abarrelfull wrote on 21 Dec 2009 06:50
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The Emptying of Cushing
created: 02 Apr 2014 07:10
tags: pipeline usa wti
Since 2009, the massive changes being brought about by growing production of oil sands crude, tight oil and shale gas associated liquids, have meant that Cushing, the centre of the USA's crude inventories has been oversupplied with oil, and the pipelines emptying it have been insufficient.
The result of this has of course been that WTI, the US crude benchmark and Brent, the North Sea based global benchmark have been out of sync. The impact of this has been huge, Shale Oil Impact on both sides of the World talks about some winners, whilst Why Nigeria is Losing from US Tight Oil discusses one of the losers.
However, according to the EIA, crude oil stocks are down 32% over the past two months. So we finally have, albeit probably temporarily, a solution to our WTI "problem". It is not a surprise it is thanks to a couple of pipeline projects, first the Seaway Crude Oil Pipeline was reversed and expanded, secondly the first section of the Keystone XL Pipeline Project was recently completed.
Just as the impact of too much US crude was felt world wide, The Impact of Keystone XL on Global Oil Markets is going to be big as well.
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Why The USA Should Export Crude Oil
created: 05 Feb 2014 20:02
tags: refinery upstream usa
Whilst the USA likes to pretend that it is a beacon of free markets, when it comes to energy, we can see that this is not the case. The discussion around exporting LNG and Crude Oil has once again shown that all is not what it seems.
The arguments against exporting tend to revolve around the idea that it will be bad for consumers, whilst arguments for, tend to be based on ideals and principles.
Whilst I fundamentally support the idea of free trade, I believe that there is a more self interested argument in favour of exporting crude oil. (I have previously argued in favour of gas exports here). I do not believe that exporting would have a significant effect on gasoline prices.
The Wrong Crude
First of all, the USA is producing the “wrong sort of crude”. It is completely different to the crude used in the majority of refineries. It is light and sweet, whereas crude currently imported is heavy and sour. Major suppliers to the USA are Canada, Venezuela, Colombia and Mexico, all of which have predominantly heavy crudes.
In order to utilise this fundamentally cheaper raw material, refiners have invested heavily in upgrades, such that good quality products can be produced from poor quality crude. Such refineries can be retooled to process the domestic supplies, but then billions of dollars of investment would be wasted. Surplus heavy crude would then get cheaper, disadvantaging those that made the switch.
By exporting light, and importing more heavy, you are effectively decreasing your NET import bill.
Gift to the Globe
The impact of extra production in the Bakken, Eagle Ford and the Permian is not being enjoyed by the rest of the world. They are still stuck buying Brent indexed crude. Before feeling smug, think this through. The impact of fully integrating US crude with the world would be a cheaper price of oil for everyone.
Whilst WTI prices would go up, Brent prices would undoubtedly also go down. The impact of cheaper oil (even marginally) on fragile emerging market economies would be a great boost for the global economy.
Moreover, the possible impact of crude oil price rises is limited. As an aside, not all US refiners are even seeing the benefit of cheaper crude, so a weighted average crude cost could conceivably actually go down.
Consumers Don’t Buy Crude
When was the last time your bought a barrel of oil? Gallon of gasoline?
Exactly, the consumer is interested in gasoline prices, not WTI. Gasoline prices are set in an open global market. Therefore they are not nearly as impacted by WTI prices as you might think. As volumes of gasoline increase, refiners with more expensive oil, simply produce less. So gasoline follows global crude prices, not just US ones.
The only clear winners from the current set up are refiners. Unless you have shares in such companies, you are probably not really benefiting very much.
Upstream Job Potential Far Outstrips Downstream
Shale oil is expensive stuff to produce, if the price falls too much, supply will fall with it. At the same time, we are all familiar with the stories of zero unemployment in shale oil regions.
So why put at risk, a sector that has generated masses of well-paid jobs, whilst other sectors have struggled. The better the price given for the oil, the more activity there will be in the sector.
The refining sector is producing some new jobs, but it cannot compete with the shale boom.
Not Enough Investment Elsewhere
Most of the new upstream projects today are expensive. They need a high price of oil to offer a return on investment. Shale oil adds another risk. If America is kept apart from the global market, less oil will be produced and we may well see further increases in prices.
In short, the upside for US citizens far outweighs the small risk of a few cents rise in prices at the pump.
