Vladimir Putin’s fateful decision to invade Ukraine and the ongoing brutality have made Russia a pariah state to many leading hydrocarbon-consuming nations, which in turn has caused cuts in Russian crude oil production and exports. That raises a few important questions, chief among them the degree to which other producers — including the U.S. and the non-Russian members of OPEC+ –– can ramp up their production and displace Russian oil. U.S. output has been increasing recently, albeit only gradually, and production could rise much more quickly under the right circumstances. But if it does, would there be enough crude export capacity available along the Gulf Coast to handle, say, another 500 Mb/d or 1 MMb/d? In today’s RBN blog, we examine the ability of key U.S. export facilities to stage, load and ship out increasing volumes of oil.
Last week, the International Energy Agency (IEA) forecast that, on average, 1.5 MMb/d of Russian oil production will be shut in during April and double that amount — a staggering 3 MMb/d — may be offline in May. There are three primary drivers behind the decline, according to IEA: (1) more run cuts by Russian refiners as the economy there slows, (2) Russian storage capacity filling up and (3) more foreign buyers shunning Russian barrels. To many — including the U.S., Canada, the UK and Australia — the stuff is tainted, not in a physical sense but because Russian oil sales help to finance a disgusting, immoral war. The 27 member nations of the European Union (EU) feel the same way, and it was reported Thursday by The New York Times that EU officials are drafting an embargo under which they would quickly wean themselves off Russian oil too –– a challenging task, given what has become continental Europe’s heavy dependence on crude from the east.
It is too soon to know how this will all play out, but it would seem logical to expect that, for the global crude oil market to be restored to balance, the declines in Russian production and exports will need to be offset to a considerable degree by rising production in — and exports from — the handful of oil-producing countries able to ramp up their output and sales to foreign buyers. In recent weeks we have blogged extensively about related aspects of this same Russia-centric story. For example, in Help Is on Its Way and Baby, I Got It, we discussed the U.S.’s ability to help Europe replace piped-in Russian natural gas with U.S.-sourced LNG. In We’re Not Gonna Take It, we wrote about how U.S. refiners could replace Russian imports in their slates. Also, in I Can’t Go for That (No Can Do) we looked at why many U.S. producers have been slow to increase their crude oil output, and in I Want to Break Free we examined how the Biden administration’s planned release of up to 180 MMbbl from the Strategic Petroleum Reserve (SPR) may serve as (in President Biden’s words) “a wartime bridge to increase oil supply until production ramps up later this year,” a topic we also discussed in Road to Nowhere.
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