Shale Oil Growth to Overwhelm U.S. Refiners, Fuel Exports: Study

Reuters, March 6, 2018

Rising U.S. shale oil production will overwhelm the nation’s refining capacity, with three-quarters of the additional oil produced in the United States by 2023 shipped to Europe and Asia, according to a new study by consultancy Wood Mackenzie. The research points to the continued impact of U.S. shale on global markets and the mismatch between domestic refining capacity and rising crude output. The oil could bottleneck at U.S. Gulf Coast ports unless new infrastructure is built, researchers said.

U.S. refineries will absorb between 900,000 barrels per day (bpd) and 1 million bpd of the expected 4 million bpd of additional production to emerge from U.S. oil fields, Wood Mackenzie said in a study released on Monday. That will leave three-quarters of the additional crude and ultra-light oil known as condensate destined for non-U.S. buyers in the next five years, the researchers said. The oil will vie with Middle East and African crudes in world markets, they said.

U.S. refiners prefer to run medium and heavy crudes and will not be able to handle all the additional light crude. The U.S. has been slow to add processing capacity because demand for gasoline is forecast to decline. Since at least 2014, ExxonMobil Corp has considered an expansion of light-crude refining capacity at a Beaumont, Texas refinery, but has yet to approve the project.

Most of the crude and condensate exports will head to refineries in Europe through 2022, and new barrels thereafter could land in Asia, according to the study. U.S. crude exports hit 2.1 million bpd late last year. The appetite for U.S. oil may weaken ahead. Worldwide growth in demand for crude is expected to be strong for the next year and level off or possibly decline sometime in the next decade, said Wood Mackenzie Chief Economist Ed Rawle.

About half of the new, mostly-light U.S. oil output will come from the Permian Basin in West Texas and New Mexico, according to John Coleman, Wood Mackenzie’s senior analyst for North American crude oil markets. He expects much of the 1.9 million barrels of Permian oil to head to Corpus Christi, a South Texas petroleum export hub. At least two pipelines connecting the area and the Permian are under construction.

Researchers said it is unclear whether there will be enough U.S. marine terminal capacity and docks to meet the new flows. The Louisiana Offshore Oil Port, or LOOP, is the only U.S. Gulf Coast location directly loading and offloading very large crude carriers (VLCC). Most large crude tankers are loaded directly from smaller vessels.

Occidental Petroleum has tested loading a VLCC, capable of carrying 2 million barrels of oil, at its terminal in Ingleside, Texas, near Corpus Christi. The ship was not able to transit the Corpus Christi ship channel fully loaded. Loading was finished in the Gulf of Mexico.

In October, the Port of Corpus Christi signed an agreement with the U.S. Army Corps of Engineers to expand the ship channel to accommodate larger tankers.

(Reporting by Erwin Seba; Editing by Gary McWilliams and; Phil Berlowitz)

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