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US to lead global crude production as soon as 2023 – IEA

10th April 2018

By: Henry Lazenby

Creamer Media Deputy Editor: North America

     

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VANCOUVER (miningweekly.com) – US shale production growth is expected to lift the jurisdiction to being the top oil producer globally by 2023, a report from the International Energy Agency (IEA) has shown.

According to the IEA, US output will expand by 3.7-million barrels a day, more than half of the world’s expected production capacity growth, oil analyst Olivier Lejeune said in a recent report.

Most of the new production is expected to come from the Permian basin, in West Texas. However, as Permian and Eagle Ford crude oil production doubles, the analyst underscored the importance of investments in new pipeline and port export capacity to ensure that the product gets to market.

The period 2012 to 2014 was marked by historical supply expansion in the Permian, but also lower-than-expected revenues for producers as pipeline constraints contributed to local prices $20/bl below the West Texas Intermediate (WTI) benchmark. Since then, crude pipeline capacity in the US had more than doubled and constraints have eased, as lower oil prices reduced oil supply growth.

However, Permian production expanded rapidly last year, reducing the amount of available pipeline capacity to just 160 000 bbl/d in December, or around 4% of total Texas crude production.

“This small capacity cushion is likely to come under pressure this year, despite capacity expansions of the Midland to Sealy, BridgeTex and Permian Express 3 pipelines. Ultimately, Permian and Eagle Ford takeaway capacity is likely to become insufficient by mid-year, with a deficit possibly reaching as much as 290 000 bbl/d during the first half of 2019,” Lejeune stated.

While new pipelines in Texas do not typically face much resistance from local residents, they remain complex infrastructure projects that take years to build, the analyst pointed out. Over the next year or so, the key question for Permian producers is whether or not the planned 550 000 bl/d EPIC pipeline will be up and running in 2019, he pointed out.

“Beyond 2019, there are more than enough projects (including Sunrise, Permian Express 3, Cactus 2 and Gray Oak) to ensure plenty of takeaway capacity from the region, even if most of these are still on the drawing board. If all planned investments come to fruition, Permian nameplate capacity will more than double from its current 2.8-million barrels a day to 5.8-million barrels a day by the end of 2020,” Lejeune advised.

It remains unclear at this stage whether the steel tariffs proposed by the Trump administration at the beginning of March will affect pipeline operators who have applied for an exemption. Lejeune believes this has the potential to slow down project completion, but is unlikely to derail the projects altogether.

Further down the export route, the US also faces limitations to its ambitions of becoming an even larger crude exporter, including a lack of storage in some locations and competition from product exports for infrastructure. More critically, Gulf Coast terminals were built as import, rather than export facilities, and due to their limited depth cannot currently accommodate the largest oil tankers.

One port stands out, Corpus Christi, which is being targeted for upgrades thanks to its deeper channel and potential to accommodate larger tankers. It also has less refining capacity and does not face as much competition from other oil products as Houston does, meaning it could operate as a dedicated crude-export terminal, Lejeune suggested.

Over time, the US pipeline and export limitations are likely to be erased with additional investments. As a result, the IEA forecasts that export capacity will rise from 1.9-million barrels a day at the end of 2017 to 4.7-million barrels a day in 2020, and reach nearly five-million barrels a day in 2023. In the process, Corpus Christi will solidify its position as the largest crude export hub in North America.

Edited by Creamer Media Reporter

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