Bakken Export Expectations

Ports along the Gulf Coast expect to see increased activity moving Eagle Ford crude. Port Corpus Christi already has deep water, dock space and abundant storage but it plans to deepen the channel near the port to accommodate larger tankers.
By The Bakken Magazine Staff | January 18, 2016

It didn’t take long for NuStar Energy L.P., one of the largest independent liquid terminal and pipeline operators in the U.S., to become a crude exporter. Shortly after Congress approved a bill to remove the 40-year old ban on exporting U.S. crude in early December, NuStar went to work for ConocoPhillips. From its North Beach Terminal in the Port of Corpus Christi, NuStar loaded and shipped Eagle Ford light crude retrieved by ConocoPhillips through a contract with international trading company Vitol. The destination or volumes shipped have not been disclosed, but Vitol does own and operate a refinery in Switzerland. Enterprise Product Partners, which ships through a contract with Vitol, also announced it would begin exporting crude shortly after the ban was lifted.

Although industry leaders have been unable to describe in detail how the ban’s exit will impact the shale energy industry in the short-term, the majority believe the ban’s removal is a boon to the industry over the long-term. “Modernizing our nation’s energy policy to reflect this new era of energy abundance is a win for consumers, is a win for small business owners who support the energy supply chain, is a win for our economy and is a win for our allies and trading partners,” said George Baker, executive director of Producers for American Crude Oil Exports. “Now that we have leveled the playing field, the U.S. finally has an opportunity to compete and realize our nation’s full potential as a global energy super power.”

Lifting the ban will provide long-term benefits to North Dakota, said Ron Ness, president of the North Dakota Petroleum Council, even if there is no immediate impact on oil prices.

Energy producers and midstream companies are both exploring and executing on new strategies and investments that can make exporting U.S. crude possible. Pioneer Natural Resources, a large independent oil and gas exploration company, has already said it is actively working with its midstream partners to secure export facilities along the U.S. Gulf Coast for future export deals. NuStar has already made investments in additional storage tanks, dock space and automated systems at its Corpus Christi port. The company is also planning to build a second dock at the port. The new dock would bring NuStar’s total to four, and once built, would allow the company to load crude simultaneously at a maximum rate of 90,000 barrels of crude per hour.

Crude oil tankers are classified into several categories. Tankers capable of shipping refined products are typically smaller, in the 70,000 barrel size range. Tankers most suitable to ship light crude oil, however, could move as much as 550,000 barrels per tanker. A tanker’s capacity is measured in deadweight tons. Its capacity in barrels is calculated by estimating 90 percent of the ships deadweight tonnage and multiplying that by a per barrel conversion factor specific to each type of petroleum product, according to the U.S. Energy Information Administration.

Crude Locations
Pioneer Natural Resources will initially focus on exporting crude to Europe, Asia and Latin America. The majority of its crude will come from the Eagle Ford or Permian Basin. Experts from Turner Mason & Co., a Dallas-based engineering and consulting firm, believe most exports will reach Mexico or other parts of Latin America in the near-term. Some will also reach Europe. In the future, the Atlantic Basin—not China—could be the top market for American producers, says John Auers, executive vice president at TMC.

“Europe wants to reduce its energy dependence on Russian and other undependable sources such as Africa,” he said. “Having access to at least another source of crude that fits well with their refineries is a plus.”

The majority of crude exported from the U.S. will be shipped from the Gulf Coast, Auers also said, but for the Bakken, that isn’t a bad thing. As more barrels are moved from Texas to the coast to non-U.S. markets, market space onshore in the U.S. will open for more Bakken crude.

Since passing the bill to repeal the export ban, Congress has already discussed the possibility of implementing a tax break for U.S. refiners that were utilizing cost-advantaged crude from U.S.-based shale plays.

Ports along the Gulf Coast expect to see increased activity moving Eagle Ford crude. Port Corpus Christi already has deep water, dock space and abundant storage but it plans to deepen the channel near the port to accommodate some of the world's largest tankers. "Infrastructure improvements at Port Corpus Christi have placed our port in a unique position as a critical component in the export of U.S. crude and condensate," says John LaRue, the port's executive director.