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Energy Independence | US Efforts to Become a Sustainable Net Exporter

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Net Exporter: (n.) when a country exports more of a commodity than it imports.

News headlines and data from the Energy Information Administration (EIA) revealed the United States became a net exporter of oil and refined products for a one-week period at the end of November 2018. Becoming a net exporter was a welcomed achievement, since reducing the country’s reliance on foreign oil products has remained a focal point of American politicians and industry executives for decades. This instance was the first time US qualified as a net exporter since the Arab oil embargo of 1973. While this data point was just one snapshot in time, it could be a precursor to the US’s growing presence in the global trade discussion for years to come.

US Becomes a Net Exporter of Oil and Refined Products

The global economy continues to move in lockstep with the supply and demand fundamentals of the world’s arguably most indispensable commodity—crude oil. To that end, the US has emerged as a primary influencer of global oil market dynamics. The nation’s growing industry dominance contributes to overall global oil market advancement in terms of production—stemming from rapid growth in the US domestic shale industry beginning in 2005.  Innovative drilling technology and strategic efficiency gains support substantial increases in domestic production across the nation’s richest oil reserves, changing the narrative of America’s historic dependency on foreign oil products. This gradual change is incrementally preparing the US for a transition towards energy independence.

The enduring sustainability of shifting from net importer to net exporter—as shown by the above data from the US EIA—will largely depend on global market conditions and the overarching reality that the oil and refined product markets will continue to be global and interdependent. It is important to note that the transition from net importer to exporter does not mean the US will abandon its inflow of oil products from strategic trade partners, rather it is an indication of the nation’s international importance to the growing relevance of global energy trade.

Expanding the International Trade Footprint

The historic track record of the United States’ classification as a predominant oil importer was largely attributed to a near forty-year ban on crude exports that was scrapped by former US President Barack Obama at the end of 2015. Moreover, refined products like mainly gasoline and diesel accounted for the majority of petroleum exports out of the US until recently. Since the said drilling advancements became operational–especially in the Permian Basin of West Texas–the nation’s global rank in oil production has catapulted to the top of the list, and drastically facilitated the diversification of its export portfolio.

Refer to the map below for a high-level view of the United States’ 2018 trade network. The darkest regions indicate the top export destinations for US oil and refined products, with Mexico, Canada, Brazil, China, and Japan comprising the top five export markets, respectively.

Notable developments in the US shale industry and a relatively high-complexity refining network enable the US to support global supply. As a result, a substantial investment to construct adequate port infrastructure to export products – primarily in the US Gulf Coast – should aid the United States’ objective of remaining a net exporter, while limiting its future reliance on foreign products altogether. Advanced upstream and downstream oil and refined product resources competitively position the US as one of the world’s most valuable origins and destinations of product flows. Forecasted growth in domestic crude production and notable capital investment in the refining industry will likely reinforce the US’s rank as a global linchpin for crude oil and refined products.

While significant growth in export volume for the top five destination markets discussed above has emerged as of late, the rest of the world also benefits from the US’s advancements. Total US exports have expanded approximately 89 percent (see chart below) from the beginning of 2014 to January 2019.

This incremental growth is expected to continue, with forecasts from the EIA projecting the US to become a more consistent net exporter of oil products in 2020. In addition, implications of US production growth will likely penetrate the discussions of global oil conglomerates, increasing the likelihood that the Organization of Petroleum Exporting Countries+ (OPEC+) group will restrict its output to mitigate the production gains in the US and outweigh global demand. Furthermore, the unprecedented growth in US production – paired with the profound output from Russia and Saudi Arabia – has diminished the power of the OPEC cartel. The geopolitical magnate continues to influence the oil market’s trajectory, yet the “big three” producers mentioned above have surpassed OPEC as the oil environment’s most significant dictators.

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