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The Globe and Mail

U.S. oil imports forecast to hit 45-year low next year

An oil well and storage tanks in Belfield, N.D., Sept. 3, 2011. As domestic production of light crude increases, demands to end oil export ban are growing.

Jim Wilson/The New York Times

The U.S. Energy Department expects oil imports to hit their lowest level since 1970 next year, a forecast that is adding fuel to demands for the Obama administration to end a prohibition on crude exports that has been in place since 1973 Arab oil embargo.

The U.S. Energy Information Administration forecast that, by the end of next year, imported oil will account for only 22 per cent of U.S. consumption, or about four million barrels a day.

Low imports underscore the abundant supply of domestic oil in the U.S., where the industry is straining to handle a surge in crude production and eager to send U.S. crude to attractive global markets where demand is stronger.

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Including ethanol and natural-gas liquids, the U.S. is now the leading producer of liquid fuels in the world, though it still lags Russia and Saudi Arabia in the supply of crude oil.

Canada now accounts for a third of U.S. imports at three million barrels a day.

While production of oil and crude-like natural gas liquids is booming in places such as North Dakota and Texas, the American appetite for oil appears to have plateaued. Gasoline demand was off 0.4 per cent in June, compared with June, 2013, the U.S. EIA reported Wednesday, as near-record prices put a damper on the summer "driving season," while crude inventors grew in what is normally a high-demand period.

Backed by powerful members of U.S. Congress from both Democratic and Republican parties, the oil industry has been lobbying aggressively to persuade President Barack Obama to permit U.S. crude exports for the first time in nearly 45 years. They won a small victory recently when the U.S. Commerce Department ruled it permissible to export minimally processed condensates – the very light hydrocarbons that are produced in great quantity from the booming shale oil fields.

The EIA sees U.S. crude production growing from 7.4 million barrels a day in 2013, to 9.3 million next year. Including ethanol and natural-gas liquids, production would be 11 million barrels a day in 2013, growing to 13.3 million in 2015. Saudi Arabia is now producing 9.5 milllion barrels a day of crude.

In the absence of exports, the industry fears a glut of the ultra-light crude will develop in the U.S. because many refineries that are configured to run heavier crude types – such as Canadian bitumen – have limited capacity to switch. However, if the surplus of light oil becomes excessive, the usual price differential between light and heavy grades will shrink dramatically.

At some point, refiners may decide to shut down their coking units that process heavy crude and simply run the abundant U.S. light oil, said economist Jim Williams, of WTRG Economics Inc.

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"I think what you're going to see over the next year or two is that some of the U.S. refiners will drop some of their front-end processing – like the cokers – so that they can run more of the light," Mr. Williams said. Royal Dutch Shell PLC has said it is considering shutting down a coker at its California refinery given the growing availability of domestic light crude.

The U.S. administration does appear willing to ease the restriction on exports, so long as it doesn't have to engage in a political battle that would be required to amend the law. The Commerce Department decision last month should open the door for more companies to export condensates, simply by issuing an interpretive ruling that decreed the oil-field liquids did not fall under the definition of "crude."

Despite a growing clamour from oil-state representatives, the Obama administration will move cautiously on the export issue, said Greg Priddy, Washington-based analyst with Eurasia Group, a political-risk consultancy.

"The price spreads [between international and domestic crudes] are not that wide, and there's not really a jobs argument yet in the sense that someone can argue we're slowing down upstream development and creating less employment," he said. "It's something we don't see as being a high priority for this administration."

Mr. Priddy said he expected the administration to make regulatory changes that don't require legislation to allow more condensate to be exported. Those would include a redefinition of condensates that are produced directly from the field to ensure they are not classified as crude.

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