The Day Of Reckoning -- RBN Energy, August 25, 2014

Yesterday I made the comment:

I doubt legislators in Bismarck are really paying much attention to the Bakken. Not paying attention to something is how things take us by surprise. I have always been and remain inappropriately exuberant about the Bakken, but there are some realities.  

Today, RBN Energy has an essay on precisely what I was alluding to: the day of reckoning.

Last week RBN co-hosted the “Surviving the Flood” conference with Turner, Mason & Company in Houston. The major theme of the conference was the expected timing and likely impact of a “Day of Reckoning” for the US oil market that could come any time between 2015 and 2020 depending on critical factors influencing market dynamics. If and when the big day arrives, and if export rules don’t change and refinery hardware is not upgraded, Gulf Coast light Louisiana sweet (LLS) crude could be trading at a discount of $15-$20/Bbl to international light sweet benchmark Brent. Today we discuss the day of reckoning and its critical influencers.

The conclusion:

The Day of Reckoning could theoretically come as soon as next year (2015) if all of the factors we have described here do not work in favor of reducing US crude imports and increasing processing of domestic shale. The extent to which some or all of these factors improve the volume of domestic shale crude that US refineries process will delay that DOR – perhaps until after 2020. A significant change to the export rules to permit all crude exports is not expected by either RBN or TMC but it would of course be a game changer that would postpone the DOR for good. The positive news is that the oil industry is responding to the challenge and making progress in pushing back the DOR. We will continue to inform that debate.

Some data points North Dakota needs to keep in mind:

• there is a tsunami of light oil hitting the market; it already outstrips what refiners can handle
• North Dakota produces 12% of total US production
• North Dakota is producing 1 million bopd
• Texas is likely to increase its light oil production by another 1 million bopd by this time next year

An unchanging trajectory, the math -- actually arithmetic -- is easy.