Crude Summit: US exports may take years to blossom

It will be several years before newly permitted US crude exports have a significant impact on global markets because of unworkable price spreads and a lack of US export infrastructure.

US crude exports will not pick up until the market rebalances and the differential between US benchmark WTI and Ice Brent widens, which could take three to five years, Macquarie global oil and gas strategist Vikas Dwivedi said at the Argus Americas Crude Summit in Houston today.

"In the short run, it probably won't be a big deal," he said.

The Brent-WTI price spread has narrowed significantly in recent months and reversed at times as prices dropped to the lowest levels in 12 years, making the economics of sending Eagle Ford crude overseas tough. Brent today settled at a 1¢/bl discount to WTI.

US crude producers began clamoring for US export reforms in 2012, when the Brent-WTI spread was consistently about $20/bl. But increased pipeline capacity from the US midcontinent to the Gulf coast and a global supply glut has mostly erased that spread.

Despite the spreads, trading house Vitol exported two cargoes to Europe from the Gulf coast, while a few cargoes to Japan are expected in February.

Some 600,000 b/d of US light crude could be available to export by 2020, said Sarah Emerson, president of research firm ESAI.

"I have always been lukewarm about lifting the ban," Emerson said. "I have never seen it as a panacea for the market."

Even if crude prices recover to higher levels a lack of US export infrastructure will also hamper trade, analysts said. With few exceptions, US ports cannot load large Suezmax or VLCC vessels, which are the norm for most long distance crude trade.

The Louisiana Offshore Oil Port (LOOP) is the only site where VLCCs could load US crude directly. LOOP could be converted to an export location with the reversal of the Capline pipeline which ends at St James, Louisiana, an effort that would likely take several years. LOOP is connected to St James via the Locap pipeline.

LOOP said in November it is seeking shipper commitments for proposed marine vessel crude loading services, including the ability to move crude from LOOP's onshore hub in Clovelly, Louisiana, to its deepwater port, 17 miles (27km) offshore of Port Fourchon.

Projects are already planned to add significant storage space and more docks to support exports in Houston, Corpus Christi and Beaumont, Texas, but additional infrastructure will be needed following a recovery in crude prices, said Mike Mears, chief executive of midstream company Magellan Midstream Partners.

"Even though [the market] is not that compelling right now, the fact that the ban has been removed will drive development to make sure it is there to export significant volumes when that happens, and you will not have the lag," he said.

The first non-licensed US exports to Europe were likely meant to establish relationships and enable global refineries to test the performance of US crude. It is fairly typical for marketers to sell a new crude stream at a discount, even for as long as a year, to establish a new market.

Mexico will also begin importing US light crude to test in its refineries this year, according to Margarita Perez, executive vice president of refined and petrochemical products with PMI, the trading arm of Mexican state-owned oil firm Pemex.