Let me start with this
With the United States of America increasingly becoming independent of its traditional suppliers of conventional crude oil, pundits aren’t all agreed on exactly what impacts –or the magnitude thereof– that this new found swagger would have on the global energy mix. There appears to be consensus on some matters however. A new world order is emerging and incumbent shot-callers face the threat of losing relevance. Africa’s energy giant Nigeria is by several (foreign) accounts faced with gloom in this regard, yet there’s some cold comfort in knowing that hamatan is also forecasted for hitherto cozier places.
As it was in the beginning
Not too long ago, America’s need to satiate its thirst for some 16 million barrels of imported crude oil every single day was a major driver for global economics and indeed politics. A BIMCO Market Analysis Report notes that back in 2005, the US consumed 20.8 million barrels per day (m/bpd) of crude oil and only managed domestic oil production of 5.2 m/bpd. Not a few people believe that wars have been fought and governments toppled for sake of securing America’s oil imports. However, this state of affairs also benefited many and helped shape to a large part, what we knew of the global oil market. Nigeria for one was shipping a whooping 1 m/bpd of her crude oil to the USA by 2009. Refiners in Europe along with products tanker owners –who ferried gasoline from Northwest Europe to America – were also doing brisk business at the time. As Simon Thorne of Platts EMA recalls, those were the days when “…Europe was regarded as the 51st state of gasoline production for the Americans”. It was a time when the TC2 – a shipping route that took gasoline out of European waters to America’s eastern seaports – was thought of as the very prime route for all of shipping. Those were, it now appears, the good old days.
The Game Changer
In 2012, the US cut it consumption of crude oil to 18.6 m/bpd while at the same time increasing local production to 6.5 m/bpd. The increase in production came majorly through the mining of hitherto unprofitable but abundant shale deposits in the country. At the expense of traditional imports by sea, imports of Canadian shale oil via pipelines were also the growth story. For decades, oil had been imported from overseas to the Gulf Coast of the US, then either refined there or moved elsewhere for processing. The country’s pipeline system was thus set up to move imported crude from south to north. Today however, booming U.S. oil production and declining imports mean oil now needs to move from north to south, sending signals to everyone that shale crude oil from the US was set to hit the international markets. In fact, presently, the usual price disparity between the Brent Light-Sweet Crude and America’s slightly more superior West Texas Intermediary Grade has eased; a first indication of sought of what the future holds for the world’s oils.
The Delicate Balance
As the world deplete its conventional and shallow deposits, foray into deeper and much more difficult territories mean that technology and prices have to keep in tow. Several experts believe that the balance of trade, technology and economics places a barrel of oil around the range of $80 - $100. Striped of the entire fuzzy math therefore, we are at that point in history when oil prices must be high and thus the reemergence of shale oil inevitable. “The era of cheap oil and gas is over says Kate Gordon, vice president and director of the Energy & Climate Program at Next Generation, a California USA based alternative energy and climate change advocacy organisation. “High oil prices are precisely the reason we're seeing so much drilling activity in what would otherwise be highly unprofitable areas: deep offshore, into hard shale, and in the tar sands” she concludes. Morgan Stanley analysts also think that the break-even point for Bakken (North Dakota) shale crude is about $70 per barrel, and that world crude oil prices under $85 could squeeze out unconventional producers. At the moment oil is averaging at $95 per barrel and has remained so for the past two years. At that rate, the USA can comfortably carry on with its shale mining while countries like Nigeria source for new markets and even brace up for competition from Uncle Ben.
The rich also cry
It isn’t only Nigeria that’s been hit hard by America’s shale revolution however. Anders Engholm, chief executive of Denmark’s product tanker operator Hafnia Tankers remarked to Lloyds List recently on how the shale boom is affecting products tankers trade in Western Europe. “The TC2 route has been shrinking he says”. “With the Americans taking less gasoline than in the heavy growth years three or four years ago, we feel that our business has changed.” The shrinking of the TC2 shipping trade route refers to a phenomenon attributable to increased products refining within the US, which itself is fuelled by the availability of locally source shale crude. The Shrinking volume of the TC2 route has resulted in an emergent trend of falling daily earnings for tanker owners. Competition among vessels has intensified for the fewer cargoes and owners are forced to accept lower rates in order to secure the business. According to the Baltic Exchange, daily earnings in 2008 averaged $22,577 for medium-range product tankers shipping 37,000-tonne cargoes of gasoline from northwest Europe to the US Atlantic coast. Earnings, though, plummeted to a daily average of $7,865 in 2009, went to $9,799 in 2010 and in 2011 averaged at $9,755. The fact that it costs around $7,600 per day to run a product tanker of 43,000 dwt shows how dangerously close these lower earnings are getting; a very real cause of concern for ship owners.
As it was in the beginning
Not too long ago, America’s need to satiate its thirst for some 16 million barrels of imported crude oil every single day was a major driver for global economics and indeed politics. A BIMCO Market Analysis Report notes that back in 2005, the US consumed 20.8 million barrels per day (m/bpd) of crude oil and only managed domestic oil production of 5.2 m/bpd. Not a few people believe that wars have been fought and governments toppled for sake of securing America’s oil imports. However, this state of affairs also benefited many and helped shape to a large part, what we knew of the global oil market. Nigeria for one was shipping a whooping 1 m/bpd of her crude oil to the USA by 2009. Refiners in Europe along with products tanker owners –who ferried gasoline from Northwest Europe to America – were also doing brisk business at the time. As Simon Thorne of Platts EMA recalls, those were the days when “…Europe was regarded as the 51st state of gasoline production for the Americans”. It was a time when the TC2 – a shipping route that took gasoline out of European waters to America’s eastern seaports – was thought of as the very prime route for all of shipping. Those were, it now appears, the good old days.
The Game Changer
In 2012, the US cut it consumption of crude oil to 18.6 m/bpd while at the same time increasing local production to 6.5 m/bpd. The increase in production came majorly through the mining of hitherto unprofitable but abundant shale deposits in the country. At the expense of traditional imports by sea, imports of Canadian shale oil via pipelines were also the growth story. For decades, oil had been imported from overseas to the Gulf Coast of the US, then either refined there or moved elsewhere for processing. The country’s pipeline system was thus set up to move imported crude from south to north. Today however, booming U.S. oil production and declining imports mean oil now needs to move from north to south, sending signals to everyone that shale crude oil from the US was set to hit the international markets. In fact, presently, the usual price disparity between the Brent Light-Sweet Crude and America’s slightly more superior West Texas Intermediary Grade has eased; a first indication of sought of what the future holds for the world’s oils.
The Delicate Balance
As the world deplete its conventional and shallow deposits, foray into deeper and much more difficult territories mean that technology and prices have to keep in tow. Several experts believe that the balance of trade, technology and economics places a barrel of oil around the range of $80 - $100. Striped of the entire fuzzy math therefore, we are at that point in history when oil prices must be high and thus the reemergence of shale oil inevitable. “The era of cheap oil and gas is over says Kate Gordon, vice president and director of the Energy & Climate Program at Next Generation, a California USA based alternative energy and climate change advocacy organisation. “High oil prices are precisely the reason we're seeing so much drilling activity in what would otherwise be highly unprofitable areas: deep offshore, into hard shale, and in the tar sands” she concludes. Morgan Stanley analysts also think that the break-even point for Bakken (North Dakota) shale crude is about $70 per barrel, and that world crude oil prices under $85 could squeeze out unconventional producers. At the moment oil is averaging at $95 per barrel and has remained so for the past two years. At that rate, the USA can comfortably carry on with its shale mining while countries like Nigeria source for new markets and even brace up for competition from Uncle Ben.
The rich also cry
It isn’t only Nigeria that’s been hit hard by America’s shale revolution however. Anders Engholm, chief executive of Denmark’s product tanker operator Hafnia Tankers remarked to Lloyds List recently on how the shale boom is affecting products tankers trade in Western Europe. “The TC2 route has been shrinking he says”. “With the Americans taking less gasoline than in the heavy growth years three or four years ago, we feel that our business has changed.” The shrinking of the TC2 shipping trade route refers to a phenomenon attributable to increased products refining within the US, which itself is fuelled by the availability of locally source shale crude. The Shrinking volume of the TC2 route has resulted in an emergent trend of falling daily earnings for tanker owners. Competition among vessels has intensified for the fewer cargoes and owners are forced to accept lower rates in order to secure the business. According to the Baltic Exchange, daily earnings in 2008 averaged $22,577 for medium-range product tankers shipping 37,000-tonne cargoes of gasoline from northwest Europe to the US Atlantic coast. Earnings, though, plummeted to a daily average of $7,865 in 2009, went to $9,799 in 2010 and in 2011 averaged at $9,755. The fact that it costs around $7,600 per day to run a product tanker of 43,000 dwt shows how dangerously close these lower earnings are getting; a very real cause of concern for ship owners.
