Crude Summit: Sour suppliers grapple with unique issues

Mexico, Colombia and Canada — three traditional suppliers of sour crude to US Gulf coast refiners — are struggling in different ways to send more barrels to the region.

Mexico has been a historic supplier of heavy sour barrels to the US Gulf coast's refineries. But those shipment levels could drop, or hold level at best, as the Mexican government focuses on downstream projects like the planned Dos Bocas refinery, economist Eduardo Lopez told the Argus Crude Summit in Houston, Texas, this week.

The refinery sector in Mexico is a "disaster," Lopez said, so the country should be concentrating resources on fixing the upstream sector. Filling the US' existing need for crude would be a better focus, he said.

Colombia's state-owned Ecopetrol hopes to continue to increase its shipments to the US Gulf coast, even offering a new crude to assure crude quality in order to build a competitive advantage, said the company's commercial and marketing vice president Pedro Manrique.

The new Apiay grade has a 17.9°API and 2.3pc sulphur content — qualities very similar to the company's bellwether 17.7° API and 2pc sulphur Castilla Blend crude. Both crudes are produced in the same Llanos basin and are exported from the port of Covenas on the country's Atlantic coast.

Ecopetrol's trading activity in 2019 grew by about 5pc to 395,000 b/d from the prior year, with the US accounting for about 42pc of intake. It may be poised for higher growth in the next two years as the company's organic production is expected to climb by 3pc.

By 2021 Ecopetrol expects to produce between 750,000-770,000 b/d, up from about 720,000-730,00 b/d in 2019. This stems from expected higher secondary and tertiary production, as well as the anticipated introduction of unconventional production, which should offset lower primary production levels. This growth could yield higher export volumes, barring changes to Ecopetrol refineries that currently take domestic crudes.

Canadian crude producers are ready to bring more volumes to market, but insufficient pipeline capacity and a government-enacted curtailment policy has kept a lid on output. The Alberta government continues to restrain production as policy-makers await more certainty on pipeline development.

As proposed pipeline projects make their way through the regulatory and construction phases, crude-by-rail has been a useful method for some shippers and continues to ramp up to help alleviate the steady rise in local inventories, Stephanie Kainz, senior associate at RS Energy Group, said at the conference.

"The biggest thing in Canada is the ability to get out," said Kainz. While the northern market has seen recent progress on pipeline files, Kainz still struck a cautious tone. "We're hoping this is a good news story for Canada."

By Monica Rojas and Brett Holmes