Undeniably, rising crude oil exports in the U.S. have created favorable prospects for the midstream sector and refiners -- so much so that, according to Cynthia Walker, senior vice president of marketing and midstream operations and development for Occidental Petroleum Corp., now is "a fantastic time" to be in the U.S. energy business.
"The United States is going to be a dominant force not just in crude but in liquefied natural and petroleum gases and in chemicals, so anywhere you have the opportunity to get into the business, there is going to be opportunity," Walker said.
"If you look at the U.S. refining system, it is pretty much running about as much light, sweet crude, including the shale volumes, as those refineries were designed to run at current economics," said Aaron Brady, senior director, Energy for IHS Markit, joining Walker on a panel titled "The New U.S. Oil Export Powerhouse" at CERAWeek by IHS Markit, held recently in Houston.
"That means most of that incremental production, especially out of the Permian but also out of a lot of the basins, is going to move to the water for export for the foreseeable future," Brady said. "So all the incremental production pretty much goes to the export market."
Supplying Asia's demand
Brady noted as exports grow, he expects the U.S. will continue to export to Canada as well as Europe.
"Those are some of the basic markets, but those are not growth markets," he continued. "Asia is. That is sort of the obvious destination over time. In fact, it's already happening. That makes sense because that is where the demand growth is going to be. Also, the Asian production of light, sweet crude is in decline, so Asia's import needs are going up over time."
Walker agreed the demand is and will be in Asia.
"What we have seen in our activity early on is that Asia, and China in particular, has been very strategic about gaining access to U.S. crude and buying significant volumes," she said. "Europe, in our experience, in these early days has been a little less willing to change. But in the last few months of 2017, Europe became a bigger buyer. That would make more sense to us, given how much closer Europe is to the U.S."
From a producer's perspective, Walker believes it is important for producers to always have quotients, as well as diversity of price.
"Some would argue that Cushing prices are irrelevant today, so make sure you have access to prices in Europe and prices in Asia," Walker said. "We think there needs to be a pricing mechanism in the market that will more consistently move U.S. grades over to Asia. Right now, that is sort of the tail end of where volumes go and that sort of opens and closes."
As U.S. exports reach the 4-5 million bpd range, Walker said a consistent route to Asia would be essential.
"Producers that have access to that will have benefit," she concluded.
Corey Prologo, director of North American Oil Trading for Trafigura Trading LLC, predicted that in late 2018 going into early 2019, the industry will probably see producers start to outpace the logistics on takeaway, "which leads us to the next wave of pipelines coming on line."
"All of the current pipelines are completely filled out, which they previously weren't," he continued. "Pretty much everything coming out of the Permian that we see is more or less max capacity or ebbing and flowing toward max capacity on a regular basis."
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