Viewpoint: Iraqi, Canadian crude to outdo LatAm at USGC

Strong demand for heavy Canadian exports and new import blends from Iraq are winning market share in the US Gulf at the expense of Latin American crude.

Iraq is the fastest-growing source of heavy sour crude supply to the US Gulf, EIA data shows. Imports were 1.87mn b/d in the first nine months of 2017, up from 1.1mn b/d in the same period a year earlier and just 186,000 b/d in the nine months to September 2015.

The US Gulf began receiving a steady flow of Iraqi Basrah Heavy in June 2015. This blend is shipped to the region from four single-point mooring (SPM) terminals, four jetty berths at the Basrah Oil Terminal and one jetty at the nearby Khor Al Amaya terminal.

Loadings started on 22 October this year at the fourth SPM, and southern export capacity has climbed to 4.6mn b/d. The new SPM has 900,000 b/d of export capacity, which could allow for more volumes of Basrah Heavy to leave for the US Gulf in 2018.

US Gulf refiners are largely configured to run heavy crude and may turn to long-term supply contracts for Iraqi crude as struggles continue to plague Colombian and Venezuelan supply in 2018.

Restricted pumping on Colombia's 120,000 b/d Bicentenario pipeline was the main reason for lower Colombian crude production in 2017, and outages on the Cano-Limon export pipeline did not help supply. Vasconia equity holders and global trading companies Gunvor and Trafigura even moved to offering the grade for export out of the Oleoducto de Colombia (ODC) pipeline in November as spare capacity on that line became available.

In Venezuela, lower crude production contributed to falling exports, as the country's output hit at least a two-year low in October amid US financial sanctions that are restricting the country's ability to fund operations and restructure debt. Output is on track to fall by at least 150,000 b/d for all of 2017, according to numbers reported to Opec.

As a result of falling supply from Colombia and Venezuela, Canada is increasing its market share of heavy sour crude at the US Gulf, with Canadian receipts catching up to deliveries of Colombian crude this year.

EIA data for 2015-2017 shows heavy Canadian crude imports were 985,000 b/d in the first nine months of this year, up from 821,000 b/d in the same period a year earlier and 740,000 b/d in the months up to September 2015. Colombian crude imports were 1.4mn b/d in September year-to-date compared to 2mn b/d in the same period last year.

Canada will be closer to increasing its crude export capacity in 2018 after TransCanada received approval in November from Nebraska regulators for a Keystone XL route. Keystone XL would transport crude from Alberta's oil sands to Steele City, Nebraska, which is already linked to Cushing and the southeast Texas coast.

Colombia, Mexico and Venezuela will remain major heavy sour suppliers to the US Gulf in 2018, but their market share will be compromised by Iraqi Basrah Heavy and WCS.