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Amid a thunderstorm of horrifically sad COVID-19 news, I wanted to focus on an energy story to lift your spirits. We all realize that energy markets are such an afterthought right now, but I wanted to give you something. Remember Red, hope is a good thing, maybe the best of things, and no good thing ever dies.
So, here goes. We are slated to become the largest oil and the largest liquefied natural gas (LNG) exporter in just a few years. The federal numbers are out, and U.S. oil and natural gas exports boomed once again last year to record heights. In fact, last year the “U.S. Posts First Month in 70 Years as a Net Petroleum Exporter.” For context, our oil demand remains very high but flat (19-20 million b/d), while our gas demand has been rising fast, up 33% since 2008 to ~86 Bcf/d in 2019. With Mexico taking the bulk, U.S. oil product exports have been steadily mounting, rising an annual 150 million barrels over the past decade.
But, the more interesting story is the explosion of crude exports – a game that we have only been playing since 2015, when a rule change allowed our crude shipments to go beyond just Canada. With 2019 U.S. crude production increasing ~1.3 million b/d to reach over 12.2 million b/d, crude exports soared 45% to reach 3 million b/d, with Canada leading at 15% and South Korea at 14%. Our shipments reached 45 different locations.
Beyond a 12% jump in domestic production, expanding infrastructure and rising global demand for light, low-sulfur grades bolstered U.S. crude exports. Importing over 10 million b/d, China is the world’s largest importer but U.S. sales to the country have been bogged down by the trade war. China has had a 5% tariff on U.S. crude oil and was our seventh largest buyer in 2019. U.S. crude exports to China averaged just 133,000 b/d, a ~45% reduction from all of 2018. To illustrate where we just two years ago, China in the first half of 2018 imported almost 400,000 b/d of U.S. crude, making it our largest buyer.
For the week ending March 13, total U.S. crude exports hit a staggering 4.4 million b/d. But, COVID-19 will make more exports this year will be a struggle because global oil demand is set to fall in the absolute sense for the first time since The Great Recession. There is good news on the import front, “The U.S. Oil Boom Is Sinking OPEC Imports.” A friend, neighbor, and democracy has nicely filled in: “As total U.S. crude oil imports have fallen, imports from Canada have increased.” And if U.S. crude production falls this year, that would ultimately bolster our shale industry because it would lift prices.
Rapidly emerging as the world’s most vital incremental fuel, next comes natural gas. Since the shale-era began 12 years ago or so, U.S. gas production has jumped almost 70%. Even though we use far more gas than any other country in the world, we became a net exporter in 2017. YoY, U.S. LNG exports last year were up nearly 70% to 1,825 Bcf. Even with infrastructure issues getting supply from South Texas across the border to Mexico, our total piped exports were up a solid 13% in 2019.
After a 13% jump in 2018 and 11% rise in 2019, U.S. output this year will slightly increase, stay flat, or slightly decline. Even with the collapse in pricing for both oil and gas, total gas production is unlikely to drop as much as you might think, even as Henry Hub gas prices are now just ~$1.65 per MMBtu. In the extreme case, U.S. gas production could drop 4-6 Bcf/d by June, as compared to current production of ~93 Bcf/d. And obviously, if production does drop, subsequent price increases would greatly help the industry and ultimately allow more gas to be extracted.
With already sunken global gas prices exacerbated by the COVID-19 crisis, U.S. LNG exports are still high but might not boom this year. Lower oil prices make the oil-indexed LNG that our competitors sell more attractive. Feedgas demand this month has averaged 8.1 Bcf/d, versus 8.7 Bcf/d for January. But again, this horrific global emergency is a temporary one, and you should remain very bullish on U.S. LNG. Annual global LNG demand is on a 4-7% rise for decades to come.
Helping, FERC this past week gave conditional approval to Jordan Cove in Oregon and its accompanying pipeline to export LNG. We shall see if it crosses the finish line, but this is a critical project because it has quicker and thus cheaper transport to reach Asia and will not have to pay hefty tolls to pass through the Panama Canal like our projects mushrooming along the Gulf of Mexico.
We know that the gas will be there. The U.S. Department of Energy has our gas production rising from 34 trillion cubic feet in 2019 to 45 trillion cubic feet 2050. The Department has continually upped its forecast for new output in the decades ahead. Exports will be boosted by higher oil prices and lower domestic gas prices. Our LNG exports could boom to 20 Bcf/d by 2030 and even higher if oil prices rise. For reference, the current global LNG market is ~46 Bcf/d.
Ultimately, our energy exports are a moral imperative: “These Kids Need Oil and Natural Gas: 325 Million Children Live on Less Than $2 a Day.”
Obsessed with The Second World War since I was 13 years old, I can guarantee you one thing: we stand on the shoulders of giants. They are counting on us. Now it is our time to answer the call. Stay safe and never stop learning.
