The sharp increase in U.S. crude oil exports over the past couple of years is tied primarily to Texas ports — mostly Corpus Christi and the Houston Ship Channel. Louisiana, a distant second in the crude-exports race, has a long list of positive attributes, including the Louisiana Offshore Oil Port (LOOP) — the only U.S. port currently capable of fully loading the Very Large Crude Carriers that many international shippers favor. It also has mammoth crude storage, blending and distribution hubs at Clovelly (near the coast, connected to LOOP) and St. James (up the Mississippi). In addition, St. James is the trading center for benchmark Light Louisiana Sweet, a desirable blend for refiners. The catch is that almost all of the existing pipelines at Clovelly flow inland — away from LOOP — many of them north to St. James. That means infrastructure development is needed to reverse these flows southbound from St. James before LOOP can really take off as an export center. Today, we continue a blog series on Louisiana's changing focus toward the crude export market and the future of regional benchmark LLS.
As we said in Part 1, the focus of crude flows in Louisiana has traditionally been to serve local refineries and transport imported crude, offshore Gulf of Mexico production and other Gulf Coast-sourced crude north on the Capline pipeline to the Midwest. However, all that is changing. The 1.2-MMb/d Capline pipeline from St. James, LA, to Patoka, IL, has been running at only a small fraction of its capacity recently because U.S. shale production and Canadian pipeline imports now serve the Midwest refineries that used to rely on northbound Capline flows for feedstock. With Capline no longer needed to feed the Midwest, the pipeline’s co-owners Plains All American, Marathon Petroleum and BP are considering reversing the pipeline to potentially flow Canadian barrels south from Patoka to St. James as soon as 2022. Also, the LOOP Pipeline between the offshore port and the Clovelly hub has been rejiggered to allow southbound flows to LOOP, and LOOP — which since its start in 1981 had been an import-only facility — earlier this year loaded and sent out two fully loaded VLCCs to overseas destinations. There are a couple of important catches to all this, though. One is that even if Capline is reversed, export opportunities at St. James are constrained by a 500-Mbbl Aframax tanker size restriction and, as we said in our intro, many international shippers would prefer to use much larger vessels (like 2-MMbbl VLCCs). The other catch is that while LOOP is now configured to allow exports on VLCCs, the Clovelly hub (via the now-bidirectional LOOP Pipeline) is currently the only source of crude for exports out of LOOP — crude cannot flow south from St. James to Clovelly on the LOOP-to-Capline Pipeline (LOCAP).
Today, we’ll begin with a look at crude exports out of Louisiana. Figure 1 shows monthly crude exports from Gramercy, LA (close to St. James; blue bars), as well as New Orleans-area ports (red bars) and all other Louisiana ports (green bars) between January 2017 and March 2018. The U.S. Customs data shows Gramercy shipped a monthly average 80% of Louisiana crude exports during 2017, dropping to 39% during February and 25% during March 2018, when LOOP shipped its first VLCC export cargoes (included in the green-bar "other" column). However, the first two export cargoes out of LOOP were only test cases and it’s not clear when regular commercial shipments will begin — LOOP has said, “by the end of 2018.” Until exports out of LOOP become more commonplace, exports from St. James on Aframax and smaller vessels will probably continue until more domestic crude can be transported directly to LOOP by pipeline.