U.S. oil exports are starting to set precedence over imports, doubling in February to a 13-year high of 124,000 barrels per day (bpd), data from the government showed Monday.
Crude oil production, for the first time since 1996, is exceeding net imports, and it recently hit a 21-year high of 7.177 million bpd, due in large part to increased production from shale-oil fields.
These dramatic figures are a reflection of U.S. oil growth and the shale boom that is increasingly changing the world energy map.
Exports have seen a dramatic leap this year from roughly 60,000 bpd last year, and they have grown by leaps and bounds over the 2002 figure of around 10,000 bpd.
The funny thing is, much of this growth is going to Canada—the only destination where approval of exports seems to be a no brainer under U.S. law. Trade between the two neighbors is more prevalent and easier than ever as Canada refineries increase pipeline, rail, and tanker delivery systems.
U.S. trade regulations for U.S.-produced oil are stricter than ever before, but cross-border trade flows are seemingly untouched. The North American Free Trade Agreement (NAFTA) has made this advantageous, especially to Canada.
Trade with Canada
The 21-year high of domestic crude oil output levels send them past net imports by 31,000 bpd; just recently in 2011, according to Fox Business, those same numbers were in reverse, but net imports toppled output by nearly 3.8 million bpd.
It’s a generally accepted rule that the U.S. will allow exports of crude if imports are equal in volume to gasoline and diesel fuel.
Most of the exports are coming out of North Dakota’s Bakken oil field and being shipped to Eastern Canada, which still doesn’t have the infrastructure in place to seek supply from Alberta sources. Supply is also shipped by tanker from the Gulf Coast and the Eagle Ford oil fields in Texas.
This is beneficial for U.S. refiners who typically aren’t equipped to handle the “sour” oils that North Dakota and Texas yield—the high quality, low-sulphur crude is better for the newer, more adept refineries found in Canada.
And this further emphasizes the importance of trade with Canada, as well as logistics involved between the two sides. This is why transport efforts have been scaled way up—trucks, trains, and shipping ports are all being increased to make trade easier and more economical. And this shows why the Keystone XL pipeline is so important; it will create a direct link between the two international borders for the future.
Oh, Canada
Even with U.S. production soaring higher every day, the U.S. still remains reliant on about 8 million bpd of imported crude oil. The relationship with Canada is vital, even as some experts are suggesting the U.S. will likely be weaned off imported oil by the end of the decade.
The U.S. imported the most crude oil from Canada ever, in any given month, last year and through the start of 2013. The same can be said for its export flow to Canada, which is still just a fraction of the overall supply.
Both countries rely heavily on one another, and the symbiotic relationship has kept the waters calm, with little to no tension.
It even makes more economic sense, in some case, to export to Canada instead of shipping by vessel to refineries on the East Coast. The Jones Act—a law put into effect in 1920—requires that travel between domestic ports adhere to more expensive guidelines.
The increase in North American supply and the dramatic shift in U.S. imports have profoundly affected U.S. trade with the Organization of the Petroleum Exporting Countries (OPEC). The growing ties with Canada slashed crude oil from these nations by 22.2 percent from a year ago. At 2.946 million bpd, according to Fox Business, that volume of imports was the lowest from OPEC since 1994.
Troubled Earnings
Just because things are moving in the right direction doesn’t mean there aren’t a few snags along the way.
If you look at BP Plc (NYSE: BP), Europe’s second biggest oil company which still has investors anxious three years after the Gulf of Mexico fiasco that cost it $40 million, it’s still not an easy road to haul.
It’s true, BP’s first quarter was better than expected, but despite showing profit and proving analysts wrong, its production was lower by 5 percent, and this is expected to slide further into the second quarter. The company sold its stake in the TNK-B P unit in Russia to help balance returns.
Chevron Corp. (NYSE: CVX) and Total SA (NYSE: TOT) both reported net income losses.
Royal Dutch Shell Plc (NYSE: RDS-A), Europe’s biggest oil company, may reveal its own losses on May 2, as Bloomberg reports. Its profits reportedly have dropped from $7.28 billion down to $6.5 billion.
But these companies, like BP, assure investors that they are poised for growth as trade routes become stronger and gas marketing relations improve. It appears that natural gas will be the key to profiting on a global scale.
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U.S. Movers
BP is securing its position in the U.S., as it has been granted government approval to ship crude oil to Canada. Other major players like Royal Dutch Shell are applying for similar licensing.
Shell has already started moving 50,000 bpd of Louisiana light crude off to a refinery in Newfoundland.
And Valero (NYSE: VLO), the biggest U.S. independent refiner, will be bringing crude from Texas to its own refinery in Quebec. Valero also recently announced that it will be scaling back imports of Mexican and South American crude and focusing more on Canadian crude oil.
The dramatic rise in U.S. exports will surely ignite more debate on international export restrictions, and it will certainly magnify the importance of the Keystone XL pipeline that is waiting in the balance. But without that, Canada and U.S. relations are at an all-time high.
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