Crude exports – breaking down the barriers?
November 2014 Overview from our North America Logistics Review Service – Last month’s overview focused on how logistics expansions are moving to the point where sweet crude imports have been largely eliminated; the next tranche being the 2 million barrels per day (bpd) or so of medium sour grades, with implications for increases in both the extent of crude mismatching versus traditional refinery slates and the potential for increasing volumes of made up “look alike” light plus heavy blends to approximate medium gravity crudes.
In parallel with this, exports of crude oils, condensates and NGL’s continue to rise, without any formal end to a crude export ban. Exports of finished products appear to have plateaued at around 2.8 mbd since mid 2013, and also those for other liquids – primarily gasoline blending components, MTBE, ethanol and unfinished naphthas – at around 350,000 bpd. In contrast, crude oil exports had reached the 400,000 bpd level by last September and NGL’s plus LPG’s 750,000 bpd, each rising from minimal levels in 2008. The exported crude oil has gone to date predominantly to Canada.
New developments are signifying that – despite the export ban – current levels and Canadian destinations are unlikely to be the limit. In a recent paper, Citibank estimated that 2015 US crude oil exports could rise to 1 million bpd. Of this 500,000 bpd are projected for eastern Canada. The 115,000 bpd Come by Chance refinery, just sold to SilverRange Financial Partners LLC of New York, has switched to processing essentially entirely US crude oils, following the pattern of other eastern Canadian facilities that are increasingly processing only Canadian or US grades. Other elements in the Citi exports estimate include 100,000 bpd from Alaska, 200,000 bpd of processed condensate and 200,000 bpd to Mexico, all allowed under current regulations. (The US Commerce Department allows for barrel-for-barrel light/heavy swaps which are the basis for the expected exports to Mexico.)
On a parallel track, Kinder Morgan has reportedly revived its Freedom Pipeline project – but with a twist.
The line would, as before, run from West Texas to near Bakersfield California. Under the new proposal, the 250,000 bpd line would also have an associated splitter at its western terminal. The light fraction would be exported (presumably to Asia) as processed condensate while the heavy cut would be blended with original crude to make a “look alike” blend of around 31 API, i.e. similar to that of ANS and other crudes normally processed in California. 2018 could be a possible stat-up date for the system.
With the recent rulings that allow Enterprise Products Partners and Pioneer Resources to export “processed condensate”, (plus some 15-20 other requests in the pipeline), and with growing Gulf Coast light streams processing and export infrastructure, the revived Kinder Morgan project represents yet another example of projects that effectively bypass the existing ban by enabling exports that are allowed under current rules. While most such projects to date have focused on processing condensate, the Freedom project is notable in that it would split light crude oil. This approach logically could be extended to other regions, leading to look-alike blended crudes tailored to regional refinery needs, plus light ends exports and a back-out of medium gravity crude oil imports. In short, even with a ban still in place, total crude-derived export volumes could, in the medium term, move towards the 2+/- million bpd levels that have been indicated in the recent ICF/EnSys and other crude export studies as the potential result of removing the export ban.
In parallel, crude oil exports are finding their way out of Canada, both directly and indirectly. Exports via the Westridge dock in Vancouver, BC, were reported as running at around 80,000 bpd and limited until such time as the Trans Mountain pipeline expansion goes through. Direct exports via terminals in the east of the country have, however, started to pick up, notably from Suncor facilities in Montreal, and can be expected to increase once the Enbridge Line 9 reversal is online at 300,000 bpd in 2015. In addition, recent small-volume re-exports of Canadian crude from the Gulf Coast may increase – or otherwise back out heavy imports – with the Flanagan South pipeline now coming online, enabling direct flow through to the Gulf Coast via Seaway. Canadian crude oil processed at Gulf Coast refineries could double to 400,000 bpd in 2015.