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'Priced to leave': US oil in position to make lasting impact in Asia

With production near record levels, the U.S. — until recently a nonfactor as an oil exporter — could be on the verge of becoming one of the world's largest oil exporters and a major player in the key Asian market.

Pushed by continued production growth in the Permian Basin, U.S. crude oil production has reached all-time highs. The U.S. Energy Information Administration estimated that the nation produced more than 10 million barrels per day in November 2017 before dropping slightly to 9.95 MMbbl/d in December. The most recent update of the Texas Petro Index said production in the state, home of the Permian, was more than 119 MMbbl in January.

While the U.S. will continue to import heavier crude oil, the light sweet crude from the Permian and elsewhere will need to find other markets. In other words, the nation that was the world's largest importer of oil will become an increasingly important exporter that is finding new markets with prices around $60/bbl for West Texas Intermediate crude. "The U.S. will continue to export to Canada and Europe … but those aren't growth markets. The growth markets are Asia, and that's already happening," said Aaron Brady, IHS Markit's senior director for energy. A 40-year-old ban on most oil exports from the U.S. was lifted in late 2015.

"As long as U.S. production continues to grow, U.S. crude exports will continue to grow," Brady said at the CERAWeek conference put on in Houston by IHS Markit. "The U.S. could be a bigger exporter than any OPEC nation except Saudi Arabia in the next 10 years."

U.S. refineries are already running near or at capacity for light, sweet crude, with many facilities designed to accept heavier crudes from places such as the Middle East. As a result, there is no place domestically for an anticipated production increase of 1.8 MMbbl/d in 2018. "We think … it will price to export," Brent Secrest, a senior vice president at Enterprise Products Partners LP, said at the conference. "It's going to be priced to leave. In time, it will get to Asia. At Enterprise, we've made this bet."

With break-even prices in the Permian Basin now below $20/bbl in some instances, U.S. crude exports have the ability to compete favorably with those from other parts of the world, including more traditional exporters that are members of OPEC. "My thesis is that oil is going to have to be long-hauled and leave this market," Daniel Jaeggi, the co-founder and president of Mercuria Energy Trading SA, said during CERAWeek. "Our job is connecting the wellhead to the global market, which in this case is probably on the other side of the world."

Seeking to exploit new markets, producers are looking for options on the Gulf Coast to ship their crude overseas. Cynthia Walker, senior vice president of marketing and midstream operations for Occidental Petroleum, said at the conference that her company is in the process of expanding its Ingleside Terminal at Corpus Christi, Texas, to carry more crude overseas. "We started what we think is the premier export terminal on the Gulf Coast. We can export 250,000 barrels a day and intend to expand it to 750,000 barrels a day," she said. "We've looked at every single berth on the Gulf Coast, and we think there's enough [capacity]."