Will Big Oil Profit from U.S. Oil Exports?

Brian Hicks

Written By Brian Hicks

Posted December 13, 2013

As the shale oil boom continues in the United States, there will eventually need to be room for exporting abroad. A number companies are already looking to participate in the international oil market, competing with Russia in European and Asian markets.

oil tanker sidebarExxon Mobil (NYSE: XOM) is one such company eager to participate in these markets. In a report soon to be released by the company, Exxon recommends oil exports based on rising demand from developing nations and growing supply from U.S. production. The company also said that countries like the U.S., Russia, and Canada will be leading shale producers by 2040.

Even though Exxon has been somewhat behind the shale curve as of late, this hasn’t stopped the oil giant from being an advocate. Other Big Oil companies like Chevron (NYSE: CVX) have also lagged behind in drilling for shale oil, with domestic companies taking up prime real estate in Texas and North Dakota.

Big Oil may want to get in on U.S. oil exports, but these companies have not had the best of luck when it comes to finding shale oil hotspots, and this has shown in stock values over the past year.

The companies that should be allowed to export oil will mostly remain restricted to the WTI price benchmark, which isolates these shale producers from the world market even though its value is slowly catching up to Brent crude’s. Nevertheless, Exxon’s voice will be an impactful one, and although its reports will be looked upon with skepticism from critics, there must still be an effort for exports to shatter the illusion of scarcity.

How Long Will Shale Oil Production Last?

Ever since the Arab oil embargo in 1973, the U.S. has lived with the idea that oil supplies are severely limited in the U.S. and that any domestic oil resources must be protected. But this has changed with shale oil. New fracking technologies have allowed North America to reach previously unattainable reserves, and we now live in an age of oil abundance. Therefore, it is only reasonable to consider export avenues in order to keep oil prices at productive levels.

In order for shale oil to avoid the hit natural gas has taken when prices fell, we must have a solid export market in order to keep prices higher. But I cannot envision an efficient and smooth approval process when it comes to regulations.

The real question is whether or not we as a nation will have the stomach to fully engage international markets by becoming an exporting power. Analysts believe the U.S. will be fully capable of exporting shale oil resources within 5-10 years, and this will be plenty of time to assess how long the U.S. shale oil frenzy will last.

Even though the U.S. is riding high in the energy world, like any other commodity, shale oil is still a finite resource, and reaching more reserves is contingent upon investing in new technologies and prices remaining at stable levels. Without these factors, the shale oil craze will fizzle out in a heartbeat. And when it comes to exporting abroad, there is still the issue of competition.

With China and India expected to drive up demand, OPEC will be increasing production, and a question lingers as to whether or not shale oil exporters will be able to compete with cheap, conventional crude from the oil cartel.

American oil would need to be pretty cheap for countries to consider U.S. imports, which also poses a problem for producers who rely on higher prices to keep drilling going. But the good news is that North American production is set surpass that of every OPEC nation within two years with the exception of Saudi Arabia, Exxon said in its report.

U.S. Oil Demand

Canada is the primary customer of U.S. oil. Its light crude variety makes for a better alternative than pricier imports coming from West Africa, and it is just a taste of the potential demand around the world.

In September alone, the U.S. exported 99,000 bpd to Canada, and that number is expected to rise to 200,000 barrels, International Business Times reports. More Canadian refineries are also taking in U.S. oil, and the same can be said for domestic refineries.

Going forward, more refineries around the world will come to foster demand, but the primary barrier will be regulations if production continues to be successful. The number one market for oil exports will be Asia – one of the reasons the Russians are gearing up for their own ESPO benchmark.

With lower European demand from slumping economies, the Russians are increasingly focused on the Asian market. This is leaving European refineries with high costs, which could be a grand opening for North American producers looking to fill the void in the future.

The export mandate is gearing up, and Big Oil companies like Shell have already sought U.S. approval of oil exports. Going forward, you want to stick with Big Oil for exports, since they have the most international clout. It would be ideal if domestic companies could become a greater part of the export community, but only time will tell if that could happen.


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