Unforeseen U.S. oil boom upends markets as drilling spreads

The U.S. oil boom has put European refineries out of business and undercut West African crude suppliers. Now domestic drillers threaten to roil Asian markets and challenge producers in the Middle East and South America.

Fifteen European refineries have closed in the past five years, with a 16th due to shut this year, the International Energy Agency said, as the U.S. went from depending on fuel from Europe to being a major exporter to the region. Nigeria, which used to send the equivalent of a dozen supertankers of crude a month to the U.S., now ships fewer than three, according to the U.S. Energy Information Administration. And cheap oil from the Rocky Mountains, where output has grown 31% since 2011, will soon allow West Coast companies to cut back on imports of pricier grades from Saudi Arabia and Venezuela that they process for customers in Asia, the world’s fastest-growing market.

“I don’t really think anyone saw this coming,” said Steve Sawyer, an analyst with FACTS Global Energy in London. “The U.S. shale boom happened much faster than people thought. We’re in the middle of a new game. There’s nothing in the past that predicts what the future will be.”

Advances in extracting oil from shale rock drove a 39% jump in U.S. production since 2011, the steepest rise in history, and will boost output to a 28-year high this year, according to the EIA. While drilling in shale is more expensive than other methods and poses environmental challenges, the prospect of a growing supply is encouraging analysts to predict a more energy-independent nation.

Crude Exports

With U.S. exports of gasoline and other refined products hitting a record last month and the country on pace to become the world’s largest oil producer by 2015, five years faster than the IEA’s earlier predictions, industry advocates such as Senator Lisa Murkowski of Alaska are calling for an end to 39-year-old restrictions on U.S. crude exports.

In a measure of just how quickly the oil market has changed, President Barack Obama unveiled in March 2011 a goal considered so outrageous that correspondent Christopher Mims wrote on the environmental news website Grist that it could be accomplished only by “an economic crash bigger than any ever seen in U.S. history, or perhaps an alien race forcing all of us to take to our bicycles.” Obama said that by 2025 the U.S. would cut crude imports by one-third.

It didn’t take 14 years. It took less than three.

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