Oilfield Magazine

Blog

US Crude Oil Export Ban Repeal Creates New Outlets for Canadian Tar Sands Crude

US Crude Oil Export Ban Repeal Creates New Outlets for Canadian Tar Sands Crude
February 03
21:23 2016

Oilpro
Article by Gabriel Collins

The recent repeal of the ban on exporting US domestic crude oil may catalyze the creation of a new “NAFTA Blend” heavy sour crude composed of light, low sulfur shale crudes such as Bakken blended with stranded and heavily discounted Canadian bitumen. This blend would mimics the refinery yield of Maya (Mexico) and Arab Heavy (Saudi Arabia). To give a sense of scale as to what volumes a new heavy, sour NAFTA Blend stream could compete with, by mid-2015, Iraq was loading approximately 1.2 million bpd of Basrah Heavy and in November 2015, Mexico exported 857 kbd of Maya.

Jefferson Energy blends a variety of crudes on the Gulf Coast and reports data showing that in a refinery, a blend of 34% Eagle Ford light shale crude and 66% raw bitumen from Canada yields a very similar distillation slate to Maya crude from Mexico or Arab Heavy from Saudi Arabia (Exhibit 1). The distillation characteristics of the Eagle Ford crude Jefferson tested are very similar to those for Bakken, suggesting that a similar blending opportunity may exist at ports in the Pacific Northwest or British Columbia as well if supporting infrastructure can be built.

enter image description here

Multiple deepwater ports with rail and/or pipeline access and crude-by-rail oil unloading facilities could potentially become shipment points for new US/Canadian crude blends: potential candidates include Vancouver, WA; Prince Rupert, BC; Corpus Christi; and Houston. This analysis focuses on the potential for NAFTA Blend exports from the US West Coast because they have the most favorable theoretical economics, as the maritime distance from Washington State to the high-complexity refineries in China, Japan, and South Korea is roughly half that of the trip from the US Gulf Coast to East Asia. The author acknowledges that the US Gulf Coast, despite its geographical disadvantage for exports into the Pacific Rim, has significant pre-existing infrastructure, and political/regulatory advantages that the US West Coast may not be able to match.

Economics

The author constructed a simple final delivered cost model to explore the potential economics of blending light US shale crude and Canadian raw bitumen and shipping it into the Asian market. The inputs are as follows:

  • Actual daily closing price data for Bakken crude at Clearbrook, MN as well as prices for Arab Heavy and Canadian bitumen;
  • Rail shipping costs of US $9.00/bbl for Bakken to the Washington coast come from Valero’s September 2015 investor presentation;
  • Shipping costs for bitumen come from economic estimates made during environmental impact analysis for the Keystone XL pipeline project;
  • Bitumen loading and unloading costs come from the Keystone study as well as PBF Energy;
  • For tanker shipping costs, the author uses $2.25/bbl for crude from the Middle East to Japan (assuming it is carried on a VLCC). Shipments from the Pacific Northwest into East Asia would likely use a smaller Suezmax vessel, at an average cost of $3.00/bbl.

To estimate a final delivered cost, the author added the total logistics costs to the market price series. For any day in which the total delivered cost to Japan of the Bakken/Bitumen blend would be cheaper than that of Arab Heavy, Exhibit 2 is shaded green.

enter image description here

Two preliminary insights emerge from this. First, for the differentials to be large enough to keep the trans-Pacific trading window open, prices need to be at or above $40/bbl. Absolute price matters because the dollar spread between shale crudes, stranded bitumen, and heavy foreign crudes must exceed dollar-denominated logistics costs. A $10 differential at $20 crude is a huge pricing disparity difference (50%), but if the logistics cost $11/bbl, the arbitrage window won’t open. If we return to an $80 to $100/bbl WTI world, the Pacific NW option looks much more attractive. Conversely, a $60 crude price world would likely favor the Gulf Coast since it already has necessary infrastructure for handling bitumen. The Gulf Coast also has the added benefit of a large local market for heavy crudes, giving traders greater optionality.

Second, the all-in logistics costs for moving a shale crude/bitumen blend into the Asian market from the Pacific Northwest will likely be competitive with moving that blend into the Atlantic Basin from facilities on the Gulf Coast. This stems from the reality that moving bitumen by pipeline in diluted form, or as diluted or neat bitumen by rail are significantly more expensive than transporting it to the Pacific Northwest ports.

However, if NIMBY concerns prevent the construction of steam-capable unloading and blending facilities in Washington state or Oregon, the concept by necessity would have to migrate to the Gulf Coast. If Pacific Northwest politics prevent the construction of steam-capable rail unloading facilities, the concept would have to look to the Gulf Coast to be most competitive and would then be targeting Atlantic markets instead. The Gulf Coast already has at last 230 kbd of steam-capable unloading capacity. Valero’s St. Charles refinery can offload 20 kbd of neat bitumen, while GT OmniPort near Beaumont, Texas, Arc Terminals near Mobile, Alabama, and Jefferson Transload Railport near Beaumont, Texas, each have at least 70 kbd of steam offloading capacity.   TO READ THE REST OF THIS ARTICLE ON OILPRO- CLICK HERE

Share

Related Articles

0 Comments

No Comments Yet!

There are no comments at the moment, do you want to add one?

Write a comment

Write a Comment

Like Us On Facebook

Skip to toolbar