Forecast growth in demand for U.S. petroleum and other liquids is not driven by transportation and not supplied by refineries
The U.S. Energy Information Administration’s (EIA) February Short-Term Energy Outlook (STEO) forecasts that in 2021, U.S. consumption (as measured by product supplied) of total petroleum and other liquid fuels will average 20.71 million barrels per day (b/d), surpassing the 2007 pre-recession level of 20.68 million b/d. However, the drivers of this consumption growth have changed. Since the 2007–09 recession, U.S. consumption growth has shifted toward liquid fuels that are used primarily outside the transportation sector and are supplied mostly from non-refinery sources. Despite this shift away from domestic demand for refinery-produced fuels, U.S. refinery runs have increased, and the excess products have been exported, greatly contributing to the United States becoming a net exporter of petroleum in September 2019. EIA expects these trends to continue for at least the next 10 years.
Hydrocarbon gas liquids (HGL) have been the main driver of U.S. petroleum and other liquids demand growth since 2007 (Figure 1). U.S. production and consumption of HGLs—a group of products that include ethane, propane, normal butane and isobutane, natural gasoline, and refinery olefins—have risen with increased natural gas production and demand from an expanding petrochemical sector. As a result, EIA forecasts U.S. HGL consumption will be 1.27 million b/d more in 2021 than in 2007, and will average 3.45 million b/d.
With the exception of jet fuel, EIA expects less U.S. consumption of refinery-produced products in 2021 than in 2007. Since 2007, increases in U.S. vehicle miles traveled, which normally increases total motor gasoline consumption, have been countered to some extent by increases in vehicle fuel efficiency. In addition, although U.S. total motor gasoline consumption exceeded 2007 levels for the first time in 2016, increased blending of ethanol into finished motor gasoline has displaced some of the petroleum-based, or refinery-produced, portion of gasoline consumption. Therefore, EIA forecasts 570,000 b/d less consumption of refinery-produced gasoline in the United States in 2021 than in 2007, while ethanol will be 0.5 million b/d higher. Ethanol is almost exclusively produced at non-petroleum refinery sites.
Some HGLs can be produced by both refineries and natural gas processing plants. Natural gas plant liquids (NGPLs)—a subset of HGLs that includes ethane, propane, normal butanes and isobutanes, and natural gasoline—can be extracted from natural gas production streams or produced at refineries that process crude oil. However, as U.S. natural gas production increased from 55.3 billion cubic feet per day (Bcf/d) in 2007 to 98.9 Bcf/d in 2019, the amount of HGLs extracted from natural gas production increased from 1.78 million b/d in 2007 to 4.83 million b/d in 2019. EIA expects HGL production from natural gas processing plants to continue to increase to 5.47 million b/d in 2021. Meanwhile, refinery HGL production has been flat at about 600,000 b/d (Figure 2).
Although HGLs have several different end uses, such as propane for space heating and normal butane for blending with motor gasoline, most of the growth in consumption stems from the use of HGLs as feedstock for petrochemical processes. The large increase in U.S. production of HGLs, and the resulting low prices, led to large investments in U.S. infrastructure to extract and transport HGLs to market, as well as investments in petrochemical facilities to consume it. Many of these facilities consume ethane, and to a lesser degree propane and normal butane, as feedstocks to produce intermediate building blocks for plastics, resins, and other materials with nonenergy uses. EIA forecasts that U.S. ethane consumption will reach 1.96 million b/d in 2021, up from 743,000 b/d in 2007, which represents 96% of the increase in U.S. HGL consumption between 2007 and 2021.
Removing HGL and ethanol consumption from the total demand for U.S. petroleum and other liquids indicates that EIA’s 2021 forecast U.S. demand for principally refinery-produced products is about 16.31 million b/d, on par with the 1997 level (Figure 3).
Despite domestic demand shifting away from traditionally refinery-produced products, U.S. refinery capacity has increased 1.7 million b/d between 2007 and 2019. U.S. refineries have adapted to falling domestic demand for certain products, such as residual fuel, by investing in downstream coking capacity to upgrade it into more valuable products. More importantly, international demand for refinery-produced products has increased since 2007, allowing U.S. refineries to increase runs and utilization beyond what the domestic market demanded to supply products to export markets. As a result, the United States became a net exporter on an annual basis of distillate and residual fuel in 2008, of jet fuel in 2011, and of motor gasoline in 2016.
Similarly, demand for HGLs outside of the United States has increased and caused U.S exports of HGLs to increase from 70,000 b/d in 2007 to 2.07 million b/d in November 2019. Between 2013 and 2016, exports of HGLs were the largest contributor to the increase in U.S. exports of petroleum products. U.S. exports of HGLs are mostly of propane and ethane to markets in Asia and Europe, where they are also displacing refinery-produced naphtha as a petrochemical feedstock.
EIA projects that these trends of increasing U.S. production of HGLs, increasing domestic consumption of HGLs, and increasing exports of HGLs will continue beyond 2021. EIA’s Annual Energy Outlook 2020 (AEO2020), released in January, shows projections for further growth in HGL production at natural gas processing plants from 4.91 million b/d in 2019 to a peak of 6.58 million b/d in 2029 and then slowly decline to 6.17 million b/d by 2050. Domestic consumption of HGLs will also increase, driven by continued petrochemical demand for feedstock, which rises from about 3.14 million b/d in 2019 to more than 4.0 million b/d in 2029. Meanwhile, in the AEO2020 Reference case, U.S. consumption of motor gasoline declines until 2042, distillate consumption declines until 2040, and residual fuel consumption continues declining out to 2050.
U.S. average regular gasoline prices rise, diesel prices decline
The U.S. average regular gasoline retail price increased nearly 1 cent from the previous week to $2.43 per gallon on February 17, 11 cents higher than the same time last year. The Midwest price rose nearly 5 cents to $2.31 per gallon. The Rocky Mountain price fell more than 3 cents to $2.47 per gallon, the West Coast price fell 1 cent to $3.14 per gallon, the East Coast price fell nearly 1 cent to $2.36 per gallon, and the Gulf Coast price declined by less than 1 cent to $2.08 per gallon.
The U.S. average diesel fuel price fell 2 cents from the previous week to $2.89 per gallon on February 17, 12 cents lower than a year ago. The Rocky Mountain price fell nearly 4 cents to $2.86 per gallon, the East Coast price fell more than 2 cents to $2.94 per gallon, the Midwest and Gulf Coast prices each fell nearly 2 cents to $2.76 per gallon and $2.66 per gallon, respectively, and the West Coast price fell more than 1 cent to $3.47 per gallon.
Residential heating oil prices increase, propane prices decrease
As of February 17, 2020, residential heating oil prices averaged more than $2.91 per gallon, almost 1 cent per gallon above last week’s price but more than 31 cents per gallon lower than last year’s price at this time. Wholesale heating oil prices averaged $1.80 per gallon, more than 5 cents per gallon above last week’s price but 34 cents per gallon lower than a year ago.
Residential propane prices averaged more than $1.98 per gallon, less than 1 cent per gallon below last week’s price and nearly 45 cents per gallon less than a year ago. Wholesale propane prices averaged more than $0.56 per gallon, more than 1 cent per gallon higher than last week’s price but almost 27 cents per gallon below last year’s price.
Propane/propylene inventories decline
U.S. propane/propylene stocks decreased by 3.0 million barrels last week to 74.3 million barrels as of February 14, 2020, 18.4 million barrels (32.9%) greater than the five-year (2015-19) average inventory levels for this same time of year. Midwest, Gulf Coast, East Coast, and Rocky Mountain/West Coast inventories decreased by 1.1 million barrels, 1.0 million barrels, 0.6 million barrels, and 0.4 million barrels, respectively. Propylene non-fuel-use inventories represented 7.5% of total propane/propylene inventories.
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In any war, there are winners and losers. Sometimes surprising ones. As the price war between friends-turned-foes Saudi Arabia and Russia rumbles on without any sign of a thaw or a possibility of halting without external intervention, oil producers globally are hurting badly as crude oil prices plunged by nearly 50% over less than a month. This will wreak havoc with the economies and budgets of many countries, particularly at a time when demand is extremely soft given the global Covid-19 pandemic. But in any war, there are opportunities for profit, and that has given a boost to a sector of the industry that had previously been suffering.
With the dramatic drop in prices, and a super-contango structure appearing in the crude oil price future curves, crude cargoes are available on cheap. Part of this buying is coming from entrenched buyers such as India (which took in some cargoes that were turned away by China in the early days of the Covid-19 pandemic). Part of this is coming from government purchases, to fill up strategic petroleum reserves in an effort to support domestic producers (although a US plan to do so was scuppered due to lack of federal funding). But most is this is coming from global oil traders, eager to cash in cheap oil by betting that prices will eventually have to rise somehow. Whether that is in a month, three months or longer, the traders are preparing for this.
The problem is storage. Where does one store millions of barrels of crude? Onshore storage is estimated at a practical upper limit of some 1.2 billion barrels of capacity; much of this is already utilised, with not much room to grow. And what room there is is becoming expensive.
Enter floating storage.
In 2008 during the Great Financial Crisis and again in 2015 when crude prices retreated dramatically, the same scenario presented itself. The solution then, as it is now, was to charter ships to serve as floating storage. Millions upon millions of crude oil barrels sat sloshing in the hulls of VLCC and other crude-carrying ships off the coast of Singapore, Fujairah, the US Gulf and Guangzhou in 2009, waiting for traders to assess an opportune moment to seize a trade.
That is repeating itself now. At the start of March, VLCC charter rates hovered at around US$40,000 per day for delivery from the Middle East to China. As charter rates go, that’s not that bad, and certainly far better than rates of less than US$10,000 day in mid-2019 that caused a world of pain to the oil shipping industry. At the dramatic about-face in Vienna when the OPEC+ alliance splintered, VLCC charter rates jumped up to US$190,000 per day as the price for Brent dropped 30% in a single day. Charter rates continued to spike, up to a peak of US$275,000 per day, as it became very apparent that Saudi Arabia and Russia were engaging in more than just a game of brinkmanship. Prices did calm down, after the initial rush of bookings, but have started to rise again as Brent drifts dangerously close to the US$25/b mark.
Reports suggest that since the price war began, more than three dozen supertanker bookings have been made by the world’s largest oil traders, including Vitol, Shell and Litasco. The largest of them all, Glencore has chartered Europe, one of the world’s two ULCCs (Ultra Large Crude Carriers) that can store 3 million barrels of oil for an indefinite period. The traders are also competing with an unlikely party: Saudi Arabia and its allies that sparked a bidding war for supertankers in a bid to flood the market. That this is happening against a backdrop of weak demand is, frankly, ridiculous. But that is what is happening now, and expect it to go on with Russia entering the fray. While all this drama plays out, the real immediate winners are shipowners. While the traders are betting on the possibility of a profitable trade in the future, shipowners are making profits hand over fist now with the bookings, a great change after terrible 2019 when shipowners were gloomily talking about decommissioning tankers.
How long will this last? It is anyone’s guess. There are two main variables: the length of the oil price war and the length of the Covid-19 pandemic. The most optimistic scenario points to things returning to relative normality by July 2020; the worst could see the depression continuing into 2021. But, as they say, there is no time like the present. And shipowners are now happy to keep their supertanker bellies full of oil and money in the bank, even if those ship remain anchored and that oil is going nowhere soon.
Recent VLCC Freight Rates
As Saudi Arabia and Russia dig in their heels and prepare for extended trench warfare over oil prices, the important questions now are: how long will this last, and what (or who) can bring these friends-turned-foes back to the negotiation table? China is the major buyer of crude from both countries, but with little production of its own, should be relishing in lower oil prices, particularly as it plots a potential recovery from the Covid-19 pandemic. That leaves the USA.
To say the US has a vested interest in where oil prices are is an understatement. The country, after all, has a major oil production industry and has recently become the largest producer in the world. Prices at US$50-60/b were perfect. Anything above that risked higher fuel prices causing demand disappearance; anything lower than that risked putting American drillers – particularly in the prolific shale patch – out of business. Which is why President Donald Trump embarked on a campaign of sanction threats and fiery rhetoric when crude rose above US$70/b last year. And also why the US oil industry is urging an intervention as WTI crashes to nearly US$20/b. At risk is not just the health of the US oil industry, but the very life of the shale patch.
There are various options available to Trump when he intervenes. Trump said that he would only get involved in the price war ‘at the appropriate time’, noting that low gasoline prices were good for US consumers. This suggests that he values the positive effects of low oil prices on the wider economy, perhaps noting that the oil industry will still remain a solid electorate base for him in November 2020 come what may. But with no sign that Russia or Saudi Arabia are open to new talks, Trump has to do something at some point.
Some new policies have been put in place. Instead of selling barrels from the US strategic petroleum reserves, adopted when the global supply/demand dynamics were much, much different – the White House now wants to fill those coffers to the brim, buying as much as US$3 billion from US independents to shore up the industry. But that’s only a temporary balm; if the price war rolls on for too long, those US independents will either go out of business or be forced to continue pumping to pay the bills. Either way, this won’t achieve much.
The next weapon is diplomacy. There is already happening, with the US Senate reaching out to the Saudi Ambassador to seek ‘clarity’. Diplomacy is likely to be taken with Saudi Arabia and its Middle Eastern allies, as a more combative approach could jeopardise geopolitical alliances. However, when cajoling, the US will also have to put something on the table. Saudi Arabia’s ultimate goal is to have steady oil prices at a level acceptable to all (or most); since Russia isn’t cooperating but the US may want to, then it must shoulder some burden as well. Imposing a national quota in the US, however, is pure anathema, although the Texas state oil regulator has already suggested introducing production curbs. President Donald Trump said on Thursday, 2nd of April that he expected Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman to announce a deal to cut production by up to 15 million barrels, and that he had spoken to both countries’ leaders.
The much anticipated virtual meeting between OPEC and its allies scheduled for 6th of April has been postponed, as reported by CNBC, amid mounting tensions between Saudi Arabia and Russia. The meeting will now “likely” be held on Thursday, 9th April, sources said. "The delay is likely to hit oil prices next week following a record-setting comeback week for crude. U.S. oil surged 25% on Thursday for its best day on record, and gained another 12% on Friday. It finished the week with a 32% surge, breaking a 5-week losing streak and posting its best weekly performance ever, back to the contract’s inception in 1983."
The other more potent weapon is sanctions. This has worked well, at least from the perspective of the policy’s goal, but certainly not in humanitarian terms in Iran and Venezuela, where the exports of these OPEC members have shrunk dramatically. The US has already imposed sanctions on certain parts of the Russian energy machinery, notably to stop the Nordstream-2 LNG pipeline and is now reportedly considering pursuing a dual-pronged strategy of diplomacy with Saudi Arabia and sanctions on Russia. But what could this do? What would this even achieve? Russia hardly sells much oil to the US; its markets are in Europe, India and China. Imposing sanctions, especially at a time of a global crisis, risks it being completely ignored. Worse, this would make Russia even more determined to get back at the US by destroying the shale patch. With its deep pockets, it could very well do so.
The US is caught in a dilemma. Participating in a coordinated production alliance is unthinkable existentially, although stranger things have happened which leaves Trump with few weapons to participate in this price war. It could go on the offensive, and risk worsening the situation. It could exert diplomatic pressure, and risk that going nowhere. Or it could do what it has always done: prop up the industry but leave survival to the free-market, with the knowledge that in the cyclical world of oil, this bust will one day become a boom again.
Infographic: Top Three Crude Producers
Technology has indeed changed the way we think, act and react. Every activity we perform is directly or indirectly linked to technology one way or another. Like everything else, technology also has its pros and cons, depending on the way it is used. Since the advancement in cyberspace, scammers and hackers have started using advanced means to conduct fraud and cause damage to individuals as well as businesses online.
According to the Federal Trade Commission (FTC), 1.4 million cases of fraud were reported in 2018 and in 25% of the cases, people said they lost money. People reported losing $1.48 billion to fraudulent practices in 2018. This has caused considerable loss to individuals and businesses. Global regulatory authorities have introduced KYC and AML compliances that businesses and individuals are encouraged to follow. However, banks and financial institutions have to follow them under all circumstances.
KYC or Know Your Customer refers to the process where a business attains information about its customers to verify their identities. It is a complex, time-taking process and customers nowadays don’t have the time or resources to deal with the government, consulate, and embassy offices for their KYC procedures. However, due to technological advancement, the identity verification process has been automated through the use of artificial intelligence systems. These systems seamlessly increase the accuracy and effectiveness of the identity verification process while reducing time and human efforts.
The following methods are used to digitally authenticate identities nowadays:
The use of artificial intelligence systems to detect facial structure and features for verification purposes.
The use of artificial intelligence systems to detect the authenticity of various documents to prevent fraud.
The use of artificial intelligence technology to verify addresses from documents to minimize the threat of fraudsters.
The use of multi-step verification to enhance the protection of your accounts by adding another security layer, usually involving your mobile phone.
The use of pre-set handwritten user consent to onboard only legitimate individuals.
Digital Document Verification
Document verification is an important method to conduct KYC or verify the identity of an individual. The process involves the end-user verifying the authenticity of his/her documents. In banks, financial institutions and other formal set-ups, customers are required to verify their personal details through the display of government-issued documents. The artificial intelligence software checks whether the documents are genuine or have been forged. If the documents are real and authentic, the digital documentation verification is completed and vice versa.
There are four steps that are mainly involved in the digital document verification process. First, the user displays his/her identity documents in front of the device camera. Then the document is critically analyzed by artificial intelligence software to check its authenticity. Forged or edited documents are rejected by the software. The artificial intelligence system then extracts relevant information from the document using OCR technology. The information is sent to the back-office of the verification provider and analyzed by human representatives to further validate the authenticity. Then the results are sent to the business or individual asking for the verification. The whole process takes less than five minutes.
The document authentication process can detect both major and minor faults in the documents. It can detect errors and faults in forged documents, counterfeed documents, stolen documents, camouflage or hidden documents, replica documents and even compromised documents. The verification process can be done on a personal computer or a mobile device using a camera. Although only government-issued documents are used for the authentication process, the following are accepted by most verification providers:
Govt ID Cards
Illegal and fraudulent transactions have dangerous consequences for both individuals as well as businesses. Losses due to scams and frauds trickle down at every level and ultimately have negative consequences on the whole system. Therefore it is imperative to conduct proper customer verification and due diligence in order to minimize the risks of fraud. Digital documentation verification plays a key role in the KYC process.