Crude Oil Exports Trisha Curtis, Director of Research Upstream and - - PowerPoint PPT Presentation

Defining the Debate: Crude Oil Exports

Trisha Curtis, Director of Research Upstream and Midstream Energy Policy Research Foundation, Inc. (EPRINC) Brookings Task Force February 28th, 2014

About EPRINC

• www.eprinc.org
• Infrastructure Paper

http://eprinc.org/wp- content/uploads/2013/10/EPRIN C-PIPELINES-TRAINS-TRUCKS- OCT31.pdf

• Rin App

http://eprinc.org/2014/02/rins- around-rosy-app-available-ios/

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Nature of Topic

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Timeline of Discussion

• Talk during past few years in analyst and think tank community
• Adam Seminski publically talks about crude oil exports in 2012
• During the course of 2013 several new pipelines came online to alter the flow of

crude from the Permian to the Gulf Coast (historically Permian to Cushing) in addition to new pipeline capacity from the Cushing to the Gulf, Eagle Ford production passes 1 mbd, and refinery maintenance coupled with rising production pressures LLS prices in Nov 2013 What’s Happening

• Large volumes of light sweet crude and condensate of varying grades (in addition

to NGLs) came on the market with limited infrastructure options

• Refineries in the Gulf are beginning to see the pressure of too many light ends and

their capability to handle increasing volumes of light sweet crude

• Gasoline demand is relatively flat in the U.S. so there is only so much need for

gasoline blending components and condensate

• Natural gasoline from NGLs is in more demand from Canada as a diluent

The Debate, Speculative Impacts, Issues

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• Major producers such as Shell and Exxon have come out in support of lifting the ban
• n exports, but refiners are mixed. Both PES and PBF of the East Coast have come out

against crude oil exports while AFPM has come out in support of lifting the ban.

• East Coast refineries benefit from discounts and have invested in crude by rail
• Gulf Coast refineries export a considerable amount of product
• While discussion and debate on this topic is beginning to take place in both the U.S.

and abroad, word from the actual regulatory bodies has been limited. Current discussions around crude oil exports and their direct impact are therefore highly speculative

• Should exports be allowed the impact on the market would depend on the nature of

the export permits and their transparency. What type of hydrocarbons exported? i.e. crude or condensate and the volumes allotted

• Trouble defining “crude oil” and “condensate”
• While there is potential to export small volumes from the East Coast and the West

Coast, the bulk of exports would likely be dispatched from the Gulf Coast

Impacts and Issues.....continued

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• Both crude and condensate exports would advantage Gulf Coast producers in the

Eagle Ford and the Permian Basin where there would be a relatively low cost to transport crude or condensate to the Gulf and then export it

• Condensate exports would highly benefit Eagle Ford (Gulf Coast) producers and

potentially condensate production in the Utica (Ohio)

• WTI prices would likely increase, however, the degree to which the Brent WTI spread

would narrow depends on the volume and market impact of exports

• Gulf Coast prices would likely move up and stay at parity with Brent prices
• Crude exports would not likely solve the infrastructure dilemmas facing northern

landlocked crudes in the Bakken and in Canada due to the lack of pipeline capacity from the region to the coasts

• While WTI prices would likely increase there would still be a pricing differential

for those crudes without adequate transportation means to Cushing or the Gulf Coast.

• It could alter incentives to move crude oil into Cushing
• Crude by rail issues remain
• There are winners and losers in the upstream, midstream, and downstream

North American Oil Production and Forecast

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Source: EIA, Canadian CAPP forecast, EPRINC U.S. forecast, EPRINC Mexico , and EPRINC estimates

Dec 2013 Oil Production U.S. 7.9 mbd Canada 3.7 mbd

2000 4000 6000 8000 10000 12000 14000 16000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Jan-Oct 2013 2014 2015 2016 2017 2018 2019 2020 Thousand Barrels Per Day Canada Oil Production U.S. Oil Production

1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Periphery Permian Eagle Ford Bakken EPRINC's May 2013 Forecast

Jan 2014 EPRINC’s Forecast for Major U.S. Shale Plays

Source: HPDI data with EPRINC forecast estimates

EPRINC forecasts an additional 2.5 mbd by 2020

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2000 4000 6000 8000 10000 12000 Thousand Barrels Per Day U.S. Imports from Canada of Crude Oil Mbbl/d U.S. Field Production of Crude Oil Mbbl/d U.S. Imports of Crude Oil Mbbl/d

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U.S. Total Imports, U.S. Production, U.S. Canadian Imports

Source: EIA

Dec 2013 U.S. Imports 7.8 mbd U.S. Production 7.9 mbd Canadian Imports 2.8 mbd

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Shale Oil Play Production

Source: HPDI Feb 2013

500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 THOUSAND BARRELS PER DAY THOUSAND BARRELS PER DAY North Dakota Permian Basin Eagle Ford Combined Production

10 20 30 40 50 60

• 1,000,000

2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 10,000,000 PADD 1 East Coast PADD 2 Midwest PADD 3 Gulf Coast PADD 4 Rockies PADD 5 West Coast Number of Refineries Barrels Per Calendar Day Operable Atmospheric Crude Oil Distillation Capacity Thermal Cracking Coking Downstream Charge Capacity Operating Refineries

Simple vs. Complex

Source: AFPM map, EIA data for graph

Total Coking Capacity vs. Atmospheric Crude Distillation Capacity by PADD Cokers = Heavy refining capability

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Domestic vs. Imported RAC

Source: EIA

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20 40 60 80 100 120 140 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 $/Barrel Rocky Mountain (PADD 4) Crude Oil Domestic Acquisition Cost by Refiners $/bbl Midwest (PADD 2) Crude Oil Domestic Acquisition Cost by Refiners $/bbl Gulf Coast (PADD 3) Crude Oil Domestic Acquisition Cost by Refiners $/bbl West Coast (PADD 5) Crude Oil Domestic Acquisition Cost by Refiners $/bbl East Coast (PADD 1) Crude Oil Domestic Acquisition Cost by Refiners $/bbl 20 40 60 80 100 120 140 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 $/Barrel Rocky Mountain (PADD 4) Crude Oil Imported Acquisition Cost by Refiners $/bbl Gulf Coast (PADD 3) Crude Oil Imported Acquisition Cost by Refiners $/bbl East Coast (PADD 1) Crude Oil Imported Acquisition Cost by Refiners $/bbl Midwest (PADD 2) Crude Oil Imported Acquisition Cost by Refiners $/bbl West Coast (PADD 5) Crude Oil Imported Acquisition Cost by Refiners $/bbl

Regional Pricing Disparities

Source: Flint Hills, EIA, CME Group, and estimates

• Western Canadian

Select -$25 to WTI

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$0.00 $20.00 $40.00 $60.00 $80.00 $100.00 $120.00 $140.00 $160.00 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12 Jan-13 Jun-13 Nov-13 WTI Bakken (North Dakota Light Sweet Flint Hills) WCS (Western Canadian Select)

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Geology of the Eagle Ford = Varying Liquid Grades

Source: Momentum Oil and Gas LLC, DUG Eagle Ford Conference Presentation Oct 2011; EOG Investor Presentation Feb 2014;

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Those differences are impacting prices

Source: Flint Hills Resources

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Source: ITG Investment Presentation Nov 2012

Regional Discounts Matter with High Cost Production

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Total U.S. Crude Oil Exports

Source: EIA

North Dakota accounts for almost 10% of US Production Almost all new production is from the Bakken/Three Forks

200,000 400,000 600,000 800,000 1,000,000 1,200,000 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 North Dakota Eastern Montana South Dakota TOTAL

50 100 150 200 250 Jan-93 Oct-93 Jul-94 Apr-95 Jan-96 Oct-96 Jul-97 Apr-98 Jan-99 Oct-99 Jul-00 Apr-01 Jan-02 Oct-02 Jul-03 Apr-04 Jan-05 Oct-05 Jul-06 Apr-07 Jan-08 Oct-08 Jul-09 Apr-10 Jan-11 Oct-11 Jul-12 Apr-13 THOUSAND BARRELS PER DAY

U.S. Exports to Canada of Crude Oil Mbbl/d

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U.S. Exports of Petroleum and Petroleum Product

Source: EIA 500 1000 1500 2000 2500 3000 Thousand Barrels per Day

U.S. Exports

U.S. Exports of Other Liquids Mbbl/d U.S. Exports of Finished Petroleum Products Mbbl/d U.S. Exports of Crude Oil Mbbl/d U.S. Exports of Natural Gas Liquids and Liquid Refinery Gases Mbbl/d 500 1000 1500 2000 2500 3000 Thousand Barrels per Day

U.S. Petroleum Products Exports

U.S. Exports of Kerosene-Type Jet Fuel U.S. Exports of Petroleum Coke U.S. Exports of Residual Fuel Oil U.S. Exports of Finished Petroleum Products U.S. Exports of Distillate Fuel Oil U.S. Exports of Finished Motor Gasoline

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Infrastructure Challenges will Remain

Source: EPRINC Maps using Hart Energy data and ArcGIS Mapping software

• Severely limited due to lack of

Keystone XL and lack of historical build out to the coasts – system designed to import into the Gulf and move up

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• New markets
• Diversification
• Neat Barrels
• Nimble - Quickly adjustable
• Optionality for Canadian and U.S. crude, NGLS,

and other petroleum products