Canadian Refiners Set to Buy More U.S. Oil With Wider Discount
By Robert Tuttle, March 18, 2015 4:14 PM PDT
(Bloomberg) — Cheaper North American oil is poised to replace West African and Middle East cargoes at eastern Canadian refineries with U.S. crude prices at the lowest level compared with the international benchmark in 14 months.
Imports to Canada from outside North America averaged 244,089 barrels a day this month through March 15, down 27 percent from a year earlier, according to New York-based ClipperData, which tracks tanker shipments.
Canada, the world’s fifth-largest oil supplier, produces most of its oil in the western province of Alberta and exports it south to the U.S. A lack of pipelines means Canada’s eastern refineries depend on imports by tanker and train.
U.S. export “volumes have been growing pretty exponentially,” Katherine Spector, a commodities strategist at CIBC World Markets Inc. in New York, said by phone Wednesday. U.S. oil is “going to Eastern Canadian refineries and displacing waterborne light crude.”
U.S. crude oil exports averaged 478,000 barrels a day the week ended March 13, up almost eightfold from a year earlier, preliminary data from the Energy Information Administration show. Canada, the only country that U.S. producers can export to without restrictions, receives the bulk of the shipments.
Oil has flowed north as West Texas Intermediate crude’s discount to Brent averaged $9.43 a barrel this month from $2.41 in January as U.S. stockpiles rose to a 458.5 million barrels, the most in decades.
The U.S. displaced Algeria in 2013 as Canada’s biggest source of imported oil and accounted for about half of imports in the first eight months of last year, the country’s National Energy Board said in a November report. The trend was driven by availability of tight oil from North Dakota as well as Texas, New Mexico and Colorado.
Bakken crude from North Dakota traded at about $40 a barrel today versus $55 for oil from West Africa, according to data compiled by Bloomberg.
“Especially with lower prices, a difference of a dollar or so in transport costs is significant,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone Wednesday. “If you can bring it in from the U.S. rather than West Africa, it’s a little closer and cheaper.”
Expanded rail capacity has linked U.S. oil producers with Canada, Spector said. The movement parallels the movement of Bakken crude to U.S. East Coast by rail, which cut the region’s imports of crude from Nigeria by half in two years and from Algeria by 81 percent, EIA data show.
“The maritime provinces of eastern Canada do resemble the U.S. East Coast in many ways,” Antoine Halff, head of the International Energy Agency’s oil industry and markets division, said in a March 18 phone interview. “When Bakken crude started being railed to the U.S. East Coast in significant quantities, it displaced imports from West Africa.”
U.S. lawmakers give preview of coming oil export fight
By Timothy Gardner, Dec 11, 2014
(Reuters) – U.S. lawmakers gave a preview on Thursday of a looming fight next year on lifting the ban on crude exports with supporters saying it would sustain the drilling boom and others questioning its impacts on industry and fuel prices.
In a House of Representatives hearing on the ban, Texas Republican Joe Barton said exporting oil would boost the economy, lower gas prices, and help give allies alternative oil supplies to Russia.
By some measures the United States is the world’s top oil producer and Barton said the country should use that power.
“When you’re number one, you use that status,” said Barton, who introduced a short, 1.5 page bill this week to lift the ban Congress passed in 1975 after the Arab oil embargo.
The U.S. drilling boom of the last five or six years has led to a glut of light crude many oil refiners, who paid dearly to retool plants to run heavy crude, are unable to easily process.
Barton’s fellow Republican, Lisa Murkowski, an Alaskan and the incoming Senate energy chairman, and Senator Heidi Heitkamp, a North Dakota Democrat, are big supporters of removing the ban. They face an uphill battle in both Houses of Congress in getting widespread support.
Many lawmakers from states with economies that are heavily dependent on energy are concerned they could see higher costs from U.S. oil exports. Barton’s fellow Republicans Representatives John Shimkus, and David McKinley of West Virginia, and Joseph Pitts of Pennsylvania, questioned the panel of oil market experts at the hearing on how industry would be affected by lifting the ban.
Pitts asked Adam Sieminski, head of the U.S. Energy Information Administration, if there was a guarantee lifting the ban would remove volatility in gasoline prices. Sieminski said there was a chance U.S. oil exports could cause global crude prices to rise temporarily if they caused unrest in an oil producing nation.
He stressed that U.S. gasoline prices are mostly based on global Brent crude prices, which many analysts say should fall in the long term if the U.S. ban is lifted.
Shimkus said he has “tons of questions” about removing the ban.
As pressure builds to lift the trade restriction, the U.S. Department of Commerce has told at least three companies that they can export a minimally-processed light crude called condensate.
Oil producers want the Obama administration to allow all condensate to be exported as a first step in removing the ban. There are no signs this will happen soon.
U.S. Trade Representative Michael Froman has said the administration is looking at the oil export issue but there have been no policy changes. Froman told CNBC on Thursday the domestic oil boom has helped draw more investment to the United States and made it “a place where companies want to put their factories both to serve the U.S. market but also to export (products) all over the world.”
Murkowski has said she will introduce legislation, perhaps next year, to lift the ban if the administration does not take action.
(Additional reporting by Krista Hughes; editing by Andrew Hay)
Oil Import Decline to U.S. Revealed by Louisiana as Truth
By Dan Murtaugh, Zain Shauk and Lynn Doan, Nov. 05, 2014
A four-decade ban on exporting most U.S. crude has stranded the bulk of America’s surging production within the nation’s borders, blocking inbound global shipments. Some cargoes permitted for export, such as those from Alaska, have begun moving overseas. South Korea last month received its first shipment of Alaskan oil in more than a decade. Photographer: Curtis Tate/MCT via Getty Images
Things are slowing down at the U.S.’s largest oil-import hub.
Just six years after importing more than 1 million barrels a day from countries including Saudi Arabia, Nigeria and Iraq, the Louisiana Offshore Oil Port is receiving just half of that from overseas, highlighting a nationwide trend at harbors from Mississippi to Pennsylvania. What’s more, with U.S. output soaring to a 31-year high, neighboring Texas has become the port’s second-biggest supplier.
“U.S. oil production has significantly changed the flows of oil around the world and LOOP is at the fulcrum,” Jamie Webster, head of global oil markets at IHS Inc., said by telephone from Washington Nov. 3. “We’re now essentially receiving nothing from Nigeria. This is a huge change. I’m an oil markets man and not an economist, but in general, this is a big stimulus” for the U.S.
Oil Prices
Booming oil and gas production created more than 159,000 jobs between 2007 and 2013, Bureau of Labor Statistics data show. The country will be self-sufficient in energy by 2030, BP Plc says.
A four-decade ban on exporting most U.S. crude has stranded the bulk of America’s surging production within the nation’s borders, blocking inbound global shipments. Some cargoes permitted for export, such as those from Alaska, have begun moving overseas. South Korea last month received its first shipment of Alaskan oil in more than a decade.
U.S. Consumers Benefit
Oil that the U.S. once imported now floods world markets, driving down prices 28 percent since June. That’s helped bring $3 gasoline back to U.S. pumps and provided what Citigroup Inc. describes as a $1.1 trillion boost to the global economy. Lower energy prices will translate into savings for Americans and will probably boost spending, said Amy Myers Jaffe, executive director of energy and sustainability at the University of California at Davis.
“It’s not just that people will have this benefit of lower gasoline prices, they’ll have this whole benefit of having a stronger U.S. economy and more jobs,” Myers Jaffe said.
Oil prices have maintained their decline as OPEC, the supplier of 40 percent of the world’s oil, resists pressure to curb production and help eliminate a global surplus. On Nov. 3, Saudi Arabian Oil Co. cut prices for all of its crude grades to the U.S., an e-mailed statement from the company showed.
WTI for December delivery rose $1.49 to settle at $78.68 a barrel on the New York Mercantile Exchange. Brent gained 13 cents to $82.95.
Lower Prices
A sustained stretch of low prices is unlikely to stop soaring output from major U.S. fields, with executives of oil companies including Continental Resources Inc. Chairman Harold Hamm and Occidental Petroleum Corp. Chief Executive Officer Stephen Chazen saying last month that production could be sustained even if prices fall lower.
“Oil prices are lower, but they’re not low enough to really put a big pinch on that activity,” said Ken Medlock, senior director of the Center for Energy Studies at Rice University’s Baker Institute in Houston. “You probably would need to see oil prices come off another $10 to $20 to see that fade.”
Horizontal drilling and hydraulic fracturing have drawn crude from previously inaccessible formations in Texas and North Dakota, propelling U.S. output to 8.97 million barrels a day, the highest level since 1983. Restrictions on exports have made U.S. oil cheaper than global crudes, so imports have fallen 31 percent since 2005 to 7.5 million barrels a day.
Supertanker Port
“Why is oil $80 instead of $95?” said David Hackett, president of Stillwater Associates LLC in Irvine, California. “All of a sudden all this oil is getting to the coast and pushing back world supplies.”
The shift is being felt 20 miles (32 kilometers) offshore in the Gulf of Mexico at the LOOP. Built in 1981, it’s the only U.S. port that can unload the world’s largest supertankers.
Shipments into the port peaked in 2005 at 1.18 million barrels a day, according to Louisiana state records. Imports have fallen to 510,000 barrels a day this year, and since May the port has received more oil from Texas than any country other than Saudi Arabia.
The U.S. Customs district in Morgan City, Louisiana, where the LOOP’s barrels are tallied, had 46 percent less petroleum import tonnage in September than the year before, according to Datamyne Inc.
Refining Profits
Morgan City has plenty of company. Philadelphia, home to the East Coast’s largest refining complex, had a 31 percent drop. Pascagoula, Mississippi, shipments declined 35 percent. Port Arthur, Texas, which brings in oil for some of the oldest refineries in the U.S., saw a 32 percent decline.
Returning to its roots, Exxon Mobil Corp. (XOM:US)’s Beaumont refinery is now processing more domestic crude. It imported 32,000 barrels of oil a day in July, down from around 220,000 in 2012. The refinery was built in 1903 by John D. Rockefeller’s Standard Oil Co. to process crude from the Spindletop gusher 4 miles away.
Third-quarter refining profit climbed to $1.02 billion from $592 million a year earlier, the Irving, Texas-based company reported (XOM:US) Oct. 31. That more than offset a $297 million decline in earnings from oil and gas production.
American refiners from Marathon Petroleum Corp. (MPC:US) to Phillips 66 have said in conference calls within the past week that they’re buying fewer expensive foreign crudes and more oil from the Bakken in North Dakota and Eagle Ford in Texas.
Domestic Crude
Instead of bringing in oil by ship, refiners have turned to pipelines and rail. Phillips 66 used 3,200 rail cars to get more of its crude from U.S. sources.
The company said 95 percent of its oil in the third quarter was either domestic or heavy oil priced below benchmarks. Phillips 66 will add 500 rail cars to its fleet by early next year, and expects to use only the less expensive crudes by the end of 2015, CEO Greg Garland said on an Oct. 29 conference call.
Back at LOOP, Terry Coleman, the port’s vice president for business development, said equipment has been reconfigured to accommodate smaller tankers and the shift in flows. On top of tanker unloadings and receipts from offshore drilling platforms, the company is now linked to an onshore pipeline operated by Royal Dutch Shell Plc, he said by phone yesterday.
“Given its size and its historical importance, LOOP is really the bellwether of the structural change that has taken place,” Darryl Anderson, managing director of Wave Point Consulting in Victoria, Canada, said by phone Nov. 3. “What it’s telling us is that there has been a fundamental change in U.S. energy sources.”
Regulators Ignore One Proven Way to Eliminate Bakken Bomb Trains: Oil Stabilization
Justin Mikulka, 2014-08-08
On the same day that the Obama administration released long-awaited new safety regulations for the oil-by-rail industry, the Pipeline and Hazardous Materials Safety Administration (PHMSA) released another report with their testing results for Bakken crude oil. The conclusion reached by PHMSA is that Bakken crude oil “is more volatile than most other types of crude.”
These results don’t come as a surprise since the five oil trains that have crashed and exploded in the last year all were carrying Bakken crude.
Of course, the new regulations released simultaneously do not require the oil industry to do the one thing that would eliminate this problem: oil stabilization. A well known and proven method for removing the natural gas liquids from crude oil that makes the oil “stable” and non-explosive.
While the new regulations do not offer any proposals to require the oil industry to remove the volatile components of Bakken crude, on page 144 of the proposal they do acknowledge that this is possible. They request comments on the following question:
Is the current exception for combustible liquids sufficient to incentivize producers to reduce the volatility of crude oil for continued use of existing tank cars?
Essentially they are acknowledging that if the industry stabilized the oil it wouldn’t be explosive and thus they would be able to continue to use the existing DOT-111 rail cars to transport it. Just like those tank cars will be able to transport Alberta tar sands oil because it is not explosive.
The week before the release of the new regulations, the American Petroleum Institute and the American Association of Railroads released a joint statement stating that they were in agreement on two things that shouldn’t be part of the finalized new regulations — lower train speeds and mandatory stabilization. And while the proposed regulations do offer some requirements for lower trains speeds, they include nothing about mandatory stabilization.
In May, Myron Goforth, the president of Dew Point Control LLC, a manufacturer of stabilization equipment put the situation in simple terms for Reuters.
“It’s very easy to stabilize the crude – it just takes money,” Goforth said. “The producer doesn’t want to pay for it if he can ship it without doing it.”
So without regulations to require the stabilization of Bakken crude, the public will be put at risk so that the oil companies can make higher profits. And with the new proposed regulations, the regulators have made it clear they will not stand in the way of Big Oil to keep the people safe.
The good news for the public is that Big Oil’s greed might actually lead to them having to stabilize Bakken crude.
There is currently a major lobbying effort by the oil industry to lift the ban on exporting American crude oil. And in order to ship the oil to other countries, the oil companies may be required to stabilize the Bakken crude. One industry analyst recently commented to Platts on what would happen if stabilization was required for export.
“You could stabilize and go. You’d still have to put it into rail cars and ship it to the coast, but at least you’d be selling it at a global market price instead of at the WTI discount. Who wouldn’t do that? Everybody would do it.”
On June 2nd Quantum Energy met with OIRA and presented a simple three-page presentation. The presentation explains how regular crude oil has a Reid Vapor Pressure (RVP) of 5-7 psi and Bakken crude has an RVP between 8-16 psi. To put that in perspective, gasoline typically has a RVP of 9 psi.
Higher RVP correlates to higher volatility and explosiveness.
The last slide in the Quantum presentation shows that “post stabilization” Bakken crude would have a RVP of 1.5 – 6 psi.
So why was an energy company arguing the case for stabilization to OIRA prior to the new regulations? Because they are in the stabilization business and they are getting ready for the export ban to be lifted.
“We’re not advocating if they do or if they don’t [require stabilization]. Quite frankly, we don’t care. Our business plan is centered around exportability.”
It appears that the safety of the people located within the blast zones of the bomb trains will not ultimately be addressed by regulators until the oil can be shipped to other countries, at which point they will require the oil to be stabilized to reduce the risk of explosions.
As the analyst said, “Who wouldn’t do that? Everybody would do it.”
Image credit: Lac-Megantic deadly oil-by-rail disaster, via Shutterstock.
