In addition to the new light tight oil (LTO) output from U.S. shale plays, it is largely because of Canada, therefore, that Western Hemisphere crudes have toppled Middle Eastern and African crudes from their position in the U.S. crude market. As Figure 2 illustrates, the U.S. is importing 4.6 mmbpd of crude from the top three Western Hemisphere crude exporters, up from 3.88 mmbpd in the year 2000. In contrast, imports from the Persian Gulf and Africa have fallen to 1717 kbpd, down from nearly 3.8 mmbpd in 2000. Heavy sour crudes from the Americas have reduced the need for some Middle Eastern sour crudes, while LTO largely has supplanted imports of African light sweet crudes.
Sustained high prices encouraged the development of oil sands resources in Canada and the shale boom in the U.S., and this also stimulated transport infrastructure. Canadian production from oil sands has continued to grow, and U.S. imports have risen dramatically, but expanding the pipeline conduits into and through the U.S. became a challenge. Canada is seeking to send more oil out to the west and east. It is possible to do this, of course, and it is even possible that additional Canadian flows to the west could end up in the U.S. West Coast, while flows to the east could end up in PADD 1 and PADD 2. The U.S. still would be the main recipient. It is not clear that stopping the construction of the Keystone Pipeline, or other possible projects, will halt Canadian development, or reduce Canadian exports to the U.S., but it is likely that the economics of such projects will be even less favorable.
Naturally, since the global price is now at low ebb, many new developments are on hold. As this issue of Fuel Marketer News Magazine (FMN) goes to press in December 2015, OPEC has just concluded its meeting in Vienna, and the organization did not take any actions to curb production and support prices. In the author’s assessment, there was no reason to believe that they would do this. So, it was perplexing that so many market analysts expressed surprise, and that stock markets reacted so strongly. The OPEC members with the ability to put production on and off line had indicated that they would wait out the period of low prices to regain market share. It remains to be seen how much non-OPEC production will be shut in, but already the impacts are being felt.
There still are options to streamline crude trade within the Western Hemisphere. A variety of oil trade patterns have emerged because of the U.S. policy regulating exports of domestic crude. As the author noted in a previous issue of FMN, federal policy regulates exports of domestic crude oil under the authority of the Mineral Leasing Act of 1920, the Energy Policy and Conservation Act of 1975, and the Export Administration Act of 1979. This is not a “crude export ban,” but it is a significant hurdle, and it creates a definite barrier to trade. This became much more noticeable because of the increase in LTO production, and most oil producing companies have called for these controls to be lifted.
U.S. crude exports are shown in Figure 3. The restrictions allow trade with Canada, and the figure shows a steep surge in exports to Canada. Historically, Alaskan crude was shipped to the U.S. Virgin Islands, and some quantities of Alaskan and Californian crude were exported to Asia. But these exports vanished when production dropped. Canada remains the main importer. In October 2015, Mexico’s national oil company, PEMEX, received a license to import up to 75 kbpd of U.S. crude. If the restrictions on crude trade are eased even more in the future, the U.S. crude market may become even more firmly tied to the greater Western Hemisphere market.
