Why a potential role for the US as oil production king needs an asterisk
The peak oil folks have been saying it for years, but now a Wall Street house is sending out a caution flag as well.
One of the arguments long made by followers of peak oil is that organizations such as the International Energy Agency count crude and natural gas liquids equally.So the world market of 89 million b/d of liquids contains mostly energy-intensive versatile hydrocarbons such as crude oil–versatile in the sense that they can be processed to make products that do everything from propelling cars to making carbon black–and a lesser amount of NGLs with a far more limited use.
So when the IEA came out with its widely covered announcement a few weeks ago that the US would be the world’s biggest oil producer in a few years, I was traveling and didn’t have immediate access to the report. But I didn’t need to see it to know that there was going to be a lot of NGLs in its calculation, and somebody would eventually point that out…somebody other than the peak oil folks.
Somebody has: the folks at Bernstein Research. The team headed by Bob Brackett last week put out a report entitled “All that is liquids is not oil, and cars can’t run on ethane.”
“We do agree that the US will likely become the world’s largest liquids producer for a short time,” the report said. “But the higher percentage of NGLs in the US’ liquids profile will almost certainly leave the US short of Saudi’s true crude oil production.”
The report continued: “On a total liquids basis, our 2015 forecasts imply near-record US liquids production vs. history; however, for crude oil it corresponds to levels last seen around 1990.”
There is the possibility of NGL substitution for some petroleum uses; the decline in naphtha input for petrochemical production is the most obvious example. But it’s limited, according to Bernstein. “(About) 70% of NGLs have zero ability to directly compete with crude oil/gasoline in the transportation sector,” the report said. “These NGLs could indirectly compete with crude via other end uses, but assuming one incremental barrel of total liquids production directly displaces one barrel of US crude imports is a fallacy, in our view.”
Even the replacement of ethane for naphtha in the production of ethylene has its drawbacks, as naphtha cracking produces a far broader range of byproducts that include propylene and butadiene than ethane. But with ethane at about 23 cts/gal (less than $10/b), and naphtha keyeing off $100+ Brent, ethane wins out.
But as the Bernstein report notes, as ethane elbows out naphtha in the feedstock wars, the value of those byproducts rises because their production declines, and suddenly the economics of naphtha don’t look at that bad. As a result, the study says, naphtha will always have a minimum share of the ethylene feedstocks market.
Obviously, anybody in the oil or petrochemical industry knows this. The issue is politics and the general public, according to Bernstein. “The IEA has historically used the term ‘oil’ to mean total liquids, but its assertion that the US will become the world’s largest ‘oil’ producer has very different implications vs. reality,” the report said. “Extrapolating one-for-one increases of total US liquids production to decreased US oil imports will understate future import needs.”
So pronouncements that don’t make the distinction between US crude production and US liquids production could create a public perception of US productive capacity that is not in sync with the preferred feedstocks for making fuels that power internal combustion engines.
(The percentage of US output that is liquids compared to OPEC is significant. For example, the IEA estimates total OPEC NGL production is about 6.5 million b/d, and estimates are that OPEC output is about 31 million b/d, so NGL output is a little more than 20% of OPEC crude output. By contrast, US liquids production, according to a study authored by Turner Mason & Co. and Platts subsidiary Bentek Energy, could hit 3.1 million b/d by 2016, and if US crude production by then is even 9 million b/d, it would mean that NGL output is 1/3 of US crude production. So the ratio in the US is very different than that found in OPEC as a whole.)
We discussed this at Platts a long time ago when putting together our stylebook. Some argued that the word “oil” should always be used to describe any of those 89 million barrels the world consumes each day. The other argument was that “petroleum” is a more accurate and broader term that takes in NGLs, since NGLs aren’t really oil; that’s the basis of the Bernstein study, and became the basis for our style.
So if ethane can only displace a limited amount of oil, and there’s only so much of it that can be used in the country, what about the export option? For all intents and purposes, it doesn’t exist. The export of ethane is expensive and technologically complex, involving refrigeration like LNG. The Energy Information Administration last recorded ethane exports in the mid-90′s. It isn’t impossible, though, and if the arbitrage gets wide enough, animal spirits could find a way.
Follow us and post your comments: in Twitter Facebook
John Kingston is Platts director of news. He oversees the news operations of Platts numerous editorial areas of coverage, including oil, natural gas, electric.energy. Petroleumworld does not necessarily share these views.
Editor's Note: This commentary was originally published on The Barrel, on Dec 11, 2012. Petroleumworld reprint this article in the interest of our readers.
All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld. All comments expressed are private comments and do not necessary reflect the view of this website. All comments are posted and published without liability to Petroleumworld.
Use Notice:This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of environmental and humanitarian significance. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml.
All works published by Petroleumworld are in accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.Petroleumworld has no affiliation whatsoever with the originator of this article nor is Petroleumworld endorsed or sponsored by the originator.
Petroleumworld encourages persons to reproduce, reprint, or broadcast Petroleumworld articles provided that any such reproduction identify the original source, http://www.petroleumworld.com or else and it is done within the fair use as provided for in section 107 of the US Copyright Law.
If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner. Internet web links to http://www.petroleumworld.com are appreciated
Petroleumworld News 12/12/2012
Follow us in Twitter
And post your comments in our Facebook site
Petroleumworld welcomes your feedback
and comments, share your thoughts on this article,
your feedback is important to us!
We invite all our readers to share with us their views and
comments about this article, write to email@example.com
Copyright© 1999-2010 Petroleumworld or respective author or news agency. All rights reserved.
We welcome the use of Petroleumworld™ stories by anyone provided it mentions Petroleumworld.com as the source. Other stories you have to get authorization by its authors
Send this story to a friend Any question or suggestions,
please write to: firstname.lastname@example.org
Best Viewed with IE 5.01+Windows NT 4.0, '95, '98, ME,
XP, Vista, W7 +/ 800x600 pixels