Shell Seeks to Export U.S. Crude

Anglo-Dutch oil supermajor Royal Dutch Shell PLC (NYSE: RDS-A) (NYSE: RDS-B) is seeking permission from the U.S. Department of Commerce to export U.S.-produced crude oil. Under current law, such exports are prohibited without a special permit. BP PLC (NYSE: BP) has such a permit, which allows the company to ship U.S. crude to the company’s Canadian refinery.

Shell did not indicate how much crude it expected to export nor its destination, according to a report in The Wall Street Journal.

According to the U.S. Energy Information Administration, the United States exports just 41,000 barrels a day of crude, less than half of 1 percent of total U.S. exports. U.S. net imports for last week totaled 8.4 million barrels a day, and U.S. production totaled about 6.6 million barrels a day.

With production still well below imports, the stated political goal of reducing U.S. dependence on imported oil can hardly be aided by allowing more crude exports. In 2011, Shell produced 180,000 barrels of oil equivalent a day from its Gulf of Mexico operations, a little more than half of its total production in the U.S. Shell’s global production of oil and gas in 2011 averaged 3.2 million barrels of oil equivalent a day, so the U.S. accounts for about 10% of the company’s production.

Shell’s goal in seeking permission to export U.S. crude is almost certainly related to a desire to close the spread between the cost of U.S. crudes and Brent crude. The WTI-Brent spread today is about $22 a barrel and has been as high as $27 a barrel. The spread is even wider between Bakken crude and Brent.

Shell owns two Canadian refineries, one in Ontario and one in Alberta. If the company follows BP’s lead, it is likely to want to export crude from the Bakken shale play in North Dakota by pipeline or rail to Ontario. That would lower the cost of the company’s feedstock for the refinery and raise its margins. If that is Shell’s idea, it is reasonable to expect the permit to be granted. Any other export destination would surely be considerably more problematic.

Paul Ausick