Asia soaking up US displaced oil
June 22 2014 12:28 AM
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Asia will be able to absorb increasing amounts of crude oil not needed by the US in the years ahead, providing an important outlet for oil suppliers in several regions

 

Dow Jones

Singapore

Asia will be able to absorb increasing amounts of crude oil not needed by the US in the years ahead, providing an important outlet for oil suppliers in several regions.

With new technology having unlocked vast quantities of North American crude and natural gas previously trapped in shale rock beds, oil suppliers accustomed to selling to the US are already having to search for new customers.

They are finding buyers in Asia-particularly China and India. Insufficient Asian reserves and relatively strong economic growth in parts of the region should ease worries among African, Latin American and even Middle Eastern oil producers that they might struggle, or have to offer deep discounts.

Producers of displaced oil for now can draw comfort from not having to compete internationally with shale oil, as the severe restrictions on US oil exports are unlikely to be eased any time soon

The International Energy Agency said on Tuesday that China’s gross crude-oil imports this year may overtake those of the US. The day before, BP’s Statistical Review of Energy said that in net imports, China surpassed the US last year, with seven million barrels a day.

Rising North American oil production will disrupt international crude trade flows for the rest of this decade, the IEA commented. “If the last five years seemed eventful for the oil market and industry, there is every reason to believe that the next five will be no less transformative,” it said, noting that by 2020, Asia’s imports will represent 65% of internationally traded crude, and that the region will absorb 27% of world oil output.

Between 2009 and 2013, deliveries of crude to the US from West Africa fell by more than half, to 635,000 barrels a day from 1.59mn barrels a day, and deliveries from Latin American fell to 1.69mn barrels a day from 2.35mn barrels a day, data from BP and other experts showed.

In the next three to four years, North American oil production will force out a total of 2.3mn barrels a day of seaborne oil that normally would have been imported from other countries, said Mark Chung, senior manager of energy analysis at Bentek Energy, a unit of McGraw Hill Financial. This is in addition to the 2.9mn barrels a day, or approximately 30% of US seaborne oil imports, that were displaced between 2010 and 2014.

Oil producers at the highest risk of being ousted from the US are West African countries, whose light crude is similar to that produced in North America. Also threatened are suppliers of heavy crudes from Latin America, which may be completely displaced by Canadian production growth by 2018, Chung said.

Even Middle East oil producers are having to give way, said David Wech, managing director of Vienna-based consulting firm JBC Energy, who said that some US buyers and Middle Eastern producers have agreed on lower volumes in recent talks.

US oil imports have fallen since 2009 to less than eight million barrels a day from about 10mn barrels a day, though deliveries from the Middle East are stable near two million barrels a day.

China and India so far have been the main buyers of oil displaced from the US, and also of Middle East crude diverted from economically struggling and contracting Japanese and European markets. Elsewhere, demand in major refining hub South Korea is near-stagnant but energy demand in Southeast Asia will rise by over 80% by 2035, equivalent to current demand in Japan, the IEA says.

“Since 2007, Africa’s light, sweet crude exports to Asia have increased and are expected to reach three million barrels a day by 2015,” said Victor Shum, president of oil consulting at IHS.

Latin American crude-notably, Venezuelan, Colombian and Mexican-now makes up a fifth of India’s imports, up from 7% five years ago, said Darshan Kumarsamy, oil analyst at Chennai-based Beroe Inc.

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