Viewpoint: Canadian crude makes inroads at Gulf coast

  • Market: Crude oil, Freight
  • 24/12/19

Canadian crude has the potential to eclipse other foreign supplies at the US Gulf coast in 2020 amid potentially faltering supply from Latin American and Opec producers.

Though Canada has historically been the largest source of imported crude to the continental US, it has made inroads at the Gulf coast, where Canadian crude has traditionally trailed Latin American and Opec supply.

Bottlenecked Canadian crude production continues to push the limits of transportation capacity into the US, increasing rail arbitrage opportunities and demonstrating the need for increased pipeline capacity. As lagging investment, trade sanctions and Opec and non-Opec output cuts hamper competing imports from countries like Mexico, Venezuela, Saudi Arabia and Colombia, these factors also insulate US Gulf coast-delivered Canadian crude prices from other foreign competition.

Prompt Western Canadian Select (WCS) prices delivered to the Houston area in 2019 averaged a discount of roughly $3.25/bl to prompt Mexican Maya delivered at the Gulf coast as of 23 December, which is wider by roughly $1.55/bl than the WCS Houston discount to Gulf coast-delivered Maya in 2018, at $1.68/bl. WCS Houston averages a discount of roughly $3/bl to US Gulf-delivered Colombian Castilla in 2019, wider by about $1.50/bl than in 2018, and the heavy Canadian grade at Houston roughly averaged an $8.10/bl discount to US Gulf-delivered Arab Heavy in 2019, wider by about $3.15/bl than in 2018.

Canadian crude ranked fifth at 193,000 b/d for US Gulf imports in 2014, behind Colombia, Mexico, Saudi Arabia and Venezuela. But from January through September in 2019, Canada ranked second behind only Mexico, according to the US Energy Information Administration (EIA). The US Gulf coast region has imported 506,000 b/d of Canadian crude through September, compared to 569,000 b/d of Mexican crude, according to EIA data. An undersupplied Texas market attracted a record average of 448,000 b/d of Canadian imports in September, surpassing the previous record of 426,000 b/d set in July.

EIA data indicate the US Gulf imported 498,000 b/d of Venezuelan crude in 2018, which is mostly heavy sour. Venezuelan crude shipments have been reduced by US sanctions, opening the door for more Canadian growth.

With Opec and some non-Opec countries recently agreeing to new output cuts into the first quarter of 2020, US Gulf exports of Canadian crude could become a factor, requiring domestic buyers hungry for heavy sour crude to compete with foreign markets. Export demand for Canadian crude could rise if the cuts focus predominately on discounted heavy sour grades, with International Maritime Organisation (IMO) requirements for 0.5pc sulphur in marine fuel emissions set for enforcement starting in January.

Limited supply is already felt at the US Gulf, as January WCS Houston averages a $15.37/bl premium to January WCS at Hardisty in Alberta, Canada, as of 23 December. The spread brings railed crude from Canada to the US into favorable arbitrage territory, as rail transportation is workable at roughly a $15-$20/bl spread. The WCS Houston premium to WCS Hardisty was $14.46/bl during the December 2019 trade month.

Canadian production has been limited by the Alberta government over the past year to promote better prices in Canada, but when mandated curtailment rolls off sometime in 2020, higher production may result in deeper discounts as more permanent transportation capacity awaits construction. Alberta will maintain its crude production limit at 3.81mn b/d for January.

Though long-haul projects from Canada to the US still face legal and permitting roadblocks, there are several that could help satisfy US demand, including TC Energy's 830,000 b/d Keystone XL pipeline and Enbridge's 760,000 b/d Line 3 crude pipeline replacement. Construction has also started on the 590,000 b/d Trans Mountain system. These new infrastructure projects could displace foreign grades in favor of more Canadian crude in coming years.

By Alex Endress


Sharelinkedin-sharetwitter-sharefacebook-shareemail-share

Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

News
28/03/24

Crane barge arriving at Baltimore bridge tonight

Crane barge arriving at Baltimore bridge tonight

Houston, 28 March (Argus) — The first major piece of equipment capable of beginning to clear the blocked Port of Baltimore, Maryland, is expected to arrive onsite tonight. The Chesapeake 1000 crane barge, capable of lifting 1,000 short tons with its a 231ft-long boom, is expected to arrive at the site of the collapsed Francis Scott Key Bridge near Baltimore at 11pm ET on 28 March, the US Coast Guard (USCG) told Argus . Both the crane and the tug pulling it, Atlantic Enterprise , are owned by Donjon Marine. It is currently the only crane on route to the collapsed bridge, the USCG said. There is no official timetable for the reopening of the port after the Interstate 695 highway bridge over the Patapsco River was hit in the early hours of 26 March by a container ship and collapsed, with the debris and ship blocking the waterway. The operator of the ship, Maersk, has contracted with marine salvage company Resolve Marine to refloat the vessel and remove it from the area, according to the USCG. It is not clear who has contracted for the Chesapeake 1000. Despite the inbound crane, it could take weeks or even months to clear debris and reopen the waterway under the collapsed bridge according to a engineering professor at the nearby Johns Hopkins University. By Nathan Risser Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Read more
News

'Weeks, months' to reopen Baltimore waterway: professor


28/03/24
News
28/03/24

'Weeks, months' to reopen Baltimore waterway: professor

Houston, 28 March (Argus) — It could take weeks or even months to clear debris and reopen the waterway under the collapsed Francis Scott Key Bridge in Baltimore, Maryland, according to a engineering professor at the nearby Johns Hopkins University. As of Wednesday, there was no official timetable for the reopening of the Port of Baltimore after a major highway bridge over the Patapsco River was hit in the early hours of 26 March by a container ship and collapsed, with the debris and ship blocking the waterway. "I'd be shocked if it's weeks, but I don't think it'll take even a year" to clear the waterway, structural engineer and Johns Hopkins professor Benjamin Schafer said Wednesday. He expects the rebuild of the bridge to take significantly longer. "I've lived through quite a few civil infrastructure projects and they're rarely less than 10 years. So I think that's what we're looking at," Schafer said. He noted that it took five years to build the original Francis Scott Key Bridge and seven years to repair the Sunshine Skyway Bridge in Tampa Bay, Florida, after a similar collapse in 1980. Still, "this is definitely not a national supply chain crisis," John Hopkins operations management professor Tinglong Dai said Wednesday. "The effect will be mostly local, mostly minimal and mostly temporary." The bridge collapse and port closure is also unlikely to trigger a global supply chain crisis, he said. The Port of Baltimore is an important but "niche" port specializing in automobile imports and exports, Dai added. "The supply chain has evolved...I have already seen a lot of rerouting happening." Automakers started adjusting their supply routes away from the top port for US vehicle imports the day of the collapse, including General Motors, Ford and Mercedes-Benz. Baltimore is also a major port for coal exports, which may start to shift to terminals to the south in Hampton Roads, Virginia. Freight rates for ships that carry coal could see increases in global markets Other commodities like asphalt and caustic soda that move through the port will see challenges, while organic agriculture imports may see less problems due to seasonal flows. By Nathan Risser Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

No timetable yet for reopening Port of Baltimore


27/03/24
News
27/03/24

No timetable yet for reopening Port of Baltimore

New York, 27 March (Argus) — US Transportation secretary Pete Buttigieg said today he is unable to provide a timetable as to when the Port of Baltimore will fully reopen. The channel that vessels use to access the majority of the port is blocked by the 116,851dwt container vessel Dali and the remains of the Francis Scott Key Bridge, which collapsed when the crew lost control of the Dali and it slammed into a bridge support. "No matter how quickly the channel can be reopened, we know that it can't happen overnight," Buttigieg said in a briefing at the White House. While the original bridge took five years to construct, that does not necessarily mean it will take five years to replace, he added. Buttigieg, in a televised interview, said administration officials are in discussions with the operators of a logistics center outside the main port, Tradepoint Atlantic at Sparrows Point, to see if it can step up operations to handle more cargo, at least on a temporary basis. On Wednesday the Wolfsburg , a regularly scheduled roll-on-roll-off vessel for Volkswagen, was able to stop at Tradepoint's site. Tradepoint said it was the first cargo arriving at the Port of Baltimore since "the tragic accident on Tuesday." The Army Corp of Engineers, which has been brought in to restore the waterway, is moving "very aggressively" to deploy resources and equipment, said Vice Admiral Peter Gautier, deputy commandant for operations of the US Coast Guard. And the ship's operator has brought in Resolve Marine, a marine salvage company, to refloat the vessel and remove it from the area, according to the Coast Guard. Investigators from the National Transportation Safety Board (NTSB) boarded the vessel late Tuesday and are back on the ship on Wednesday. The agency has recovered the data from the voyage data recorder and sent it to the NTSB lab. By Stephen Cunningham Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Baltimore bridge collapse to raise retail fuel prices


27/03/24
News
27/03/24

Baltimore bridge collapse to raise retail fuel prices

Houston, 27 March (Argus) — The collapse of the Francis Scott Key Bridge in Baltimore, Maryland, is more likely to increase regional gasoline prices than diesel due to additional freight costs and certain route restrictions. Suppliers in the region have so far signaled that the effect on broader markets will be minimal, but regional prices will likely rise, especially as peak summer demand season begins with Memorial Day weekend in late May. The bridge closure could pose more problems for gasoline supply than diesel, since gasoline cannot be transported through the Fort McHenry (I-95) and Baltimore Harbor (I-895) tunnels — the two other major roads that cross the Patapsco River at Baltimore — while there are no restrictions on diesel, according to the Maryland Transportation Authority (MTA). Fuel wholesaler Global Partners said yesterday that it would like to see hours of service waivers for trucking in the region to minimize fuel supply disruption to customers, but the Federal Motor Carrier Safety Administration (FMCSA) is yet to issue one. Elevated retail prices are likely to be limited to the immediate Baltimore area but could spill over into neighboring markets should trucking markets remain tight due to rerouting, market sources told Argus . Fuel markets in eastern Maryland can be supplied by PBF's 171,000 b/d Delaware City, Delaware, refinery and two further plants in Pennsylvania — Monroe Energy's 190,000 b/d Trainer refinery and PBF's 160,000 b/d Paulsboro refinery. To the north, United Refining runs a 65,000 b/d plant in Warren, Pennsylvania, and along the Atlantic coast Phillips 66 operates the 259,000 b/d Bayway refinery in Linden, New Jersey. PBF, Monroe and United did not immediately respond to a request for comment on whether the bridge collapse is affecting refinery operations. Phillips 66 declined to comment on commercial activities. Still, the five nearby refineries — representing all the Atlantic coast's 850,000 b/d of crude processing capacity — are unlikely to see their operations curtailed by limits in shipping products to Maryland. With no refinery in the state of Maryland, most fuels are delivered to Baltimore by Gulf coast refiners on the Colonial Pipeline. Global Partners, which operates a terminal just west of the collapsed bridge, said yesterday it is primarily supplied by the pipeline and expects product flows to continue. Several terminals in the Baltimore Harbor and the nearby Port Salisbury can also receive small vessels and barges of road fuels from Delaware and Pennsylvania, according to the Maryland Energy Administration (MEA). The Port of Baltimore — which remains closed since the collapse — took delivery of 24,000 b/d of gasoline and under 2,000 b/d of distillates from barges and small vessels in 2019, about three percent of the Atlantic coast's refining capacity. "A closure of the Port of Baltimore while the Colonial Pipeline is open would not significantly disrupt fuel supply," the MEA wrote in a 2022 analysis of liquid fuels supply in the state. By Nathan Risser Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Ethanol constraints minor on Baltimore closure: Update


27/03/24
News
27/03/24

Ethanol constraints minor on Baltimore closure: Update

Houston, 27 March (Argus) — Ethanol flows in the US northeast may only see minor near term constraints following the closure of the Port of Baltimore due to the collapse of a bridge at the mouth of the waterway. Producers and other market participants expect longer local transit times for trucks carrying hazardous materials — including ethanol — to retail stations because of the collapse of the Francis Scott Key Bridge, which carried nearly 12.4mn cars and trucks in 2023, according to Maryland state data. This will lead to higher associated costs, but market sources say the region's supply chain flexibility, rail access and available stocks should mitigate near-term ethanol supply interruptions. Ethanol rail deliveries into the Baltimore market are expected to increase, offsetting the loss of barge supply for the duration of the port's closure. Railroads Norfolk Southern and CSX have rail access at the Port of Baltimore, while Kinder Morgan operates the primary transload terminal. US east coast ethanol stocks in March are at their highest monthly average since April 2020 at 8.76mn bl, according to the Energy Information Administration. By Payne Williams Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Business intelligence reports

Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.

Learn more