Easwaran Kanason

Co - founder of NrgEdge
Last Updated: December 30, 2018
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Business Trends

The crude oil markets were thrown into a tizzy recently when Bloomberg claimed that the USA had become a net oil exporter for the first time in 75 years. Some market observers pounced on the news, claiming that is was misleading and far from the truth. Others proclaimed it as a show of strength of the American oil industry.

Were both sides correct? Depends on how you interpret the numbers. So lets us break it down. 

Surging American production from prolific onshore shale fields have pushed US crude production to record highs, becoming the largest oil producer in the world, ahead of Saudi Arabia and Russia. For the last week of November 2018, the American Energy Information Administration (EIA) reported that US crude output hit a new high of 11.7 mmb/d, up almost 2 mmb/d year-on-year. That this number is surging is surprising to no one, but in the same report, the EIA also showed that the number of oil products supplied to the market – a proxy for crude oil consumption – as 20.5 mmb/d. That’s a gap of 8.8 mmb/d. Add in Other Supply of 6.9 mmb/d – which includes NGLs, fuel ethanol and also refinery processing gains when crude oil gets cracked into a larger amount of fuels – and the gap between oil supply and oil demand is still 1.9 mmb/d. The USA is by no means energy independent yet.

So was Bloomberg wrong? No, but it certainly was being slightly disingenuous. To achieve Bloomberg’s assertion, we have to look at net trade. For the same period, the USA managed to export 3.2 mmb/d  - a significant number considering that America’s crude oil export ban was only lifted in 2015 – but imported 7.2 mmb/d of crude. That’s a net import position of 4.0 mmb/d. On the products side, the US exported 5.8 mmb/d of finished products (including gasoline, naphtha, petrochemicals, ethanol and NGLs) while importing some 1.6 mmb/d. That’s a net export position of 4.2 mmb/d.

The comparison of those two net trade numbers could be construed that the US has became a net exporter of 0.2 mmb/d of crude and finished products for the week. This is actually the first time that this number has been in net export since the EIA began reporting in 1991, compared to 2005 when the net import position was at an all-time high of 14.4 mmb/d. But is it correct to conclude that the US is a net exporter of oil from this? Only from one mathematical perspective. For any other direction, the US is still a net importer of 4 mmb/d of crude oil or in a net deficit of oil supply by 1.9 mmb/d.

But misleading or not, though, this is still a major change from even 3 years ago, when the US was a net importer of 9 mmb/d of crude oil or had a net deficit of oil supply of almost 7 mmb/d. And if trends continue to hold, even those numbers could flip soon. Maybe not so soon, but by 2020, they could narrow even further and flip into surplus. Bloomberg’s headline might have been delusive, but the numbers are correct and the trends are clear – the headline is less an assertion and more of a prediction based on very concrete trends. 

EIA numbers as of 30 November 2018:

  • US crude oil production: 11.7 mmb/d
  • Other supply (NGLs, ethanol, processing gains): 6.9 mmb/d
  • US petroleum consumption: 20.5 mmb/d
  • Net deficit: 1.9 mmb/d

  • US crude oil imports: 7.2 mmb/d
  • US crude oil exports: 3.2 mmb/d
  • Net crude imports: 4.0 mmb/d

  • US finished products imports: 1.6 mmb/d
  • US finished products exports: 5.8 mmb/d
  • Net finished products exports: 4.2 mmb/d

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Royal Dutch Shell Poised To Become Just Shell

On 10 December 2021, if all goes to plan Royal Dutch Shell will become just Shell. The energy supermajor will move its headquarters from The Hague in The Netherlands to London, UK. At least three-quarters of the company’s shareholders must vote in favour of the change at the upcoming general meeting, which has been sold by Shell as a means of simplifying its corporate structure and better return value to shareholders, as well as be ‘better positioned to seize opportunities and play a leading role in the energy transition’. In doing so, it will no longer meet Dutch conditions for ‘royal’ designation, dropping a moniker that has defined the company through decades of evolution since 1907.

But why this and why now?

There is a complex web of reasons why, some internal and some external but the ultimate reason boils down to improving growth sustainability. Royal Dutch Shell was born through the merger of Shell Transport and Trading Company (based in the UK) and Royal Dutch (based in The Netherlands) in 1907, with both companies engaging in exploration activities ranging from seashells to crude oil. Unified across international borders, Royal Dutch Shell emerged as Europe’s answer to John D Rockefeller’s Standard Oil empire, as the race to exploit oil (and later natural gas) reserves spilled out over the world. Along the way, Royal Dutch Shell chalked up a number of achievements including establishing the iconic Brent field in the North Sea to striking the first commercial oil in Nigeria. Unlike Standard Oil which was dissolved into 34 smaller companies in 1911, Royal Dutch Shell remained intact, operating as two entities until 2005, when they were finally combined in a dual-nationality structure: incorporated in the UK, but residing in the Netherlands. This managed to satisfy the national claims both countries make on the supermajor, second only to ExxonMobil in revenue and profits but proved to be costly to maintain. In 2020, fellow Anglo-Dutch conglomerate Unilever also ditched its dual structure, opting to be based fully out of the City of London. In that sense, Shell is following the direction of the wind, as forces in its (soon to be former) home country turn sour.

There is a specific grievance that Royal Dutch Shell has with the Dutch government, the 15% dividend tax collected for Dutch-domiciled companies. It is the reason why Unilever abandoned Rotterdam and is now the reason why Shell is abandoning The Hague. And this point is particularly existentialist for Shell, since its share prices has been battered in recent years following the industry downturn since 2015, the global pandemic and being in the crosshairs of climate change activists as an emblem of why the world’s average temperatures are going haywire. The latter has already caused the largest Dutch state pension fund ABP to stop investing in fossil fuels, thereby divesting itself of Royal Dutch Shell. This was largely a symbolic move, but as religious figures will know, symbols themselves carry much power. To combat this, Shell has done two things. First, it has positioned itself to be at the forefront of energy transition, announcing ambitious emissions reductions plans in line with its European counterparts to become carbon neutral by 2050. Second, it is looking to bump up its dividend payouts after slashing them through the depths of the Covid-19 pandemic and accelerating share buybacks to remain the bluest of blue-chip stocks. But then, earlier this year, a Dutch court ruled that Shell’s emissions targets were ‘not ambitious enough’, ordering a stricter aim within a tighter timeframe. And the 15% dividend tax remains – even though Prime Minister Mark Rutte’s coalition government has been attempting to scrap it, with (it is presumed) some lobbying from Royal Dutch Shell and Unilever.

As simplistic it is to think that Shell is leaving for London believes the citizens of the Netherlands has turned its back on the company, the ultimate reason was the dividend tax. Reportedly, CEO Ben van Buerden called up Mark Rutte on Sunday informing him of the planned move. Rutte’s reaction, it is said was of dismay. And he embarked on a last-ditch effort to persuade Royal Dutch Shell to change its mind, by immediately lobbying his government’s coalition partners to back an abolition of the dividend tax. The reaction was perhaps not what he expected, with left-wing and green parties calling Shell’s threat ‘blackmail’. With democracy drawing a line, Shell decided to walk; or at least present an exit plan endorsed by its Board to be voted by shareholders. Many in the Netherlands see Shell’s exit and the loss of the moniker Royal Dutch – as a blow to national pride, especially since the country has been basking in the glow of expanded reputation as a result of post-Brexit migration of financial activities to Amsterdam from London. The UK, on the other hand, sees Shell’s decision and Unilever’s – as an endorsement of the country’s post-Brexit potential.

The move, if passed and in its initial stages, will be mainly structural, transferring the tax residence of Shell to London. Just ten top executives including van Buerden and CFO Jessica Uhl will be making the move to London. Three major arms – Projects and Technology, Global Upstream and Integrated Gas and Renewable Energies – will remain in The Hague. As will Shell’s massive physical reach on Dutch soil: the huge integrated refinery in Pernis, the biofuels hub in Rotterdam, the country’s first offshore wind farm and the mammoth Porthos carbon capture project that will funnel emissions from Rotterdam to be stored in empty North Sea gas fields. And Shell’s troubles with activists will still continue. British climate change activists are as, if not more aggressive as their Dutch counterpart, this being the country where Extinction Rebellion was born. Perhaps more of a threat is activist investor Third Point, which recently acquired a chunk of Shell shares and has been advocating splitting the company into two – a legacy business for fossil fuels and a futures-focused business for renewables.

So Shell’s business remains, even though its address has changed. In the grand scheme of things, never mind the small matter of Dutch national pride – Royal Dutch Shell’s roadmap to remain an investment icon and a major driver of energy transition will continue in its current form. This is a quibble about money or rather, tax – that will have little to no impact on Shell’s operations or on its ambitions. Royal Dutch Shell is poised to become just Shell. Different name and a different house, but the same contents. Unless, of course, Queen Elizabeth II decides to provide royal assent, in which case, Shell might one day become Royal British Shell.

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