Enterprise Product Partners LP is looking to sell a year’s supply of U.S. ultra-light oil to the global market, signaling another challenge for OPEC as it contends with the U.S. shale boom.
The company in Texas is offering to export 600,000 barrels a month of condensate from March, according to a tender document obtained by Bloomberg News. Enterprise received government approval in 2014 to ship the lightly processed oil from U.S. shale formations. Rick Rainey, a Houston-based spokesman, didn’t respond to calls or an e-mail seeking comment.
The Obama administration last month signaled that companies can legally export stabilized condensate without government approval, a move that Citigroup Inc. said may encourage shale drilling and thwart Saudi Arabia’s strategy to curb U.S. production. With American companies pumping at the fastest rate in more than three decades, members of the Organization of Petroleum Exporting Countries are maintaining output to defend market share.
“The supply situation for U.S. condensate won’t change dramatically,” Ken Hasegawa, an energy trading manager at Newedge Group in Tokyo, said by phone. “They will continue to bring more cargoes into Asia. There’s a comparatively bigger pool of buyers here.”
The U.S. produced 9.19 million barrels a day through Jan. 9, the most in weekly records dating back to January 1983, according to the Energy Information Administration. The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, or fracking, which has unlocked shale formations from Texas to North Dakota.
Export Guidelines
Condensate can be exported if it is run through a distillation tower, which boils off volatile gases from the oil, U.S. government guidelines published last month on the website of the Commerce Department’s Bureau of Industry and Security showed. That may boost supplies ready to be sold overseas to as much as 1 million barrels a day by the end of 2015, according to Citigroup.
While the guidelines were the first public explanation of steps companies can take to avoid violating export laws, they didn’t end the ban on most crude exports, which Congress adopted in 1975 in response to the Arab oil embargo. Lawmakers in Washington are trying to end a 40-year-old law that restricts overseas oil shipments to just a few markets.
Enterprise (EPD) began offering U.S. condensate shipments to overseas buyers last year after the company and Pioneer Natural Resources Co. received government approval for the sales. BHP Billiton Ltd. also sold supplies of the ultra-light oil.
Japanese traders Mitsui & Co. and Mitsubishi Corp., as well as South Korean refiner SK Innovation Co., have previously bought some of the cargoes offered from the U.S.
U.S. Growth
The U.S. exported a record amount of crude in November after a five-year run of production growth that has made the country the most oil-independent in 20 years. Shipments surged 34 percent to average 502,000 barrels a day, the most in records dating back to 1920, according to the U.S. Census Bureau and the Energy Information Administration.
“We’re still going to see growth in production in the U.S. in 2015 compared to last year,” Victor Shum, a Singapore-based vice president at IHS Inc., a consultant, said by phone. “Shale-related activities will not step down altogether. The U.S. will still have rising supplies looking for a market.”
OPEC will probably blink first in its battle with U.S. shale drillers, according to a quarterly survey of Bloomberg subscribers. Forty-nine percent of analysts, traders and investors polled said OPEC producers will have to reduce their production target for 2015 as U.S. shale drillers won’t scale back quickly enough. About 34 percent said shale drillers will cut output in time, while 17 percent were uncertain.
OPEC’s Secretary-General Abdalla El-Badri on Jan. 21 reaffirmed the group’s stance to stick to quotas. Producers outside of OPEC should be first to curtail their output, he said in an interview with Bloomberg Television at the World Economic Forum in Davos, Switzerland. Oil prices will rebound instead of extending declines to as low as $20, he said.