Shale plays push out oil imports

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c.2014 San Antonio Express-News

For print publication Sunday, April 6, or late r

By Vicki Vaughan

San Antonio Express-News

SAN ANTONIO -- As drilling exploded in the Eagle Ford and other shale plays, the rise in oil and gas production last year helped push U.S. energy imports to their lowest level in 26 years, the Energy Information Administration said in a recent report.

Growth in the production of oil and natural gas pushed out imports and drove most of the decline, the agency said.

Falling imports have prompted multimillion-dollar investments by refiners looking to boost their ability to process more light crude from shale plays such as the Eagle Ford in South Texas.

“We haven’t seen anything like this in oil -- ever,” said Ed Hirs, energy economist at the University of Houston. “We’ve replaced imported oil through conservation and increased domestic production.”

For every barrel of oil that the nation doesn’t buy, he said, it’s a “tremendous stimulus” for the U.S. economy and improves the nation’s trade balance.

“It means the U.S. is supporting more employment domestically,” Hirs said.

U.S. energy imports, based on energy content, totaled 12.7 quadrillion British thermal units in 2013, the Energy Information Administration said. The last time imports came near that total was in 1987, when the nation’s energy imports totaled 11.6 quadrillion Btu.

Last year, crude oil imports fell 16 percent, and the Energy Information Administration forecast that rapid growth in domestic crude oil production will continue this year and next, further reducing oil imports.

“Refiners on the Gulf Coast today import far smaller volumes of light sweet crude than they did three years ago and they export more refined products,” said Judith Dwarkin, director of energy research at ITG Investment Research Inc. in Calgary, Alberta, Canada.

“The United States still imports about 7.5 million barrels per day, so there are plenty of foreign barrels remaining that could be displaced by growing volumes of the home-grown variety,” she said. Lower prices for their feedstock and low natural gas prices “are giving them a competitive edge in the international market.”

For locally based Valero Energy Corp., the nation’s largest independent refiner, rising domestic production allowed the company to stop importing foreign light crude oil early in 2013 at its seven Gulf Coast plants, spokesman Bill Day said.

Because foreign crude is more expensive to acquire than North American crude, “it has reduced our main cost, which is buying crude oil,” he said.

Lower cost crude contributed to a 30 percent jump in Valero’s 2013 fourth-quarter profit and a 29 percent increase in profit for the year.

Valero plans to beef up its ability to process more North American crude. “We’re investing to maximize the amount of light crude, because that’s what’s available,” Day said.

The company will add a 90,000-barrel-a-day crude topping unit at its Houston refinery at a cost of $390 million, and a 70,000-barrel-a-day topping unit at its Corpus Christi plant at a cost of $340 million, Day said. Both units are expected to open in the first quarter of 2016.

Valero already has a light crude processing capacity of 300,000 to 315,000 barrels a day at its Gulf Coast plants, but that’s just part of its present 1.2 million-barrel-a-day light crude processing capacity.

It’s also processing light crude at its mid-continent plants in the Texas Panhandle, in Ardmore, Okla., and Memphis, Tenn. By year’s end, its Quebec refinery will process 100 percent North American crude. Valero is considering similar projects at its Port Arthur and Meraux, La., plants.

The planned projects will boost Valero’s light crude capacity to almost 1.4 million barrels a day, according to a presentation the company recently made to analysts.

Exports, too, are benefiting the industry. Refiners can export gasoline, diesel and other petroleum products .

Given that the nation’s demand for fuel is flat and that refiners have access to lower-priced crude oil and low-cost natural gas to power their plants, “the country is likely to maintain its current role as a major net exporter of distillate fuels,” the Energy Information Administration said.

In this country, demand for petroleum products has been falling since 2007, while at the same time, refiners have been adding capacity and processing more crude, said Andy Lipow, president of the consulting firm Lipow Oil Associates LLC in Houston.

“So not only are we supplying the U.S. market, we’re exporting the products we’re making out of that crude,” he said.

More than half of the gasoline is exported to Mexico, with the balance going to South America. Distillates, including diesel fuel, are mostly being exported to South America and Europe.

The outlook for refiners such as Valero “is pretty positive,” Lipow said, although U.S. refiners face competition from giant plants in Saudi Arabia and India. That threat, he said, will be offset by rising global demand for oil and petroleum products.

vvaughan@express-news.net

United States - North America - Texas - Latin America and Caribbean - South America - Houston - Valero Energy Corporation - Research, Inc.

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