www.eia.gov U.S. Energy Information Administration Independent Statistics & Analysis

Implications of Increasing U.S. Crude

Oil Production

By

John Powell

June 18, 2013

U.S. crude oil production is up dramatically since 2010 and will

continue to grow rapidly; this has implications for:

John Powell June 18, 2013 2

• Refinery operations

• Refinery investment

• Logistics infrastructure investment

• Exports of petroleum products

• Exports of crude oil

Increased U.S. crude oil production has resulted in:

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• Declines in U.S. crude imports

• Changes to refinery operations

• Logistical constraints in moving crude from production areas to

refining areas

• Discounted prices for domestic “landlocked” crude vs. international

seaborne crude

U.S. Crude Prices (dollars per barrel)

2008 2012 Change

WTI crude (U.S.) 99.67 94.05 (5.62)

Brent Crude (International) 96.94 111.63 14.69

Difference 2.73 (17.58) (20.31)

Crude import qualities have shifted as refiners replace imported

crude with domestic production

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Source: U.S. Energy Information Administration

0

2000

4000

6000

8000

10000

12000

2007 2012

Light sweet

Medium and heavy sweet

Light sour

Medium sour

Heavy sour

Crude imports by quality

thousand barrels per day

Refiners have increased processing of light sweet domestic tight

oil by:

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• Increasing crude runs to use any “unused” light sweet capacity

• Backing out imports of light sweet crude

• Blending different qualities of crude

• Depending on relative pricing of different qualities of crude,

bypassing units designed to process heavy crude

• Depending on financial incentives, investing in refinery hardware

to accommodate more light crude

Discounted prices for tight oil

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• Discounted prices result from lack of logistics infrastructure to

move domestic crude to refining centers

• Pipeline capacity increasing but still inadequate: crude is moving

via pipeline to the Midwest and the Gulf Coast

• Crude-by-rail is expanding quickly: crude is moving to the Gulf

Coast as well as to refining centers on the East and West Coasts

Discounted prices for “landlocked” domestic tight oil have

incentivized refiners

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Crude oil prices, rolling 5 day average

dollars per barrel

Source: Bloomberg

Logistics infrastructure: rail is expanding to serve the East and

West Coasts as well as the Gulf

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East Coast rail projects Location Operating

capacity

Planned

capacity

Planned

operating

Midstream Terminals (thousand barrels per day)

Global Energy Partners Albany, NY 160

Buckeye Albany, NY 130

Plains All American Yorktown, VA 130 2013

Sunoco Logistics Eagle Point Westville, NJ 40

Eddystone Rail (Enbridge &

Canopy Prospecting) Philadelphia, PA

80 2013

80 2014

Refinery Terminals (thousand barrels per day)

Philadelphia Energy Solutions Philadelphia, PA 140 2013

PBF Refining Delaware City, DE 110 40 2013

Phillips Bayway Linden, NJ 60 Developing

Totals 440 530

Source: Industry announcements

-4

-3

-2

-1

0

1

2

3

4

1949 1956 1963 1970 1977 1984 1991 1998 2005 2012

Discounted crude prices and low natural gas prices have

supported product exports

9

Annual U.S. net imports of total petroleum products, 1949 – 2012

million barrels per day

Source: EIA, Petroleum Supply Monthly and Annual Energy Review

net

product

exporter

exports

imports

net imports

Others (e.g. petroleum coke, residual fuel oil, propane)

Distillate fuel oil

Gasoline (including components)

John Powell June 18, 2013

How much more tight oil can be absorbed by changing refinery

operations and blending different crude oil qualities?

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• Varies by refinery

• Light end processing capability could be stressed

• Heavy end processing units could be underutilized

• Total crude processed could decline

• Product yields could shift - more gasoline / less diesel

Will market conditions support capital investment?

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• What about capital investment to increase light crude processing

capability?

– Some refiners have announced capital investment plans to support processing

additional light crude

– Decision to invest depends upon expectations about duration and magnitude of

economic incentives and access to tight oil

– Varies by refinery

• Will discounts for “landlocked” crude persist?

– Price discounts will vary as infrastructure bottlenecks come and go

– Pipeline projects to expand capacity will be completed but tight oil production will

increase

– Rail projects will continue but unclear whether long term rail will be competitive

– Impacts incentive for upstream investment

Will the export market for petroleum products continue to

absorb U.S. refinery production?

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• Exports principally supply Latin America and Europe

• Projected growth in Latin American gasoline and diesel demand

could be supplied by increased local refinery production, limiting

growth in U.S. supply to the region

• European demand projected to slow

• U.S. refineries not currently competitive to supply Asia with diesel

and gasoline

Export licenses not generally required for petroleum products

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• Petroleum products include both finished products and

intermediates

– Finished products include motor gasoline, diesel fuel, jet fuel, etc.

– Intermediates include naphtha, reformate, vacuum gasoil, etc.

• Petroleum products include topped/split crude

• Condensate is subject to Commerce Department export licensing

rules

– Note: EIA treats condensate as a natural gas liquid, which is considered a

petroleum product

Crude oil exports require licenses

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Others Export

License

Required

Crude Oil

1. Alaska Cook Inlet

2. To Canada for consumption there

3. Heavy California crude up to 25 MBPD

4. Strategic Petroleum Reserve oil in

connection with an exchange of refined

products

5. Foreign-origin crude oil where the

exporter can demonstrate that the oil is

not of U.S. origin and has not been

commingled with oil of U.S. origin

Pre-qualified

Presidential determination

that it is consistent with

national interest

U.S. crude exports to Canada have doubled since 2005 and

could continue to increase as pipeline and rail capacity expands

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Monthly U.S. crude oil exports to Canada and rest of world

thousand barrels per day

Source: U.S. Energy Information Administration

0

20

40

60

80

100

120

140

Canada Rest of World

U.S. dependence on imported liquids depends on both supply

and demand

16

U.S. liquid fuel supply

million barrels per day

Source: EIA, Annual Energy Outlook 2013 and Short-Term Energy Outlook, April 2013

0

5

10

15

20

25

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

Reference case supply

Reference case consumption

Low/No Net Imports supply

Low/No Net Imports consumption

Consumption

Domestic supply Net imports

37%

Projections History

John Powell June 18, 2013

Petroleum exports

-8%

32% STEO

forecast for 2014

2014

40%

2012

For more information

John Powell June 18, 2013 17

U.S. Energy Information Administration home page | www.eia.gov

Short-Term Energy Outlook | www.eia.gov/steo

Annual Energy Outlook | www.eia.gov/aeo

International Energy Outlook | www.eia.gov/ieo

Monthly Energy Review | www.eia.gov/mer

Today in Energy | www.eia.gov/todayinenergy