Can shale ‘revolution’ make US top oil exporter?
WASHINGTON - As the world’s largest crude exporter, Saudi Arabia’s decisions on oil production volumes have influenced crude prices for decades and provided Riyadh with political clout and a comfort level that the Saudi regime would be protected in a crisis.
Oil markets, for example, paid close attention when Saudi Oil Minister Khalid al-Falih announced on March 11 that the kingdom would make further cuts to its crude exports in April in Riyadh’s drive with other producers to push oil prices higher, bringing Saudi oil exports to less than 7 million barrels per day (bpd) from 8 million bpd export highs recorded in late 2018.
Saudi Arabia’s reign as the top oil exporter is being threatened by the United States, which used to be the priority market for Saudi crude exports. In its “Oil 2019” report, the International Energy Agency (IEA) said “the second wave of the US shale revolution is coming,” suggesting that the United States could topple Saudi Arabia from the leading export spot by 2024.
In addition, booming US oil production could result in American energy independence as early as next year, the US Department of Energy’s Energy Information Administration (EIA) said.
IEA Executive Director Fatih Birol said the expected surge in shale output would “see the United States account for 70% of the rise in global oil production… over the next five years.” He added: “This will shake up international oil and gas trade flows, with profound implications for the geopolitics of energy.”
In 2018, the United States surpassed Russia and Saudi Arabia and became the world’s largest crude producer, a position it had not held since 1973. US oil production hit a record high of 12.1 million bpd and the IEA said the American shale boom will see another 4 million bpd added to US crude output through 2024.
In its forecasts, the EIA estimated that US crude production would average 12.4 million bpd this year and 13.2 million bpd in 2020.
The EIA said growth in output has slashed American dependence on foreign oil, with US crude oil and petroleum product net imports having tumbled from 3.8 million bpd in 2017 to 2.4 million bpd in 2018. The US energy division said net imports should decline to an average 900,000 bpd in 2019 and that the United States would become a net exporter of crude at an average of 300,000 bpd in 2020.
The US shift towards becoming a net crude exporter began in late 2015, when US President Barack Obama lifted a four-decade ban on American crude exports. The United States recently reached a record level of total crude exports, shipping just more than 3.6 million bpd of crude in the week through February 15.
While it has some catching up to do with Saudi Arabia in terms of net exports, the United States’ crude production capacity has incredible potential — as much as 16 million bpd in the next five years — while increases in Saudi crude production capacity is limited.
Saudi Arabia has long served as a swing producer, able to withdraw large volumes from oil markets or to quickly ramp up production to fill a supply gap.
Riyadh has insisted that it has a maximum sustainable production capacity of 12 million bpd but there is industry speculation that the kingdom would be strained to sustain pumping at more than 11 million bpd for any lengthy period.
In November, Saudi output climbed to 11.2 million bpd briefly before the kingdom helped orchestrate a major supply cut with other producers in a bid to push up international oil prices. In October, Falih said the government intended to spend $20 billion to maintain and potentially expand spare production capacity, adding that the kingdom had not decided whether to raise its production capacity to 13 million bpd or hold at 12 million bpd.
Saudi Arabia prioritised oil exports to the United States for decades, guarding its position as the top crude supplier to that market with volumes as high as 1.5 million bpd as a measure of security that Washington would quickly intervene should a crisis emerge. In the mid-2000s, Riyadh shifted course, focusing on the more lucrative Asian market while remaining among the top oil exporters to the United States.
It is telling that, as part of their efforts to reduce crude exports with an $80 a barrel oil price target in mind, the Saudis recently reduced sales to the United States, with US imports of Saudi crude falling by half in one week in January to 442,000 bpd.
It is also significant that Saudi Aramco CEO Amin Nasser was quoted as saying in November that while “all markets are important to us… Asia is the biggest market for sure, then Europe and the United States.”