No relief at pump when US becomes net oil exporter in 2020

The US will become a net oil exporter sometime next year. That is, total exports of both crude oil and refined petroleum products will exceed total imports.

It's a remarkable milestone, even if it doesn't mean that the US is self-sufficient in oil production or insulated from the global market. It reflects the staggering growth in US production in recent years. At the same time, it exposes the importance of crude quality – because the US produces type of oil that most of its refiners were not configured to process.

President Donald Trump praised the milestone in his State of the Union speech to Congress Tuesday, albeit before it actually happens. "The United States is now the number one producer of oil and natural gas anywhere in the world. And now, for the first time in 65 years, we are a net exporter of energy," Trump said.

The Energy Information Administration expects the US to flip from longtime net oil importer to net oil exporter in the third or fourth quarter of 2020. A decade ago, EIA forecast in its 2009 Annual Energy Outlook that foreign crude would meet 44% of US demand in 2020. Imports met 60% of US consumption in 2006 and were projected to fall to 50% by 2010, according to the 2009 report. That was before the US tight oil revolution got underway in earnest.

The 2019 AEO report released in January predicts foreign oil will meet just 7.5% of US demandthis year. EIA's projections have accelerated as US oil production growth keeps beating expectations. Even just two years ago, EIA's 2017 AEO forecast the US remaining a net importer through 2050, with foreign oil meeting 17.7% of national consumption that year. Last year's AEO predicted the US would gain net exporter status in 2029 – nine years later than the current forecast.

Top producer

The US became the world's top oil producer last year. It pumped 11.9 million b/d of crude in November, the latest data available, and may have already crossed the 12 million b/d mark. EIA sees US output hitting the next threshold of 13 million b/d in October 2020. "We expect the United States to remain the world's largest producer," EIA Administrator Linda Capuano said in January.

Anyone who follows US energy policy knows that the US' top producer status doesn't keep global market forces out of American drivers' pocketbooks. Look at US oil policy just in the last year and see the many times the White House leaned on foreign oil producers to increase their own supply in order to keep American gasoline pump prices low.

Leaning on OPEC

President Donald Trump practically invited himself to last year's OPEC meetings by tweeting his wishes for more production and lower prices. When the US moved to reimpose sanctions on Iran, the White House kept a close watch on global crude prices and again leaned on OPEC producers like Saudi Arabia to pump more. Brent prices rose sharply in October on expectations of strict enforcement of the sanctions, until the White House granted a raft of waivers to Iran's top oil customers including China, India, Japan and South Korea.

More recently, US pump prices were a consideration in the White House's rollout of sanctions against Venezuela's state-owned oil company PDVSA.

"There's been a big reduction in the overall price of oil and particularly since we instituted the Iran sanctions," Treasury Secretary Steven Mnuchin said January 28 during a White House briefing announcing the Venezuela oil sanctions. "I think you know we've been very careful in making sure that these costs don't impact the American consumer," he added.

"Gas prices are almost as low as they've been in a very long period of time. These refineries impact a specific part of the country. And I think, as you've said, we're very comfortable that they have enough supply that we don't expect any big impact in the short term."

Crude quality matters

However, the interconnectedness of the global oil market often gets lost when Washington policy makers talk about US oil abundance. "One of the things I've heard from the Americans is, 'We're producing all this crude, we don't need any Canadian crude,'" said Jonathan Stringham, manager of fiscal and economic policy at the Canadian Association of Petroleum Producers.

The US imported 4.2 million b/d of Canadian crude in November, according to the latest EIA data. Some Gulf Coast refiners are hoping to use heavy crude barrels from Alberta to replace Venezuelan imports blocked by the recent US sanctions, although pipeline and rail constraints will keep Canada from meeting any more than about 100,000 b/d of additional heavy crude demand this year, according to S&P Global Platts Analytics.

"What we're trying to communicate to the average American is that Canadian crudes don't compete with American crudes," Stringham said. "With the different quality adjustments and types of crude - heavy, light -- there's still a need for heavy crudes in the Gulf."

The US snagged the net oil exporter title for all of one week last November, driven by a surge of 3.2 million b/d in crude exports that pushed crude and product exports above 9 million b/d, according to Platts Analytics. Whether and when the US becomes a net exporter on a monthly and annual basis of course depends on oil prices.

EIA's reference case projects US net oil imports of 1.58 million b/d in 2019 before flipping to net exports of 460,000 b/d in 2020. Net exports would max out at 3.68 million b/d in 2034 before starting to decline. EIA's low price scenario shows the US never reaching net oil exporter status through 2050. A high price scenario, however, shows US net imports of 50,000 b/d this year before switching to US net exports of 2.51 million b/d in 2020 that keep rising until 8.39 million b/d in 2033.