Since the lifting of oil export restrictions in 2015, the United States has become a major player in international trade in oil as well as in natural gas. The first half of 2023 saw U.S. exports of both commodities surging to new heights. In fact, over that period the United States surpassed Qatar and Australia to become the world’s top exporter of LNG, which accounts for the majority of natural gas exports. Rising domestic production along with growing worldwide demand and production cutbacks from Saudi Arabia and Russia gave U.S. exporters lots of opportunity.
In early October reports about one week apart, the U.S. Energy Information Administration (EIA) issued almost identical headlines about record exports—with “natural gas” on October 4, replaced with “crude oil” on the 10th. For natural gas, the EIA stated, “Natural gas exports averaged 20.4 billion cubic feet per day (Bcf/d), 4 percent (0.8 Bcf/d) more than in 1H22, according to our Natural Gas Monthly.” For crude oil, “U.S. crude oil exports in the first half of 2023 averaged 3.99 million barrels per day.” That was up 650,000 b/d, or 19 percent, from the same period in 2022.
The EIA points out that the United States still imports more oil than it exports, making it a net importer. Imports mostly come from neighbors in Canada and Mexico. Domestic exports went primarily to Europe (1.75 million b/d, with the Netherlands and UK leading that group) and Asia second (1.68 million b/d, mostly to China and South Korea). Canada, Africa, and the rest of the Americas were also on the list.
Aaron Brady, vice president, Energy Oil Market Services with S&P Global Commodity Insights, quantified the export numbers in an email interview, saying that the United States has exported about 4 million b/d of crude oil through September 30 this year. That number is up slightly from 2022’s equivalent time frame in which domestic exports were at about 3.575 million b/d.
On the other hand, the U.S. became a net natural gas exporter in 2017, for the first time in 60 years (1957 having been the last time), said the EIA, adding, “In May 2023, U.S. net natural gas exports as LNG and by pipeline averaged a monthly record of 13.6 Bcf/d.”
Coming and Going—Why the United States Both Imports and Exports Crude Oil
The reasons the United States both imports and exports crude has to do with the type of crude, the price of each, and which type most American refineries are built to process.
Since the shale revolution ramped up around 2010, oil production in the United States in general and the Permian Basin in particular have reached new heights. Most of that is light, sweet crude, as personified in the pricing standard of West Texas Intermediate (WTI). Many politicians touted this new production as bringing the nation closer to energy independence, lessening reliance on unstable Middle Eastern exporters. And that has been true to some extent.
But history pushes back against pure independence. Because U.S. oil production in the 1960s could not keep pace with rising demand based on Americans driving more miles than ever before, importing and refining heavy Middle Eastern oil became increasingly necessary. In spite of it being more expensive to refine, oil was cheap then (until 1973’s OPEC oil embargo) and refineries built out their heavy crude refining facilities. U.S. production peaked in 1970 before the early 2000s shale resurgence (see last month’s Peak Oil story).
So now there’s a dilemma. U.S. production, mostly of light, sweet crude, is now rising to levels far beyond refineries’ ability to process it economically. The EIA notes that some Gulf Coast refiners have indeed expanded their light, sweet crude oil processing capacity in recent years to accommodate the influx from the Permian and elsewhere. “However,” the EIA says, “for many refiners, particularly in the Midwest and along the Gulf Coast, refining discounted heavy, sour crude oil grades remains more profitable,” mainly because those heavy grades come at discounted prices compared to light, sweet.
What the United States has shipped out this year has been about 85 percent WTI quality, says Brady, and most of that originates in the Permian, “although some volumes could be blended barrels originating in Cushing.” The other 15 percent is largely Gulf of Mexico medium sour grades, totaling about 215,000 barrels through September 30, 2023. He adds, “There is also a modest stream of Bakken and Eagle Ford crude/condensate that gets exported,” and a small amount of Alaska North Slope (ANS) crude goes to markets in Asia.
Come Sail Away: Where Does U.S. Crude Go?
According to Brady, since 2022 Europe’s need to replace Russian oil has made it the biggest destination for U.S. crude. Asia is next in line, looking to U.S. crude for its high quality, and to “diversify away from Middle East crude.”
The OPEC+ supply cuts of 1 million b/d since June, 2023, have created a market for U.S. crude across the globe, and Asian facilities are among them.
Natural Gas Exports Are a Different Story
In the early 2000s, U.S. natural gas use in electricity generation was expanding as the nation began pivoting away from coal. But natural gas production, along with oil, had been dwindling for years. There was then talk of importing natural gas by pipeline from Mexico. From 2000 to 2004, U.S. imports of natural gas in all forms almost tripled. EIA data show that imports peaked in 2007, at 4.61 Tcf, as exports began to rise.
Then the shale revolution opened up extensive reserves in the Barnett Shale under Tarrant County and its neighbors, and the natural gas explosion was on. In 2000, says the EIA, U.S. production totaled just over 20.1 MMcf, dropping to 18.9 MMcf in 2005, its low point since the new millennium. By 2022, production had more than doubled, to more than 39 MMcf, to make the United States the world’s largest producer. Russia is number two and Qatar is number three. This also boosted production of natural gas liquids (NGLs), which are an additional part of the export mix.
In 2017 natural gas exports of all types (3.15 Tcf) first surpassed imports (3.03 Tcf), and have never looked back. And while imports dropped for several years, they’ve been on the upswing since 2020, reaching 3.02 Tcf in 2022. The EIA notes that 99 percent of imports come by pipeline from Canada, saying, “U.S. natural gas imports are generally highest in winter when imports help meet increases in natural gas demand for heating.”
Just as Europe is the top recipient of U.S. oil, they are also at the top of the natural gas list, for the same reason—replacing Russian supplies. Exports to the EU and UK rose in 2022, and those hikes came at the expense of Asia. Exports there dropped by 46 percent compared to 2021, according to EIA figures.
Natural gas traveling to Mexico goes by pipeline in its gaseous form, so it is significant but not counted in LNG figures. Darryl Rogers, VP-Fuels, Chemicals and Resource Solutions for S&P Global Commodity Insights, says those exports “are driven by rising domestic needs (including LNG exports) and insufficient domestic production (in Mexico). Currently cross-border [pipeline] capacity is more than enough.”
So Why Are We Still Importing Natural Gas?
While production is rising to record rates in 2023, so is domestic demand. Yet production for 2023, says the EIA, will average 102.69 bcf/d, while consumption is expected to average 89.73 bcf/d over the same period, so more is being produced than is needed. Rogers explains it this way:
“North America is contiguous and has onshore domestic fuel needs, and it makes sense to import and export freely across borders to meet ‘local demands.’ The regional buyers and sellers, for example in the Midwest [like Chicago] and the Northeast [New England], focus on fuel (natural gas, fuel oil, propane, and other sources) to meet these fuel requirements 24 hours per day 365 days per year. The fuel is needed for the basics, such as heating and cooking. Available low-cost and secure fuel supply and demand is seasonal, and therefore flexible systems need to match ratable supplies with seasonal demand. This also highlights the need for adequate inventory to manage both.”
NGLs Also
Natural gas liquids include substances like propane, butane, natural gasoline, and ethane. Some (propane and butane) are primarily used as fuels, although they’re also used as petrochemical feedstocks, while ethane is primarily the latter, Rogers says. Natural gasoline is a diluent, a petrochemical feedstock, and it can be blended into crude and light naphtha for export. Those are exported for several reasons, he said, the first of which is that the United States produces more than it needs of all of them.
Propane, butane, isobutene, and the like together are classified as liquefied petroleum gas (LPG). U.S. production of those has increased every year since 2018, Rogers said, and is expected to reach almost 1,191 MM bbl/yr for 2023. Exports of LPG to international markets for 2023 are expected to be 593 MMbbl/yr for this year. For 2023, the Permian Basin is expected to produce about 36 percent of the U.S. NGL total production. For ethane, the Permian’s percentage is estimated to be 43 percent of the U.S. total.
Rogers said the United States is the only international exporter of ethane “for the production of ethylene and downstream ethylene for derivatives.” U.S. production of this product “is expected to increase to almost 939 MM bbl/yr for 2023,” he said.
The import/export balance involves a complex ecosystem involving national interests, a variety of transportation systems, and the balance of supply and demand—all of which are subject to change and evolution.
By Paul Wiseman