A few random observations about what has been going on in the world of oil during the past week:
– For four of the last seven weeks, the U.S. has exported more petroleum than it has imported. That’s according to the weekly report of the Energy Information Administration. That report, which is closely watched for its inventory numbers, also produces data that is both number-based and estimate-based on imports and exports. And for more than half the time in the last seven weeks, the U.S. has shipped out more total petroleum barrels than it has imported. Within those numbers are still enormous amount of imports. For example, the U.S. is still importing about 6 million barrels/day (b/d)of crude oil. Canada remains the biggest supplier, with the vast majority of it coming via pipeline across the border. But the U.S. is also exporting about 3 million b/d of crude, 1.2 million b/d of distillates (mostly diesel) and 1.3 million b/d of propane. The end result is that exports recently have been outstripping imports by a small amount, a few hundred thousand b/d in the weeks where the U.S. was a net exporter. That’s quite a contrast from what the U.S. did in August 2006, the low point (high point?) of U.S. import dependence. The U.S. that month was a net petroleum importer to the tune of 13.4 million b/d.
– There’s one category of imports that may actually be increasing soon and it’s related to IMO 2020 – high sulfur fuel oil (HSFO). That’s the fuel that will be persona non grata (petrol non grata?) under IMO 2020. But it will still exist; it’s just that about 2 million b/d or more of its demand is going to be ripped away because of the new regulation. As an alternative, you can burn it to make electricity but you can also put it into a complex refining unit known as a coker. As somebody told this writer one time about his company’s coker: we could throw old shoes into that thing and get gasoline out of it. And no country is better suited to take advantage of cheap HSFO as feedstock for coking units than the U.S., which has close to 3 million b/d of coking capacity As a recent report by Morningstar energy analyst Sandy Fielden notes, it isn’t just that simple to put more HSFO into a coker because that means it needs to displace something else. But the reality is that the existence of U.S. coking capacity plus cheap HSFO means that there is a source of potential product supply that can help ease the transition to IMO 2020. Even if the coker is maximized to produce gasoline, as most are in the U.S., that means less pressure in other parts of the refining system to make gasoline. That can help to boost diesel output. Refining economics are incredibly complex; make a shift in one part of the chain and its ripples are seemingly endless. “With less than two months before IMO 2020 regulations kick in, the market impact of this momentous change is still far from clear,” Fielden writes about this advantage that U.S. refiners are likely to encounter.
– Without getting too deep into the pros and cons of actions taken by California Governor Gavin Newsom this past week, let’s note that they are certain to put a brake on trucking and transportation opportunities connected to the oil and gas industry in the Golden State. Newsom this past week had the state halt issuance of new permits for fracking and steam injection, following on news reports about the conflicts of interest in the state’s oil and gas regulatory agency and an elevated number of spills. He has said the state will study both. Newsom did not ban all new drilling, though he was under pressure to do so. It isn’t clear from the most recent data how many new wells are being fracked in California. But as far as steam injection, in the most recent weekly report, out of 81 new permits issued for drilling, 37 fell under the category of steamflood or cyclic steam, where steam is injected into a well to loosen heavy sticky crude that is found widely throughout California. Whether it’s hauling frack sand to a well or water for steam injection, the Newsom ban, for however long it lasts, is going to result in fewer trucking jobs related to the state’s oil and gas business. California’s oil and gas production dropped below 1 million b/d in 1987 and has been on a steady slide since. It’s now down to about 440,000 b/d. And even as the state makes another push against the oil and gas industry, imports of crude oil into the U.S. West Coast – most of it to California – continue to rise. In August, the last full month for which data is available, crude imports were 1.415 million b/d, the third-largest on record. California will almost certainly see its oil production drop with this move. And it will also see its imports increase.
– Enverus with its DrillingInfo rig count is a competitor in the field to provide that upstream, along with the more widely distributed (it’s free) number from Baker Hughes. What was interesting in the latest report from Enverus was not just the count – U.S. rigs at 837 was down 317 from a year ago – but the commentary from Enverus’ Trey Cowan was particularly stark as a commentary on the problems the U.S. oil patch is facing. ““Nearly two-thirds of the rig count drop over the past 12 months was due to privately held companies idling their drilling rigs,” Cowan wrote. “During this period, a net 29% of private operators, who were drilling at the beginning of this period, have since suspended all of their U.S. drilling operations.”