API reports oil production up, product demand down in 2011

US crude oil production rose 2.5% year-to-year in 2011 to an average 5.6 million b/d as petroleum product demand fell 1.2% to 18.9 million b/d, the American Petroleum Institute reported. Crude and petroleum product imports dropped 5.6% from their 2010 average to 11.1 million b/d, while product exports grew 25.5% to an average 3 million b/d, API said in its yearend statistics.

The figures suggested growing US exploration and production strength. Crude production during December, which averaged 5.5 million b/d, was 100,000 b/d below the full-year average, but still at an 8-year peak. Natural gas liquids production, which climbed 4% from 2010’s average to 2.2 million b/d in 2011, also increased year-to-year during December and the fourth quarter, API said.

“It’s a very exciting trend that shows how our industry has been able to respond with technologies to develop gas deposits which otherwise would not have been developed,” API Chief Economist John C. Felmy said during a Jan. 20 teleconference.

“Some of the movement has been to more liquids-rich areas like southwestern Pennsylvania and northeastern Ohio because liquids-rich gas is relatively more valuable than dry gas,” he told reporters. “Gas prices admittedly are down, but if the gas contains liquids which are more valuable, it helps offset the low price.”

API noted that the latest figures from Baker Hughes Inc. showed the total number of rigs drilling oil and gas wells domestically declined slightly from November to 2,003 in December, but remained above 2,000 for a third consecutive month.

Imports from Canada

Despite an overall 3.4% year-to-year decline in crude imports during 2011, supplies from Canada climbed 8.7% from 2010’s average to 2.1 million b/d, the statistics showed. Imports from all other sources, meanwhile, dropped 6.7% to an average 6.8 million b/d for the year. US crude stocks ended 2011 at 334.6 million bbl, 0.4% higher than a year earlier, API said.

While full-year demand, which API measures as total deliveries, fell from 2010’s average, the decline was heaviest in gasoline, where deliveries came down 2.1% to an average 8.8 million bbl in 2011. Distillate fuel demand climbed 3.2% year-to-year to an average 3.9 million b/d, with deliveries of distillate with less than 500 parts per million of sulfur increasing 5.3% to 3.5 million b/d.

Kerosene jet fuel demand modestly grew 0.7% to 1.4 million b/d, while deliveries of residual fuel oil plunged 16.4% to an average to 447,000 b/d as industrial customers turned more to natural gas because of its depressed price.

The 1.2% drop in overall deliveries from 2010 was the second largest full-year decline in the last 10 years, after 2008, according to API. It said that 2011’s largest monthly decline came in December, when deliveries fell 5.9% year-to-year to an average 18.6 million b/d, a 15-year-low.

Less product demand came as refiners produced record amounts of gasoline and distillate, putting pressure on their margins and resulting in more product exports, Felmy said. “Much has been made of gasoline exports, but we also export large amounts of other products, such as petroleum coke, which aren’t used much in this country,” he explained. “We have highly efficient refineries that are under economic stress because of record production and decreasing margins. Exports make sense for them.”

Contact Nick Snow at nicks@pennwell.com.

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