America's oil production is booming. The country's crude oil output is on track to average 12.2 million barrels per day (BPD) this year, according to the U.S. Energy Information Agency (EIA). That's an increase of 1.2 million BPD from 2018's record output.
Because of that gusher of new supply, the country now rivals Saudi Arabia as the global oil kingpin. It even briefly overtook that nation as the leader in crude oil exports earlier this year. With more supply on the way and additional export infrastructure under construction, America is emerging as a dominant force in the oil market.
The new king of the hill
The International Energy Agency (IEA) recently released its monthly report on the oil market. The main theme was America's growing "energy dominance." The IEA noted that the country's oil exports to other nations rose above 3 million BPD during June. When added to the volume of refined products and other energy liquids it ships out, America exported nearly 9 million BPD that month. That allowed it to "briefly overtake Saudi Arabia as the world's top oil exporter," according to the IEA.
Saudi Arabia did quickly reclaim the lead as it shipped more oil in both July and August, though that's partially due to issues impacting America's ability to export crude, including the ongoing trade dispute with China and hurricane-related disruptions. However, its time at the top could be short-lived. That's because America's oil output is on track to grow by another 1 million BPD in 2020, according to the EIA. On top of that, it's quickly building out additional export infrastructure. It therefore appears poised to push Saudi Arabia aside as the world's top oil exporter in the coming years.
Building an oil export giant
American midstream companies are investing billions of dollars in building the infrastructure necessary to move more of the country's oil to global markets. One of the companies leading the way is midstream master limited partnership (MLP) Phillips 66 Partners (NYSE:PSXP). It's spearheading the development of the $2.7 billion Gray Oak Pipeline, which will transport up to 900,000 BPD from the fast-growing Permian Basin to the Gulf Coast. From there, the oil has access to several export terminals, including South Texas Gateway. Phillips 66 Partners is helping build that facility, which can export up to 800,000 BPD. The company expects to have Gray Oak online by the end of this year while the South Texas Gateway Terminal will be able to start exporting crude by the middle of next year.
Another leader in America's oil export boom is midstream MLP Enterprise Products Partners (NYSE:EPD). The company currently operates two oil pipelines that ship 820,000 BPD from the Permian to the Gulf Coast. It has an expansion under way, which will add another 450,000 BPD of oil shipping capacity by the third quarter of next year. In addition to that, it's developing the Sea Port Oil Terminal (SPOT), which is an offshore export facility it wants to build off the coast of Texas. Enterprise signed a long-term agreement with oil giant Chevron (NYSE:CVX) to support the 2 million BPD SPOT project. As such, it will give Chevron the flexibility to export its fast-growing Permian Basin oil output.
Meanwhile, refining giant Marathon Petroleum (NYSE:MPC) is an investor in both the Gray Oak Pipeline and South Texas Gateway projects. On top of that, it controls midstream MLP MPLX (NYSE:MPLX), which is also investing heavily in building export-related infrastructure. That company recently agreed to invest in ExxonMobil's (NYSE:XOM) Wink-to-Webster pipeline. The project will ship as much as 1 million BPD from the Permian to the U.S. Gulf Coast when it comes online in 2021. It's crucial to getting Exxon's growing crude supplies to both its refineries along the coast as well as global export markets. MPLX also recently bought the Mt. Airy Export Terminal in Louisiana. It's currently adding a second dock capable of exporting another 120,000 BPD from that facility.
These investments should drive significant earnings growth for these midstream-focused companies in the coming years. That's because they've all signed long-term, fee-based contracts with customers to ship their oil on this new infrastructure.
Lots of opportunities to profit from America's growing export dominance
On one hand, America's oil gusher has been putting downward pressure on oil prices, which is reducing the profitability of oil-producing companies. Their stocks haven't been good investments in recent years.
Midstream companies, on the other hand, could be big winners because they charge a fixed fee as volumes flow through their assets. That enables them to generate steadier cash flow, a growing portion of which they send back to investors via dividends. That's why investors interested in America's oil export boom should take a closer look at companies like Phillips 66 Partners, Enterprise Products Partners, and MPLX.