Rising U.S. Crude Oil Production Displaces Waterborne Imports

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--North American crude-oil production has risen by about 3.1 million barrels per day (BBL/d) to about 11 million BBL/d since January 2010, and rising production has reduced U.S. waterborne imports of crude oil by about 2 million BBL/d since then, according to Chris Micsak, a senior energy analyst at BENTEK Energy LLC (Evergreen, Colorado). Waterborne imports are expected to continue falling as North American production increases and processing and transportation capacity expands, he told about 150 attendees at the Third Annual Niobrara Infrastructure Development Summit, produced by Information Forecast Incorporated (Infocast) (Woodland Hills, California).

Click the icon to see how U.S. waterborne crude oil imports have fallen since 2010. Source: BENTEK Energy LLC

Micsak sees North American crude oil production rising by a further 4.4 million BBL/d between 2012 and 2018. The biggest production gains will be in Texas, Alberta, North Dakota and the Rocky Mountains, he predicted. "Production growth will reshape traditional crude oil flows and push out imports," he added.

Click icon to see regions where crude oil production is forecast to rise over the 2012-2018 period. Source: BENTEK Energy LLC

While new crude-oil discoveries have driven a lot of production gains, Micsak also said efficiency gains in rig productivity have helped increase production. "In 2012 alone, rig productivity increased by about 20%," he told attendees.

By 2018, increased domestic production will lower all U.S. waterborne imports of crude by more than 66%, to about 2 million BBL/d from about 6.75 million BBL/d in 2012, he projected. The Gulf Coast has been, and will continue to be, the region most affected by this trend. Gulf imports of waterborne light crudes have fallen sharply over the last three years. The BENTEK analyst predicted imports of intermediate grade crudes will decline by about 1 million BBL/d over the next three years. Once these higher-value and higher-cost grades of crudes have been displaced, increased U.S. crude oil production after 2016 will cut into waterborne imports of heavier crudes in the Gulf region, Micsak told the conference.

Click the icon to see estimated declines of waterborne crude oil in the Gulf Coast region. Source: BENTEK Energy LLC

In the future, getting the crude to refineries will become easier as new crude-oil pipelines and increased railroad capacity come online, he said. Right now, there is about 900,000 BBL/d of transportation capacity serving the Petroleum Administration for Defense District (PADD) IV, but that number is expected to nearly double by 2015, with most of the additions coming from rail. PADD IV includes Colorado, Idaho, Montana, Utah and Wyoming.

Micsak said several crude-oil pipelines were being developed or built to increase outbound transportation capacity from the Rocky Mountain region. But most of those pipelines would bring Rocky Mountain crude to Cushing, Oklahoma, an oil hub with transportation bottlenecks that currently imposes significant price penalties compared to other crudes priced in other U.S. markets.

"Rail offers producers access to the entire North American market, but at a higher cost than pipelines," Micsak told attendees. "Most importantly, rail doesn't force your crude to go to Cushing. The true option value of rail comes when Gulf Coast refiners are full and you can put your crude oil on rail and take it to the East Coast." The BENTEK analyst noted about 65% of crude oil production from the Bakken formation is being transported by rail.

In 2012, limited outbound transportation capacity imposed a $12 per barrel penalty on crude oil from the Rockies compared to Brent crude oil, Micsak said. But as the crude oil transportation infrastructure out of the Rockies expands, that penalty could fall to $5 per barrel in 2017, he projected.

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