Rather than boon for Japan, U.S. shale oil is still rip-off | The Japan Times

The Obama administration has given in to that lobbying and permitted shale oil export. According to an American energy industry insider, the oil industry is intent on getting rid of excess inventories of shale oil by selling it to Japan “which is naive enough to buy high-priced oil obediently.”

The U.S. will be producing 3 million barrels of shale oil per day by 2017. A high-ranking official of Japan’s Ministry of Economy, Industry and Trade (METI) said the U.S. will be capable exporting 1 million barrels a day in 2015.

In Japan, not only oil refineries but also major trading firms have become interested in importing American shale oil, attracted by the fact that it is about $3 cheaper per barrel than crude oil from the Middle East.

If Japan could import 1 million barrels of American shale oil per day in the near future, that would account for nearly 30 percent of its total oil imports. If that becomes reality, Japan will no longer have to suck up to Middle Eastern oil suppliers, the METI official said.

However, the American oil industry appears to be pushing a shrewd strategy. The U.S. has been importing Middle Eastern oil at cheaper prices than Japan has been. Saudi Arabia adds a “Japan premium” to the price of oil it sells to Japan because it knows Japan, which is almost devoid of oil resources, is eager to buy higher-priced oil.

On the other hand, the Middle Eastern oil-supplying countries have to offer special discounts to the U.S. because the U.S., as the largest oil importer of the world, has easy access to crude oil from neighboring countries like Venezuela, which is rich in heavy crude petroleum as the Middle Eastern countries are.

So the U.S. is working toward a situation in which the U.S. buys low-priced crude oil from Saudi Arabia and other Middle Eastern countries, which would greatly benefit domestic consumers, while profiting big on exports of shale oil, already in excessive supply, to Japan at high prices.

As of June 2014, the price that Japan paid for Arabian light crude oil from Saudi Arabia was as high as $109.70 per barrel. The price consists of the average monthly spot price of Dubai crude oil, which is of lower quality than shale oil, plus the premium charged to Japan. Reliance on such high-priced Middle Eastern oil was the reason that Japan’s oil imports in 2013 were worth a whopping total exceeding $14 trillion.

In the U.S., shale oil is sold at about $90 per barrel. As they are not well- versed on the global oil-market situation, Japanese oil companies and consumers are naively pleased to buy American shale oil for $3 less per barrel than what they pay for crude oil from the Middle East. But they are paying nearly $20 more per barrel than the price at which shale oil is being sold within the U.S. domestic market.

Moreover, Dubai crude, whose price serves as the basis for determining the prices at which Japan buys imported oil, is quite vulnerable to crises and political tension in the Middle East.

Any heightening of geopolitical risk in the region could immediately push up the price for oil originating in Dubai, which in turn would give an excuse to American shale oil producers to raise the prices of shale oil exported to Japan.

Japan hopes to be able to import low-priced oil as a result of the slackening of the demand-supply ratio in the oil market caused by the shale gas revolution. But its hope may well prove to be completely off the mark.

Japanese businesses and consumers are likely to continue to purchase rather expensive oil products and to pay 2.5 times more for electricity than their American counterparts do. Therefore, Japan’s valuable national wealth will continue to drain.

It must not be forgotten that the U.S. behaves as if it’s all too ready to use even a close ally as a stepping stone to its own prosperity.

via Rather than boon for Japan, U.S. shale oil is still rip-off | The Japan Times.