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, 214
About EPRINC www.eprinc.org Infrastructure Paper http://eprinc.org/wpcontent/uploads/213/1/eprin C-PIPELINES-TRAINS-TRUCKS- OCT31.pdf Rin App http://eprinc.org/214/2/rinsaround-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 212 During the course of 213 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 213 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
2 21 22 23 24 25 26 27 28 29 21 211 212 Jan-Oct 213 214 215 216 217 218 219 22 Thousand Barrels Per Day 16 North American Oil Production and Forecast 14 12 1 8 6 4 Canada Oil Production U.S. Oil Production Dec 213 Oil Production U.S. 7.9 mbd Canada 3.7 mbd 2 Source: EIA, Canadian CAPP forecast, EPRINC U.S. forecast, EPRINC Mexico, and EPRINC estimates 6
7,, Jan 214 EPRINC s Forecast for Major U.S. Shale Plays 6,, 5,, EPRINC forecasts an additional 2.5 mbd by 22 4,, 3,, Periphery Permian Eagle Ford Bakken EPRINC's May 213 Forecast 2,, 1,, 28 29 21 211 212 213 214 215 216 217 218 219 22 Source: HPDI data with EPRINC forecast estimates 7
Thousand Barrels Per Day U.S. Total Imports, U.S. Production, U.S. Canadian Imports 12 1 8 6 4 2 Dec 213 U.S. Imports 7.8 mbd U.S. Production 7.9 mbd Canadian Imports 2.8 mbd 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 Source: EIA 8
Jan-7 Apr-7 Jul-7 Oct-7 Jan-8 Apr-8 Jul-8 Oct-8 Jan-9 Apr-9 Jul-9 Oct-9 Jan-1 Apr-1 Jul-1 Oct-1 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 Shale Oil Play Production 1,6, 4,, 1,4, 3,5, 1,2, 3,, 1,, 2,5, 8, 2,, 6, 1,5, 4, 1,, 2, 5, North Dakota Permian Basin Eagle Ford Combined Production Source: HPDI Feb 213 9
Barrels Per Calendar Day Number of Refineries Simple vs. Complex 1,, 9,, 8,, 7,, 6,, 5,, 4,, 3,, Total Coking Capacity vs. Atmospheric Crude Distillation Capacity by PADD Cokers = Heavy refining capability 6 5 4 3 2 Operable Atmospheric Crude Oil Distillation Capacity Thermal Cracking Coking Downstream Charge Capacity 2,, 1,, 1 Operating Refineries - PADD 1 East Coast PADD 2 Midwest PADD 3 Gulf Coast PADD 4 Rockies PADD 5 West Coast Source: AFPM map, EIA data for graph 1
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 $/Barrel $/Barrel Domestic vs. Imported RAC 14 12 1 8 6 4 2 Rocky Mountain (PADD 4) Crude Oil Domestic Midwest (PADD 2) Crude Oil Domestic Gulf Coast (PADD 3) Crude Oil Domestic West Coast (PADD 5) Crude Oil Domestic East Coast (PADD 1) Crude Oil Domestic 14 12 1 8 6 4 2 Rocky Mountain (PADD 4) Crude Oil Imported Gulf Coast (PADD 3) Crude Oil Imported East Coast (PADD 1) Crude Oil Imported Midwest (PADD 2) Crude Oil Imported West Coast (PADD 5) Crude Oil Imported Source: EIA 11
Jan-8 Jun-8 Nov-8 Apr-9 Sep-9 Feb-1 Jul-1 Dec-1 May-11 Oct-11 Mar-12 Aug-12 Jan-13 Jun-13 Nov-13 Regional Pricing Disparities $16. $14. $12. $1. $8. $6. $4. $2. $. 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 211; EOG Investor Presentation Feb 214; 13
Those differences are impacting prices Source: Flint Hills Resources 14
Regional Discounts Matter with High Cost Production Source: ITG Investment Presentation Nov 212 15 15
Jan-93 Oct-93 Jul-94 Apr-95 Jan-96 Oct-96 Jul-97 Apr-98 Jan-99 Oct-99 Jul- Apr-1 Jan-2 Oct-2 Jul-3 Apr-4 Jan-5 Oct-5 Jul-6 Apr-7 Jan-8 Oct-8 Jul-9 Apr-1 Jan-11 Oct-11 Jul-12 Apr-13 Jan-7 Apr-7 Jul-7 Oct-7 Jan-8 Apr-8 Jul-8 Oct-8 Jan-9 Apr-9 Jul-9 Oct-9 Jan-1 Apr-1 Jul-1 Oct-1 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 Total U.S. Crude Oil Exports 1,2, 25 1,, U.S. Exports to Canada of Crude Oil Mbbl/d 2 8, 6, 15 4, 1 2, 5 North Dakota accounts for almost 1% of US Production Almost all new production is from the Bakken/Three Forks North Dakota Eastern Montana South Dakota TOTAL Source: EIA 16
Thousand Barrels per Day Thousand Barrels per Day 3 25 Petroleum and Petroleum Product U.S. Exports Other Liquids Mbbl/d 3 25 U.S. Petroleum Products Exports Kerosene-Type Jet Fuel 2 15 1 Finished Petroleum Products Mbbl/d Crude Oil Mbbl/d 2 15 1 Petroleum Coke Residual Fuel Oil Finished Petroleum Products Distillate Fuel Oil 5 Natural Gas Liquids and Liquid Refinery Gases Mbbl/d 5 Finished Motor Gasoline Source: EIA 17
Infrastructure Challenges will Remain 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 New markets Diversification Neat Barrels Nimble - Quickly adjustable Optionality for Canadian and U.S. crude, NGLS, and other petroleum products Source: EPRINC Maps using Hart Energy data and ArcGIS Mapping software 18 18