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US oil production surges; Japan traders see business

Publication Date : 22-08-2014

 

Advances in extraction technology have led to a major increase in petroleum production in the form of shale oil in the United States, boosting its status as a major oil producer and providing an economic shot in the arm to its oil-rich regions.

The US government has essentially relaxed measures banning petroleum exports that have been in place for about 40 years, and some are calling for the export ban to be lifted entirely, while Japanese trading companies are seeing business opportunities in such moves.

Dynamic

The western part of the US state of North Dakota is one of the main centers of shale oil production.

Oil rigs for breaking up bedrock dot pastures that stretch as far as the eye can see, accompanied by the noise of pumps moving up and down bringing oil up out of the ground.

Shale oil is named after the way oil is held in layers of bedrock shale. It is categorised as a light oil, which yields high percentages of gasoline and diesel.

In the United States, projects looking for shale oil, which comes with large profit margins, are replacing those seeking shale gas, which has seen its price decline due to oversupply.

Shale gas is often obtained during the extraction of shale oil, but recently many companies have been burning it off at the rig.

According to the North Dakota Petroleum Council, the state produced more than 300 million barrels of petroleum in 2013, seven times what was extracted in 2006.

Ron Ness, president of the council, said the rapid increase in production has led to a worker shortage, and cited wide-ranging spillover effects on industries such as transport and retail.

The US unemployment rate is about 6 percent, but North Dakota’s is only 2.7 per cent, the lowest in the nation. Average family incomes have risen about 20 per cent over the past 10 years.

A trucker who brings goods to the oilfields said he sold his house in Virginia and moved to North Dakota because he could make more money. He said he earns more than $100,000 a year.

Export nation

It appears the shale oil boom could transform the United States from a major petroleum importer into an exporting nation.

The United States produced about 5 million barrels of oil per day in 2008, a figure that is now at least 8 million barrels per day.

Accompanying this has been a decline in imports, from 10 million barrels a day in 2007 to less than 8 million barrels a day now.

The International Energy Agency has predicted the United States could become the world’s top oil producer in 2015.

The United States prohibits petroleum exports, except for some exceptions such as those to Canada, which are permitted by presidential order.

After the first oil crisis, the US government in 1975 passed the Energy Policy and Conversation Act, which basically banned oil exports.

However, with the United States’ oil reserves becoming excessively large, the American Petroleum Institute has pushed for the ban to be lifted.

A representative of the API said that opening the door to exports would promote investment in oil production and increase energy security.

Japan wants in

In June, the US government approved exports of super-light oil, which is relatively easy to refine, by two Texas oil companies, as long as certain conditions are fulfilled. White House Press Secretary Josh Earnest insisted that there had been no change in U.S. energy policy, though the market has viewed the move as a relaxation of the export ban.

Japan imports about 80 per cent of its petroleum from the Middle East.

“There would be big advantages to importing oil from America, since it would reduce [Japan’s] dependence on the geopolitically risky Middle East,” a top executive at a major trading firm said.

Indeed, Mitsui & Co. and Sumitomo Corp. are already taking part in shale oil development projects.

Removing the export ban would take a new presidential order or a major revision of the law.

It is unclear what effect lifting the ban would have on the price of oil, but if there is any indication it would increase gas prices, there could be resistance from US consumers, due to the nation’s deeply ingrained car culture.

 

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