US oil production from shale to increase opportunities for refiners

13 March 2012 01:56  [Source: ICIS news]

SAN DIEGO (ICIS)--The growing US shale activity and production has opened doors for the US refining sector with increased, cheaper domestic shale oil, or tight oil, production, an analyst said on Monday.

Oil prices are holding strong with Brent crude topping $120/bbl as a result of geopolitical issues, a surplus of refined products and the projection for US gasoline demand to hold flat, said Praveen Gunaseelan, an analyst/researcher with Vantage Point Advisors.

The surplus of refined products has led the US to be a net exporter of fuel, Gunaseelan said during his presentation at the annual meeting of the American Fuels and Petrochemical Manufacturers (AFPM) in San Diego.

He said the production of natural gas from shale oil started surging in 2008, causing a collapse in natural gas prices, which dropped to $2.30/MMBtu. On a measurement basis of British thermal units (Btu), the price of oil to natural gas ratio is over 50:1.

This has caused a shift by producers to wet gas and crude plays in shale basins, away from dry gas production, said Gunaseelan. Accordingly, there will be an increased growth rate for oil production from shale.

The Bakken, primarily in North Dakota, and Eagle Ford shale, in Texas, are the biggest producers of liquids, and other basins are emerging, Gunaseelan said.

Surging domestic oil supply has led to shrinking US oil imports, he said. In 2005, oil consumption was about 60% higher than domestic production, Gunaseelan added. This is projected to drop to 35% in the next decade.

With the abundance of domestic light crude from shale production, refineries will need to integrate the cheaper domestic supply into operations, said Gunaseelan.

Refineries need to evaluate treatment of the lighter crude and how it will affect product yields, said Gunaseelan. Despite the needed changes, the lower cost of the domestic oil will make the transition worth the work, he said.

Vantage Point Advisors offers professional, independent valuation and financial advisory services.

By: Sheena Martin
+1 713 525 2653

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