Close analysis of Houston area crude storage indicates it is only 52% utilized today even as regional crude inventories have reached record levels. Meeting refinery operational needs appears to be the main use of area storage – rather than speculative gains from buying today’s cheap oil to store and sell later. Today we continue our analysis of Houston area refinery infrastructure.
If the flood of new crude arriving at the Gulf Coast during the first six months of 2014 overwhelms refiners in the region, then the pricing consequences may very well be quite radical. Could prices at the Gulf Coast flip to trade at a discount to West Texas Intermediate (WTI) crude delivered at the Cushing hub that is home to the CME NYMEX contract? Even if Gulf Coast crude retains its premium over WTI, deep discounts may be required to encourage refiners to process increasing quantities of light sweet crude. A downward spiral of crude prices could ensue. Today we lay out possible price scenarios.
If you add up the numbers since the start of 2012 just under 2 MMb/d of transport capacity has been added to bring crude into the Texas Gulf Coast refining region. In the next two years (2014 and 2015) we expect another 2.1 MMb/d of crude pipeline and rail transport capacity to be added. In total that is over 4.1 MMb/d of potential incoming crude – to a region with just under 3.7 MMb/d of nameplate refining capacity. Today we begin a series describing the incoming flood of crude and preparations being made to handle it.
Over the next three years seven Gulf Coast region terminal operators will build an estimated 19 MMBbl of new crude oil storage capacity. Those storage expansions are being made in preparation for as much as 3.1 MMb/d of new crude supplies expected into the Gulf Coast refining region over the next two years from new pipeline projects. Today we summarize the efforts that terminal operators are making to get ready for the flood.
