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Last Updated: February 13, 2018
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EIA projects that the United States will become a net energy exporter in 2022 in the newly released Annual Energy Outlook 2018 (AEO2018) Reference case, primarily driven by changes in petroleum and natural gas markets. The transition from net energy importer to net energy exporter occurs even earlier in some sensitivity cases that modify assumptions about oil prices or resource extraction. Sensitivity cases with less energy production project that the United States will remain a net energy importer through 2050.

The transition of the United States to a net energy exporter is fastest in the High Oil Price case, where higher crude oil prices lead to more oil and natural gas production and transition the United States into a net exporter by 2020. In that case, higher crude oil prices also result in higher petroleum product prices and lower consumption of petroleum products, driving decreases in net petroleum imports.

In the High Oil and Gas Resource and Technology case, with more favorable assumptions for geology and technological developments, the United States becomes a net exporter in 2020, and net exports increase through the end of the projection period. In cases with relatively low oil prices or less favorable assumptions for geology and technological developments, U.S. net energy trade still decreases, but the United States remains a net energy importer through 2050.

U.S. gross energy trade, as explained in the article text

Source: U.S. Energy Information Administration, Annual Energy Outlook 2018

In energy equivalent terms, the United States imported about 27 quadrillion British thermal units (quads) of energy in 2017 and exported 18 quads, which resulted in 9 quads of net imports. In 2017, the United States imported about 11 quads of petroleum and other liquids and exported 2 quads of coal and coal coke. U.S. natural gas trade in 2017 was nearly balanced between imports and exports, and net electricity trade with Canada and Mexico was relatively small. Petroleum and natural gas account for most of the changes EIA projects in U.S. energy trade.

U.S. net petroleum trade, as explained in the article text

Source: U.S. Energy Information Administration, Annual Energy Outlook 2018
Note: Petroleum net imports include crude oil, petroleum products, and natural gas plant liquids (NGPLs).

U.S. net petroleum trade—crude oil, petroleum products, and natural gas plant liquids—has fallen in recent years, reaching 3.8 million barrels per day (b/d) in 2017 based on data through November. In the AEO2018 Reference case, petroleum net imports are projected to decrease through 2035, as increasing production and decreasing domestic demand result in lower petroleum imports and more exports.

Net petroleum imports vary significantly across price and resource cases as domestic crude oil production shifts. By 2030, net petroleum trade ranges from exporting 5.3 million b/d in the High Oil Price case to importing 4.6 million b/d in the Low Oil Price case. Net petroleum exports in the High Oil and Gas Resource and Technology case grow throughout the projection period, ultimately reaching 8.5 million b/d by 2050.

U.S. net natural gas trade, as explained in the article text

Source: U.S. Energy Information Administration, Annual Energy Outlook 2018

The United States transitioned to a net exporter of natural gas in 2017, and all cases in the AEO2018 project the United States remains a net exporter of natural gas. Most of the differences between cases can be attributed to differences in projections for liquefied natural gas (LNG) trade as opposed to pipeline shipments of natural gas.

As LNG export facilities that are currently under construction are completed, LNG exports are projected to increase, especially to countries in Asia. After near-term increases in LNG exports, U.S. natural gas export growth is projected to slow as U.S.-sourced LNG becomes less competitive in world markets.

In the Reference case, net natural gas exports reach a high of 23 billion cubic feet per day (Bcf/d) in 2050. In the High Oil Price case, net natural gas exports reach a high of 37.4 Bcf/d by 2050. In the Low Oil and Gas Resource and Technology case, net natural gas exports begin to decrease in the mid-2020s, reaching 6.7 Bcf/d by 2050.

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Saudi Aramco Moves Into Russia’s Backyard

International expansions for Saudi Aramco – the largest oil company in the world – are not uncommon. But up to this point, those expansions have followed a certain logic: to create entrenched demand for Saudi crude in the world’s largest consuming markets. But Saudi champion’s latest expansion move defies, or perhaps, changes that logic, as Aramco returns to Europe. And not just any part of Europe, but Eastern Europe – an area of the world dominated by Russia – as Saudi Aramco acquires downstream assets from Poland’s PKN Orlen and signs quite a significant crude supply deal. How is this important? Let us examine.

First, the deal itself and its history. As part of the current Polish government’s plan to strengthen its national ‘crown jewels’ in line with its more nationalistic stance, state energy firm PKN Orlen announced plans to purchase its fellow Polish rival (and also state-owned) Grupa Lotos. The outright purchase fell afoul of EU anti-competition rules, which meant that PKN Orlen had to divest some Lotos assets in order to win approval of the deal. Some of the Lotos assets – including 417 fuel stations – are being sold to Hungary’s MOL, which will also sign a long-term fuel supply agreement with PKN Orlen for the newly-acquired sites, while PKN Orlen will gain fuel retail assets in Hungary and Slovakia as part of the deal. But, more interestingly, PKN Orlen has chosen to sell a 30% stake in the Lotos Gdansk refinery in Poland (with a crude processing capacity of 210,000 bd) to Saudi Aramco, alongside a stake in a fuel logistic subsidiary and jet fuel joint venture supply arrangement between Lotos and BP. In return, PKN Orlen will also sign a long-term contract to purchase between 200,000-337,000 b/d of crude from Aramco, which is an addition to the current contract for 100,000 b/d of Saudi crude that already exists. At a maximum, that figure will cover more than half of Poland’s crude oil requirements, but PKN Orlen has also said that it plans to direct some of that new supply to several of its other refineries elsewhere in Lithuania and the Czech Republic.

For Saudi Aramco, this is very interesting. While Aramco has always been a presence in Europe as a major crude supplier, its expansion plans over the past decade have been focused elsewhere. In the US, where it acquired full ownership of the Motiva joint venture from Shell in 2017. In doing so, it acquired control of Port Arthur, the largest refinery in North America, and has been on a petrochemicals-focused expansion since. In Asia, where Aramco has been busy creating significant nodes for its crude – in China, in India and in Malaysia (to serve the Southeast Asia and facilitate trade). And at home, where the focus has on expanding refining and petrochemical capacity, and strengthen its natural gas position. So this expansion in Europe – a mature market with a low ceiling for growth, even in Eastern Europe, is interesting. Why Poland, and not East or southern Africa? The answer seems fairly obvious: Russia.

The current era of relatively peaceful cooperation between Saudi Arabia and Russia in the oil sphere is recent. Very recent. It was not too long ago that Saudi Arabia and Russia were locked in a crude price war, which had devastating consequences, and ultimately led to the détente through OPEC+ that presaged an unprecedented supply control deal. That was through necessity, as the world faced the far ranging impact of the Covid-19 pandemic. But remove that lens of cooperation, and Saudi Arabia and Russia are actual rivals. With the current supply easing strategy through OPEC+ gradually coming to an end, this could remove the need for the that club (by say 2H 2022). And with Russia not being part of OPEC itself – where Saudi Arabia is the kingpin – cooperation is no longer necessary once the world returns to normality.

So the Polish deal is canny. In a statement, Aramco stated that ‘the investments will widen (our) presence in the European downstream sector and further expand (our) crude imports into Poland, which aligns with PKN Orlen’s strategy of diversifying its energy supplies’. Which hints at the other geopolitical aspect in play. Europe’s major reliance on Russia for its crude and natural gas has been a minefield – see the recent price chaos in the European natural gas markets – and countries that were formally under the Soviet sphere of influence have been trying to wean themselves off reliance from a politically unpredictable neighbour. Poland’s current disillusion with EU membership (at least from the ruling party) are well-documented, but its entanglement with Russia is existential. The Cold War is not more than 30 years gone.

For Saudi Aramco, the move aligns with its desire to optimise export sales from its Red Sea-facing terminals Yanbu, Jeddah, Shuqaiq and Rabigh, which have closer access to Europe through the Suez Canal. It is for the same reason that Aramco’s trading subsidiary ATC recently signed a deal with German refiner/trader Klesch Group for a 3-year supply of 110,000 b/d crude. It would seem that Saudi Arabia is anticipating an eventual end to the OPEC+ era of cooperative and a return to rivalry. And in a rivalry, that means having to make power moves. The PKN Orlen deal is a power move, since it brings Aramco squarely in Russia’s backyard, directly displacing Russian market share. Not just in Poland, but in other markets as well. And with a geopolitical situation that is fragile – see the recent tensions about Russian military build-up at the Ukrainian borders – that plays into Aramco’s hands. European sales make up only a fraction of the daily flotilla of Saudi crude to enters international markets, but even though European consumption is in structural decline, there are still volumes required.

How will Russia react? Politically, it is on the backfoot, but its entrenched positions in Europe allows it to hold plenty of sway. European reservations about the Putin administration and climate change goals do not detract from commercial reality that Europe needs energy now. The debate of the Nord Stream 2 pipeline is proof of that. Russian crude freed up from being directed to Eastern Europe means a surplus to sell elsewhere. Which means that Russia will be looking at deals with other countries and refiners, possibly in markets with Aramco is dominant. That level of tension won’t be seen for a while – these deals takes months and years to complete – but we can certainly expect that agitation to be reflected in upcoming OPEC+ discussions. The club recently endorsed another expected 400,000 b/d of supply easing for January. Reading the tea leaves – of which the PKN Orlen is one – makes it sound like there will not be much more cooperation beyond April, once the supply deal is anticipated to end.

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Market Outlook:

-       Crude price trading range: Brent – US$86-88/b, WTI – US$84-86/b

-       Crude oil benchmarks globally continue their gain streak for a fifth week, as the market bounces back from the lows seen in early December as the threat of the Omicron virus variant fades and signs point to tightening balances on strong consumption

-       This could set the stage for US$100/b oil by midyear – as predicted by several key analysts – as consumption rebounds ahead of summer travel and OPEC+ remains locked into its gradual consumption easing schedule 

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