Light crude barging delays along the US Gulf coast, along with increased Light Louisiana Sweet (LLS) export demand, are supporting LLS values relative to sweet crudes at the Texas coast as barge delays may extend until late next year.
Barges carrying crude to Louisiana are being delayed because of closures at the Calcasieu lock on the Gulf Intracoastal Waterway south of Lake Charles, Louisiana. This is in turn delaying crude shipments to refineries, as well as barged crudes from Texas, such as Eagle Ford and WTI, which are used in blending to create LLS. LLS is made from blending multiple grades, including offshore, pipeline and barged crude to meet specifications.
Barge delays had been estimated to range from 4-6 days in each direction. But as of midday today, the delays at the lock were estimated at 17-18 hours, by the Army Corps of Engineers. The Calcasieu lock is closed between 6:30am and 6:30pm Monday-Thursday for construction and open Friday-Sunday only. For the US Labor Day holiday, construction crews will be off 3 September, then the regular schedule will resume.Construction work is expected to continue until December 2019.
While barge crude shipment volumes are less than those on pipeline and tankers, they are an important delivery mechanism. In 2017 US Gulf coast refineries alone received over 375,000 b/d of domestic crude by barge according to US Energy Information Administration data.
LLS has been exported through St James, Louisiana, with India and Canada the primary destinations thus far. At least 7.12mn bl of LLS has been exported so far in the third quarter, compared to just 1.21mn bl of confirmed LLS exports in the second quarter, according to preliminary data compiled by Argus. Indian state-controlled refiner IOC will take another 2mn bl of December-loading LLS.
For the September trade month that ended 24 August, LLS averaged 92¢/bl over WTI Houston from 13¢/bl during the August trade month. September LLS averaged $1.56/bl over Bakken delivered to the Texas Gulf coast, from 46¢/bl for August-delivery.
lso adding to the bifurcation between the Texas and Louisiana markets are rising Texas supplies, with rising Permian and Eagle Ford production, as well as increased pipeline shipments from the Bakken shale.
In addition to stronger relative LLS prices for September delivery, spot trade volumes have fallen dramatically.During the September trade month, only about 93,000 b/d were reported in physical spot trades to Argus, falling from about 165,000 b/d for August-delivery and about 200,000 b/d for July-delivery. The lowest trade month volume reported for LLS was for April trade with about 74,000 b/d.
Spot trade volumes for LLS have been generally down since Plains All American Pipeline brought the 200,000 b/d Diamond pipeline on line from Cushing, Oklahoma, to Memphis, Tennessee, in December 2017, giving alternative access to Valero's Memphis refinery. Memphis was the last refinery dependent on supply from the 1.2 mn b/d Capline pipeline that originates in St James and terminates in Illinois.
But despite extremely low Capline volumes, LLS spot trade reported volumes had remained fairly robust this year. They averaged about 158,000 b/d for the first eight trade months of 2018, from about just over 250,000 b/d for the same time period a year earlier.
Regional Louisiana refinery demand, the optionality to move volumes by water, and interest in keeping the LLS spot market robust with its usage as a secondary benchmark in contracts are supportive of its physical trade activity. But a slowdown in key blending components, combined with export commitments, appear to have tightened spot liquidity for September trade.
