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/ 2
Nature of Topic 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 3
The Debate, Speculative Impacts, Issues • Major producers such as Shell and Exxon have come out in support of lifting the ban on 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 4
Impacts and Issues.....continued • 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 5
North American Oil Production and Forecast 16000 Dec 2013 Oil 14000 Production 12000 Thousand Barrels Per Day U.S. 7.9 mbd Canada Oil 10000 Production Canada 3.7 mbd 8000 U.S. Oil 6000 Production 4000 2000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Jan-Oct 2013 2014 2015 2016 2017 2018 2019 2020 Source: EIA, Canadian CAPP forecast, EPRINC U.S. forecast, EPRINC Mexico , and EPRINC estimates 6
Jan 2014 EPRINC’s Forecast for Major U.S. Shale Plays 7,000,000 EPRINC forecasts an 6,000,000 additional 2.5 mbd by 2020 5,000,000 Periphery 4,000,000 Permian Eagle Ford 3,000,000 Bakken EPRINC's May 2013 Forecast 2,000,000 1,000,000 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: HPDI data with EPRINC forecast estimates 7
U.S. Total Imports, U.S. Production, U.S. Canadian Imports 12000 10000 U.S. Imports from Canada of Dec 2013 Thousand Barrels Per Day Crude Oil Mbbl/d 8000 U.S. Imports 7.8 mbd U.S. Production 7.9 mbd 6000 U.S. Field Production of Crude Oil Mbbl/d 4000 Canadian Imports 2.8 mbd U.S. Imports of 2000 Crude Oil Mbbl/d 0 Source: EIA 8
Shale Oil Play Production 1,600,000 4,000,000 1,400,000 3,500,000 1,200,000 3,000,000 THOUSAND BARRELS PER DAY THOUSAND BARRELS PER DAY 1,000,000 2,500,000 800,000 2,000,000 600,000 1,500,000 400,000 1,000,000 200,000 500,000 0 0 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Jan-07 Jul-07 Oct-07 Jan-08 Jul-08 Oct-08 Jan-09 Jul-09 Oct-09 Jan-10 Jul-10 Oct-10 Jan-11 Jul-11 Oct-11 Jan-12 Jul-12 Oct-12 Jan-13 Jul-13 Oct-13 North Dakota Permian Basin Eagle Ford Combined Production Source: HPDI Feb 2013 9
Simple vs. Complex Total Coking Capacity vs. Atmospheric Crude Distillation Capacity by PADD Cokers = 10,000,000 60 Operable Heavy 9,000,000 Atmospheric refining Crude Oil 50 8,000,000 Distillation Barrels Per Calendar Day capability Capacity 7,000,000 Number of Refineries 40 6,000,000 Thermal Cracking 5,000,000 30 Coking Downstream 4,000,000 Charge 20 Capacity 3,000,000 2,000,000 10 Operating Refineries 1,000,000 - 0 PADD 1 PADD 2 PADD 3 PADD 4 PADD 5 East Coast Midwest Gulf Coast Rockies West Coast Source: AFPM map, EIA data for graph 10
Domestic vs. Imported RAC 140 140 Rocky Mountain Rocky Mountain (PADD 4) Crude Oil (PADD 4) Crude Oil Domestic Imported 120 120 Acquisition Cost by Acquisition Cost by Refiners $/bbl Refiners $/bbl Gulf Coast (PADD 3) Midwest (PADD 2) Crude Oil Imported 100 100 Crude Oil Domestic Acquisition Cost by Acquisition Cost by Refiners $/bbl Refiners $/bbl 80 80 East Coast (PADD 1) $/Barrel $/Barrel Crude Oil Imported Gulf Coast (PADD 3) Acquisition Cost by Crude Oil Domestic Refiners $/bbl 60 60 Acquisition Cost by Refiners $/bbl Midwest (PADD 2) Crude Oil Imported 40 40 West Coast (PADD Acquisition Cost by 5) Crude Oil Refiners $/bbl Domestic West Coast (PADD Acquisition Cost by 20 20 5) Crude Oil Refiners $/bbl Imported East Coast (PADD 1) Acquisition Cost by 0 Crude Oil Domestic 0 Refiners $/bbl Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Acquisition Cost by Refiners $/bbl Source: EIA 11
Regional Pricing Disparities $160.00 $140.00 $120.00 $100.00 $80.00 $60.00 $40.00 $20.00 $0.00 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) • Western Canadian Select -$25 to WTI Source: Flint Hills, EIA, CME Group, and estimates 12
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; 13
Those differences are impacting prices Source: Flint Hills Resources 14
Regional Discounts Matter with High Cost Production Source: ITG Investment Presentation Nov 2012 15 15
Source: EIA 1,000,000 1,200,000 THOUSAND BARRELS PER DAY 200,000 400,000 600,000 800,000 100 150 200 250 50 0 0 Jan-07 Jan-93 Apr-07 Oct-93 Jul-07 Jul-94 Oct-07 Apr-95 Jan-08 Total U.S. Crude Oil Exports Apr-08 U.S. Exports to Canada of Crude Oil Mbbl/d Jan-96 Jul-08 Oct-96 Oct-08 Jul-97 Jan-09 Apr-98 Apr-09 Jan-99 Jul-09 Oct-09 Oct-99 Jan-10 Jul-00 Apr-10 Apr-01 Jul-10 Jan-02 Oct-10 the Bakken/Three Forks Almost all new production is from 10% of US Production North Dakota accounts for almost Jan-11 Oct-02 Apr-11 Jul-03 Jul-11 Apr-04 Oct-11 Jan-05 Jan-12 Oct-05 Apr-12 Jul-12 Jul-06 Oct-12 Apr-07 Jan-13 Jan-08 Apr-13 Oct-08 Jul-13 Jul-09 Oct-13 Apr-10 Jan-11 TOTAL South Dakota Eastern Montana North Dakota Oct-11 Jul-12 Apr-13 16
U.S. Exports of Petroleum and Petroleum Product U.S. Petroleum Products Exports U.S. Exports 3000 3000 U.S. Exports of U.S. Exports of Other Liquids Kerosene-Type Jet Mbbl/d 2500 Fuel 2500 U.S. Exports of Petroleum Coke U.S. Exports of Thousand Barrels per Day 2000 2000 Finished Thousand Barrels per Day U.S. Exports of Petroleum Residual Fuel Oil Products Mbbl/d 1500 1500 U.S. Exports of U.S. Exports of Finished Petroleum Crude Oil Products Mbbl/d 1000 1000 U.S. Exports of Distillate Fuel Oil U.S. Exports of 500 500 Natural Gas U.S. Exports of Liquids and Finished Motor Liquid Refinery Gasoline Gases Mbbl/d 0 0 Source: EIA 17
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