WoodMac: US Downstream on Track to Become Key Export Center- Source Wood Mackenzie Press Release

WoodMac: US Downstream on Track to Become Key Export Center

by Wood Mackenzie Press Release

March 13, 2012

"Wood Mackenzie projects the US to be a growing net exporter of oil products and so transformed to a regional export centre now through the next decade," according to Alan Gelder, Head of Oils Research for Wood Mackenzie, speaking Monday at the American Fuel and Petrochemical Manufacturers (AFPM) Annual Meeting in San Diego. "This is based on our outlook for the development of US domestic tight oil supplies, the strong competitive position of US Gulf Coast refining and a supportive global environment."

Wood Mackenzie's analysis emphasizes that after decades as a net importer, US oil product trade moved to a net surplus during 2011. "The position of the US as a net exporter of oil products has arisen during a time in which demand has dropped by almost 1.9 million bpd from its peak in 2005, with 2011 demand being approximately 150 kbd below 2010 levels," explained Gelder.

Strong supply growth from key tight oil plays in the US, evidenced by the structural shift in the Brent -- WTI differential is supporting the emergence of the US as a growing net exporter of oil products, according to Wood Mackenzie.

"Supply of oil products grew significantly in both 2010 and 2011, due to the benefits of a growing supply of tight oil in the US, which was priced at a significant discount to international markets," noted Gelder. "The Brent - WTI differential blew out during 2011 due to a number of factors, but the lack of southbound pipeline infrastructure from Cushing to the US Gulf Coast refineries was significant."

Gelder's technical paper affirmed that the transformation of the US to a sustainable export centre reflected a weak demand outlook, high refinery utilization due to advantaged feedstock and supportive external market opportunities. Wood Mackenzie projects that US gasoline demand will be one of a sustained gradual decline for refinery supplied gasoline, due to factors such as weak GDP, slowing growth in vehicle miles travelled, and legislation that is improving the fuel efficiency of the vehicle fleet and growing impact of renewables. A declining demand growth hence supports increased exports, all other things being equal.

This potential growth in exports from the US is supported by market developments in other regions, such as Europe, in which Wood Mackenzie sees 1.3 million bpd of refinery capacity at risk of permanent closure. In the medium term, the net trade positions of other regions within the Atlantic Basin will be supportive to US exports, with Latin America remaining deficit diesel and Sub Saharan African deficits of transportation fuels. "Post 2015 however, the development of facilities such as Brazil's export refineries, are likely to result in Latin America becoming a stronger competitor to the US Gulf Coast refineries in global markets," explained Gelder. "This shift in Latin American balances suggests that US export refiners need to consider their options to secure volume offtake over the coming years."

"The effects of this changing landscape are projected to be far from uniform across the US refining sector and its supporting industry," noted Gelder. "As a generalization, midstream pipeline and logistics players are well placed to win in this outlook, due to the plethora of emerging structural imbalances in the US that support ongoing investment in the sector." To be successful, however, players will have to navigate increasingly complex political and regulatory hurdles to logistics infrastructure development.

Gelder concluded, "There are, of course, various uncertainties around GDP growth, international oil prices and the pace of pipeline developments, but the recent strong growth in tight oil supplies suggests upside potential to US domestic crude production which will sustain the US refining industry as a net exporter of oil products to international markets for many years to come."

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