Oil production remains top of mind as domestic output surpasses 10 million barrels per day. As the 2020 Marine sulfur regulations creep ever closer, large marine players are discussing what methods they hope to adopt to meet new regulations.
US Oil Production Tops 10 Million Barrels per Day
The EIA reported this week that US monthly oil production broke 10 million barrels per day (mmbd) in November, the first time the US hit this mark in nearly 50 years. This is the latest headline in relation to continued growth in the US oil industry that are leading some market experts to believe that America will become the world’s leading oil producer in the next few years (the US is currently behind Saudi Arabia and Russia, both of which have frozen their oil production through 2018). According to Daniel Yergin, the vice chairman of IHS Markit, this may just be a stepping stone as “the US could add upwards of 2 million barrels a day (which would eclipse 12 million barrels in total production) by the end of 2019.”
So where is all this oil coming from? While headlines are filling with efforts to open up vast amounts of federal land for oil drilling, the bulk of the production growth is coming from a tried and true location in Texas called the Permian Basin. The Permian Basin currently produces 2.8 mmbd, which is roughly two mmbd more than the region produced a decade ago and growth of nearly one mmbd in the last two years. This level of production makes it the largest area of shale (or tight oil) production in the country. To further secure the future relevance of the Permian, Exxon Mobil announced it is tripling its investment in oil and gas production in the region by 2025. As long as the price of oil remains profitable for US oil companies, expect to see continuing US oil production growth.
Hesitancy for Scrubber Technology Remains Ahead of the 2020 Marine Sulfur Regulations
The 2020 Marine Sulfur regulations, which will require vessels to burn fuel oil with a maximum sulfur content of 0.5% on the open seas (down from 3.5% currently), are fast approaching. One method of compliance is to install scrubber technology, which would remove sulfur from the currently used higher sulfur fuels. This technology represents a higher investment in time and capital for marine shipping companies, and the indications from the industry are that adoption will not be signfiicant when 2020 arrives. Instead, major containership owners – like Maersk and Hapag-Lloyd – have noted that they will simply use cleaner, higher priced fuels to meet the new regulations instead of investing in scrubbers. This will almost certainly be passed on to customers through higher fuel surcharge costs or additional accessorials, creating the potential for marine fuel price distortions leading into 2020.
In addition, the use of cleaner fuels will draw product demand away from heavier marine fuels and towards lighter distillates that could create demand and price impacts for ultra-low sulfur diesel (ULSD). Therefore, the changes to the marine industry may very well impact the cost of ULSD to move goods to market.
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