The Fuse

Tale of Two Milestones for U.S. Oil Exports

by Alex Adams | @alexjhadams | August 06, 2019

The U.S. energy industry has broken two oil export records in as many months. In July, data revealed that American oil exports reached a new high of 3.3 million barrels per day (Mbd). And earlier this month, new figures showed that U.S. crude is now being exported to 31 countries.

Data from the American Petroleum Institute (API) showed that U.S. exports hit 3.3 Mbd in June 2019, representing a year-over-year increase of 1.1 Mbd. The API statistics also demonstrated a key energy security benefit to increased domestic crude production: U.S. net petroleum imports in June had more than halved from 2.9 Mbd in June 2018 to 1.3 Mbd in June 2019.

The findings prompted a bullish analysis of the U.S. energy picture from API. “The U.S. appears to be making substantive progress towards becoming a net energy exporter in 2020, as projected by the EIA, with production continuing to sustain its upward climb despite oil prices having declined 10 percent between May and June,” said Dean Foreman, API’s chief economist. “This trend has been driven in part by increasingly low breakeven prices, strong productivity gains in key production regions, and the incremental additions of new pipeline infrastructure needed to bring these resources to market.”

Further cheer for the U.S. oil industry was to be found in data from the U.S. Energy Information Administration (EIA), which showed that domestic oil was being exported to 31 countries as of May 2019, with Canada, South Korea and India the biggest customers. In a recent report, energy consultancy Rystad Energy described rising American oil exports as a “remarkable turnaround,” which was made possible “by the continued rise in oil production from [U.S.] shale plays and the increased oil export capacity from the Gulf Coast.”

The push to export greater volumes of U.S. crude shows no sign of slowing down. Seven new oil-export terminals have been proposed on the Gulf Coast, which are expected to handle more than 3 Mbd in new supply over the next five years as surging exports overwhelm current facilities. These new export terminals will, according to EIA analyst Mason Hamilton, help U.S. producers assess the appetite for American oil, telling Axios that “With all the infrastructure planned to facilitate even greater volumes of U.S. crude oil exports we will likely soon find out how big of a market is out there for U.S. crude oil.”

However, there are some clouds on the horizon for U.S. shale production. The sector is failing to generate the requisite returns for increasingly skeptical investors, a problem compounded by the falling oil prices the industry itself is helping to sustain.

The recent second-quarter earnings results for a number of shale producers painted a bleak picture for the industry

Bleak picture
The recent second-quarter earnings results for a number of shale producers painted a bleak picture for the industry. The share price for Concho Resources, one of the most prominent producers in the shale patch, tumbled 22 percent after revealing a number of problems, including falling rig numbers and a $792 million net loss for the first half of 2019. As Liam Denning noted in Bloomberg, “It’s sobering to think that Concho, valued at more than $23 billion in the spring of 2018 and having since absorbed the $7.6 billion purchase of RSP Permian Inc., now sports a market cap of less than $16 billion.”

Other shale producers experienced a similarly rough week. EOG Resources saw its share price drop 5.5 percent after missing expectations, and Whiting Petroleum, Pioneer Natural Resources and Devon Energy saw their share prices fall 38 percent, 7.5 percent and 6.8 percent respectively after their earnings calls. Many other producers experienced a similar fate.

Since the ban on U.S. oil exports was lifted by Congress at the end of 2015, surging domestic production has seen American crude crack markets worldwide. Yet for meaningful progress to continue, it is likely that producers in the shale patch must either convince investors that they can manage their capital responsibly or embark on a wave of consolidation analysts and industry watchers say is desperately needed.