The US Crude Export Chronicles: August 2020

Author Eunice Bridges, Senior Reporter and Amanda Hilow, Associate Editor

US crude exports are facing unusual threats as the month comes to an end with a major hurricane headed to the Gulf coast and the aftermath of a partial port closure at Corpus Christi, Texas.

But exports still appear to be breaking from the Covid-19 doldrums with a huge trove headed to China.

Welcome back to our monthly blog: The US Crude Export Chronicles by Argus Associate Editor Amanda Hilow (@HilowMidpoint) and Senior Reporter Eunice Bridges (@eunicebridges12). Come back every month for Argus’ take on US crude exports and how they are faring as some markets recover from the Covid-19 shock.

Hot topics

August crude exports are looking stable thus far despite some unusual threats, including a major hurricane headed to the Gulf coast and a temporary partial port closure in the key hub of Corpus Christi.

Outbound flows have been hovering around the 2.75mn b/d mark since June, according to preliminary estimates by the US Energy Information Administration (EIA), down about 1mn b/d since the 3.71mn b/d record high set in February.

And while the free fall seen in US crude exports during the second quarter has flattened out, the pace of loadings for China is ramping up as Sinopec begins filling new storage capacity.

Meanwhile, the port of Corpus Christi has reopened following an explosion and fire from a ruptured propane pipeline near the port's refinery area. Sections of the port had been shut for a few days since the 21 August incident when a dredging barge struck a submerged propane pipeline.

Hurricane Laura is expected to come ashore near the border of Texas and Louisiana late on 26 August or early 27 August. This comes on the heels of tropical storm Marco, which weakened significantly before it made landfall on the Louisiana coast on 24 August, according to the National Hurricane Center. It is unclear how much export capacity will be knocked out by Hurricane Laura, but we know that the Louisiana Offshore Oil Port (LOOP) suspended operations at its marine terminal. Quite a week for the US Gulf coast.

In the pipeline

The DAPL drama continues. North Dakota producers breathed a collective sigh of relief when a US appeals court on 5 August allowed the 570,000 b/d Dakota Access pipeline (DAPL) to continue operating during legal proceedings. But the court also upheld a portion of a lower court ruling that threw out a key federal easement for the line that allows it to cross under the Missouri River.

In other words, we still don’t know what is going to happen in the case. This could have big impacts on US crude exports as DAPL is the largest takeaway pipeline out of the Bakken and connects to large pipelines to the US Gulf coast.

The easement issue was kicked back to the US district court. And yes, that is the same district court that last month ordered Energy Transfer to shut DAPL as a result of a long-standing legal battle over its environmental permitting. Now the Army Corps of Engineers has until 31 August to tell the court how it plans to handle the easement issue. The agency will have to answer a vital question: How do you operate the pipeline without the key easement?

In other shale pipeline news, Plains All American Pipeline’s joint venture 1mn-1.5mn b/d Wink-to-Webster pipeline from the Permian basin to the US Gulf Coast will start service in the second half of 2021, a delay from a previous plan to start in the first half of that year, the company said. But Plains also said that the line could potentially start partial service in the second quarter of 2021, leaving some wiggle room on the start date. Once completed, the Wink-to-Webster line will boost crude exports out of Houston, heating up the competition with Corpus Christi for the title of top export port.

Census surprise

With a lot of focus on China – for good reason – some missed another interesting tidbit in the latest monthly crude export numbers released by the US Census: India was the second top destination for US crude loaded in June at about 352,000 b/d – more than doubling from the previous month. It was the largest monthly haul of US crude headed to India in more than a year.

Overall US crude exports fell for the fourth straight month to 2.75mn b/d in June amid the Covid-19 demand hit.

What’s next

US exports of crude and other commodities to China have picked up in recent months but are still well below levels required to meet China's purchase commitments under the phase-one trade deal signed in January by Beijing and Washington.

An analysis of shipping fixture reports shows at least 12 very large crude carriers (VLCCs) are scheduled to load up to 25.1mn bl, or more than 835,000 b/d, of crude at the US Gulf coast for China in September. This compares with 657,000 b/d in June and an estimated 445,000 b/d in July as the Asia-Pacific country begins to witness an economic recovery from the earlier stages of the Covid-19 pandemic.

Beijing and Washington held their scheduled trade discussions over the phase-one deal signed between the US and China in January, according to separate statements from the US trade representative’s (USTR's) office and China's commerce ministry (MoC) on 25 August, roughly one week after US President Donald Trump said he would postpone the meeting because of China’s perceived mishandling of the Covid-19 outbreak.

We’ll keep an eye on the US-China relationship for an update in next month’s analysis on US crude flows and dynamics. Until then, we wish you smooth sailing in these choppy waters.

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