Crude Imports

Mexico’s state-owned Petróleos Mexicanos, the second-largest exporter of crude oil to the U.S. after Canada, said in late December that it will slash its export volumes in 2022 and eliminate them completely in 2023. The plan is premised on Pemex’s expectation that, with increased utilization of the company’s six existing refineries and the impending start-up of a new one, it will need every barrel of the Maya, Isthmus, Olmeca, and other varieties of oil it produces. While at first glance it may seem that Mexico phasing out exports of crude would pose a major challenge to some U.S. refineries, there’s good reason to believe that in reality it won’t. In fact, as we discuss in today’s RBN blog, there may be less to Pemex’s planned export phase-out than meets the eye.

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.

U.S. crude oil exports have averaged a staggering 1.6 MMb/d so far in 2018, up from 1.1 MMb/d in 2017, and the vast majority of these export volumes — 85% in 2017 — have been shipped out of Texas ports, with Louisiana a distant runner-up. The Pelican State has a number of positive attributes for crude exporting, though, including the Louisiana Offshore Oil Port (LOOP), the only port in the Lower 48 that can fully load the 2-MMbbl Very Large Crude Carriers (VLCCs) that many international shippers favor. It also has mammoth crude storage, blending and distribution hubs at Clovelly (near the coast and connected to LOOP) and St. James (up the Mississippi). In addition, St. James is the trading center for benchmark Light Louisiana Sweet (LLS), 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 consider Louisiana's changing focus toward the crude export market and the future of regional benchmark LLS.

Prior to 2012 the only U.S. produced crude delivered by pipeline to Houston area refineries came from offshore Gulf of Mexico or onshore Louisiana fields. The majority of supplies were imports delivered by waterborne tanker. But in just three short years between 2012 and 2015, roughly 2 MMb/d of crude pipeline capacity was built or repurposed to deliver surging light shale crude production and heavy crude from Canada into the Houston area. Refiners have adapted quickly to take advantage of new sources of supply. But with much of the newly minted infrastructure underutilized, midstream companies still need to improve pipeline connectivity and storage accessibility to overcome area logistical challenges. Today we review RBN’s latest Drill Down report on Houston crude infrastructure – released today -- and announce RBN’s new infrastructure database and mapping system, called MIDI.

Crude oil distribution to Houston area refineries is still being re-plumbed to reflect the ongoing transition to domestic supply. Although plenty of new pipelines provide access for new crude flows into Houston, logistic challenges arise from a crude quality mismatch with refinery configurations. The handling of condensate – whether lightly processed for export or refined in a splitter is also increasing infrastructure overhead. Today we look at new crude infrastructure challenges in the Houston area.

U.S refiners have been processing a lot of crude so far this summer and utilization rates remain high. Crude production has leveled off and is expected by the Energy Information Administration’s (EIA) Short Term Energy Outlook to decline slightly during the second half of 2015. But the early summer market sentiment that drove crude prices up to $60/Bbl on the back of these fundamentals appears to have lost steam. Today we conclude our analysis of short term crude price prospects.