Hess Corp. Chief Executive Officer John Hess believes that the U.S. will ultimately need to begin exporting domestic light crude in order to balance the feedstock for domestic heavy and light crude refineries.
In response to an analyst’s question at the Bank of America Merrill Lynch Global Energy Conference in Miami, Fla., on Nov. 21, Hess said the U.S. currently produces some 2 million barrels of unconventional oil per day, and that production, he believes, will likely, with reasonable assumptions, increase to 4 million bpd by 2020.
Hess said U.S. refineries have sufficient capacity to keep up with domestic production for a few years, assuming the U.S. can work out logistics of better rail unloading facilities on the East and West Coast refineries, but because many Gulf Coast refineries were built for heavy crude, the increasing output of domestic light crude may necessitate the need to export some of the country’s light crude and import more foreign heavy crude.
“Ultimately, I think this country has got, as part of its energy policy, to decide to allow exports of light crude and bring in heavy crude instead because a lot of the Gulf Coast refiners have built themselves for heavy crude. I don’t think there would any diminution of competitive advantage for the U.S.,” he said. “I think we would be probably optimizing our GDP, if we did it.”
But it is a political issue that needs to be addressed in Washington, D.C. The Commerce Department, Hess said, has the authority to allow crude exports but at the present time the department doesn’t allow crude exports. “And yet, we allow petroleum product exports with … no limitations and we’re also moving forward natural gas exports. So I think it’s a matter of time before that occurs, and I hope it does occur, because I think it’s in our national interest, but … the debate is just starting.”
Filling the global gap
Hess also believes that the 2 million barrels of unconventional oil that U.S. produces a day are keeping global oil prices stable. He said without that U.S. unconventional production, the global oil market would have about 2 million barrels per day in spare capacity which would drive up global oil prices.
“Supply in this country is increasing, so where people thought non-OPEC was maybe plateauing to decreasing, now it’s increasing. I think that’s good for the world,” Hess said. “If you think about it, with the Libyan production off about 1,200,000 barrels a day, curtailments in Iran for political reasons, Iraq as well, Saudi is producing probably between 10 million and 10.5 million barrels a day, maybe has 2 million barrels a day of spare capacity. Well, where would we be as a world, if you didn’t have the 2 million barrels a day being produced from shale oil in United States? You’d be out of spare capacity, and oil prices right now would be skyrocketing.”
Hess said in addition to helping the U.S. economy as well as the trade balance because of fewer imports, domestic unconventional oil production “is also helping the world, basically enhancing and strengthening and extending surplus capacity to deal with any other supply interruption.”
What does it all mean?
Hess said if Libyan and Iranian production come back up, domestic crude prices would be affected, but with the current instability in the Middle East, he doesn’t foresee that happening in the near future. In short, Hess said he believes crude oil prices “may have $10 downside, but I see them being supported below that level.”
—Mike Ellerd
