Notes from the AFPM Annual Meeting
April 14, 2015
The AFPM Annual Meeting was back in San Antonio this year. Every year I find this four-day event educational, fun and exhausting. It seems like every day goes from 7 AM to Midnight and is filled with meetings, eating and drinking. The San Antonio hometown oil companies host big parties and there are plenty of other events to meet old friends and new ones.
I always attend the technical sessions. This is where smart people present their latest thinking about current issues. This year I took in the presentations on implications of the U.S. crude oil export policy, light tight oil (LTO) production outlook, crude oil export regulations and the AFPM staff’s discussion on regulatory issues.
I captured the following interesting facts:
- Without the growth in production in the U.S. and Canada, world crude oil production would have declined.
- The benefits to the U.S. economy by increased crude oil production is huge, with estimates of a half million jobs created. Because of the extensive supply chain required to support the drilling, the benefits spread out to every state.
- The U.S. is producing more LTO than EIA forecast, but refiners are absorbing it. However, crude oil inventories are “building at an alarming rate.”
- Outside the U.S. oil demand is weak.
- Forecasts indicate the world market will stay oversupplied at least until 2020.
- If the export ban is lifted, medium sour Mars crude oil from the Gulf of Mexico will find a home in Asia.
- Crude oil exports threaten East Coast refiners because exported crude can move out of the Gulf Coast to Europe and be refined and the products brought to New York Harbor for less than the cost of Jones Act shipping from the Gulf Coast to the East Coast.
- A temporary waiver to allow U.S. crude oil to move by foreign flag ships is a useful work-around and could bring Texas crude oil to refineries in California, Washington, Alaska, and Hawaii as well as the East Coast refineries. These movements would replace crude oil imports.
- The consensus is that legislative action to ease the crude oil export restrictions is unlikely in the near term. The Jones Act is probably tougher to change.
- Gasoline demand seems to be on an uptick. This is interesting because all the forecasters, including Stillwater, have had gasoline demand declining.
- Crude-by-rail is a tough issue. The government will have the new tank car rules out in May.
- There is a lack of focus on the root cause of the CBR accidents. 60 percent are caused by derailments or human error. According to AFPM staff, in 2014 there were 1,100 total derailments or about three per day.
Bottom line: crude oil supply will remain plentiful, relative to demand. Government regulations are distorting the market and likely making crude oil more expensive than it otherwise would be.
Categories: Wisdom from the Downstream Wizard