery capacity in PADD I. In addition, she said crude oil began moving through the Port of Corpus Christi, Texas, by tanker starting January 2012. As of January 2013, shipments of Eagle Ford crude oil through the Port of Corpus Christi reached 275,000 BBL/d.

Click on the icon at right for a chart showing Eagle Ford crude-oil shipments through the Port of Corpus Christi, Texas.

In the U.S., numerous crude-oil infrastructure projects are under way to expand processing and transportation capacity to capture surging domestic production of crude oil, speakers said at the conference. The economic viability of many of these projects, as well as projected expansions of crude oil production, depended on the continuation of high crude oil prices. Over the last year, cash prices for West Texas Intermediate crude oil have dropped about 14% to about $86 from about $103. But no speaker expressed concern that the renaissance of U.S. crude oil production was nearing an end.

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