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Comin' to America, Part 2 - Shale, Oil-Sands Production Gains Impacting U.S. Refineries' Crude Slates

Ten years ago, East Coast refineries imported virtually all of the crude oil they needed — 60% from OPEC, 21% from Canada, and 19% from other non-OPEC countries. Only five years later, in 2015, the tables had turned. PADD 1 refinery demand for crude remained unchanged at 1.1 MMb/d, but only 14% of the oil refined there came from OPEC, 23% from Canada, and 21% from other non-OPEC countries — the other 42% was either railed in from the Bakken or shipped in from the Eagle Ford and Permian. But the changes didn’t end there. Imports rebounded sharply in 2016 and 2017, when new pipelines were built out of those basins that pulled barrels away from PADD 1 and into more competitive refining markets. In the fall of 2020, imports are falling back again but for a different reason — with COVID-19 demand destruction and other woes, East Coast refinery demand for oil is down by almost half, with more cuts on the way. Today, we continue a series on U.S. oil imports with a look at the East Coast.

If DraftKings had been around in 2010 and was taking bets on the energy sector, who among us would have wagered a week’s pay that U.S. crude oil production — then only 5.5 MMb/d — would more than double within 10 years or that the U.S. would become one of the world’s leading oil exporters? Or that oil imports, then averaging 9.2 MMb/d, would fall by almost one-third. (OK, maybe some of you are high-rollers.) But even with its production and export gains and falling import volumes, the U.S. remains a net importer, bringing in twice as much oil as it sends out, and U.S. refineries continue to demand large volumes of the heavier crude that’s produced in Canada, Mexico, and overseas.

As we said in Part 1, there is a regional angle to the oil import story. Back in 2010, about 58% of imported barrels of crude landed in PADD 3 (Gulf Coast), followed by 15% to PADD 2 (Midwest), 12% each to PADD 1 (East Coast) and PADD 5 (West Coast), and 3% to PADD 4 (Rockies). By 2019-20, not only had the total volume of imported oil dropped by 3 MMb/d (to 6.2 MMb/d), but big changes had occurred in where the imports were heading. In 2019 and the first seven months of 2020, imports to PADD 2 accounted for 38% of total imports, on average — two and a half times the Midwest’s share back in 2010. PADD 3’s share of total imports, in turn, had fallen by almost half, to 30%, and PADD 5’s share had increased to 18%. PADD 1’s slice slipped to 9%, and PADD 4’s rose to 5%. What’s behind the big changes? The big drivers were (1) increasing U.S. production of light crude oil from the Permian, Bakken, and other shale/tight-oil plays, and (2) rising output of low-API crude from the oil sands in Western Canada — that combination enabled refiners in most of the U.S. to ratchet down their imports of light foreign crude and heavy crude from non-Canadian sources.

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