In the first half of 2019, U.S. exports of crude oil increased to average 2.9 million barrels per day (b/d), an increase of 966,000 b/d from the first half of 2018. Also in the first half of 2019, U.S. crude oil exports set a new record-high monthly average of 3.2 million b/d in June 2019 (Figure 1). The number of U.S. crude oil export destinations also continued to grow, and now exceeds the number of U.S. crude oil import sources.
Asia was the largest regional destination for U.S. crude oil exports—1.3 million b/d in the first half of 2019—followed by destinations in Western Europe, which received 824,000 b/d. U.S. crude oil exports to North America, which almost exclusively go to Canada (the largest single destination for U.S. crude oil exports globally) did not change much from the first half of 2018 to the first half of 2019, averaging 458,000 b/d.
U.S. crude oil exports to Asia grew significantly in the first half of 2019, up 472,000 b/d (58%) compared with the same period in 2018, despite a large decrease in exports to China. U.S. crude oil exports to China in the first half of 2019 averaged 248,000 b/d (64%) less than the same period last year. This decrease largely reflects continuing trends from the second half of 2018 when U.S. crude oil exports to China decreased significantly.
Increased U.S. crude oil exports to other destinations in Asia offset the drop in volumes to China. U.S. crude oil exports to South Korea increased 278,000 b/d (246%), exports to India increased 154,000 b/d (114%), and exports to Taiwan increased 109,000 b/d (133%) in the first half of 2019 compared with the first half of 2018.
U.S. crude oil exports to Western Europe also increased 327,000 b/d (66%) during this time. First-half 2019 exports to the Netherlands increased 173,000 b/d (192%) and exports to the United Kingdom increased 74,000 b/d (53%) compared with first half 2018 (Figure 2).
As U.S. crude oil export volumes have increased, so have the number of export destinations. During first half of 2019, the number of U.S. crude oil export destinations surpassed the number of U.S. crude oil import sources. In 2009, the United States imported crude oil from an average of 35 sources each month. A decade later, in the first half of 2019, the average number of sources fell to 26. After the restrictions on exporting domestic crude oil were lifted at the end of 2015, the number of U.S. crude oil export destinations has increased to more than 30 as of the end of the first half of 2019 (Figure 3). Between January 2016 (the first full month of unrestricted U.S. crude oil exports) and June 2019, U.S. crude oil production has increased by 2.9 million b/d. During that same period, U.S. crude oil exports increased 2.7 million b/d, the equivalent of 98% of the absolute crude oil production increase.
Increasing U.S. crude oil production has both reduced crude oil imports and increased crude oil exports, but the reasons for changes in each are complex.
Fewer crude oil import sources is the result of increased U.S. production of light-sweet crude oils whereas most U.S. refineries are configured to process medium- to heavy- sour crude oils. The U.S. Energy Information Administration’s (EIA) report Technical Options for Processing Additional Light Tight Oil Volumes Within the United States, explains how U.S. refineries have accommodated much of the growth in U.S. crude oil production since 2010 with two limited- or no-investment-cost options: displacing imports of crude oil (primarily light crude oil, but also medium crude oil) from countries other than Canada and increasing refinery utilization rates. Displacing light crude oil imports has both reduced the volume of crude oil the United States imports and the number of sources.
The increase in the number of U.S. crude oil export destinations is the result of
National and international regulations increasingly limit the amount of sulfur present in transportation fuels. As global demand for heavy residual oils declines, many less complex refineries outside the United States, which can’t process and remove sulfur from heavy-sour crude oils, are processing more of the lighter and sweeter crude oils. To supply this increasing demand, U.S. port infrastructure along the U.S. Gulf Coast is expanding to accommodate increased crude oil tanker traffic and larger crude oil tankers loading for export. In addition, new and expanded pipelines are being built to transport crude oil from areas such as the Permian and Eagle Ford to the U.S. Gulf Coast.
U.S. average regular gasoline and diesel prices fall
The U.S. average regular gasoline retail price fell more than 1 cent from the previous week to $2.64 per gallon on September 30, 22 cents lower than the same time last year. The Midwest price fell by nearly 10 cents to $2.49 per gallon, the East Coast price fell by more than 3 cents to $2.51 per gallon, and the Gulf Coast price fell by nearly 3 cents to $2.33 per gallon. The West Coast price rose by 21 cents to $3.55 per gallon, and the Rock Mountain price increased by more than 1 cent to $2.71 per gallon.
The U.S. average diesel fuel price fell nearly 2 cents to $3.07 per gallon on September 30, 25 cents lower than a year ago. The Gulf Coast price fell by more than 3 cents to $2.83 per gallon, the East Coast price fell by nearly 2 cents to $3.07 per gallon, the West Coast and Midwest prices fell by nearly 1 cent, remaining at $3.65 per gallon and $2.99 per gallon, respectively, and the Rocky Mountain price fell less than 1 cent, remaining at $3.03 per gallon.
Propane/propylene inventories rise
U.S. propane/propylene stocks increased by 1.0 million barrels last week to 100.6 million barrels as of September 27, 2019, 13.0 million barrels (14.8%) greater than the five-year (2014-18) average inventory levels for this same time of year. Midwest, Gulf Coast, and East Coast inventories increased by 0.5 million barrels, 0.4 million barrels, and 0.2 million barrels, respectively. Rocky Mountain/West Coast inventories decreased by 0.1 million barrels. Propylene non-fuel-use inventories represented 4.3% of total propane/propylene inventories.
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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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