Investing

For US crudes it’s out with blending, in with batching

EIA Crude oil production report

By Chris Baltimore Argus MediaA rising shift to “neat” barrels from cocktail-like crude blends at the Louisiana infrastructure hub at St James mirrors a wider industry change from blending crudes to segregating them to preserve their unique characteristics.

For years St James was perhaps best-known as the delivery point of the Louisiana Light Sweet contract (LLS). At St James, domestic supply (mostly from the Mars and other offshore fields) was blended with imported barrels to LLS specifications before being shipped northward on the 1.2mn b/d Capline pipeline.

Capline was built for another era in US crude markets, when the primary driver was imports traveling from the Louisiana Offshore Oil Port (Loop) up the Capline to midcontinent refiners. The US shale revolution, as well as a glut of bottlenecked Canadian heavy crude supply, has flipped that equation on its head. The critical path for US crude flows is now toward the tidewater and export markets.

Now with the Capline in the process of being reversed to point southward, St James and south Louisiana are looking to export markets to find a home for inbound supply from pipelines like Shell’s Zydeco and Energy Transfer’s Bayou Bridge lines.

That directional shift in crude flow has placed a greater emphasis on crude quality and segregation, midstream executives told the Argus Americas Crude Summit in Houston earlier this month.

Though south Louisiana infrastructure had been focused on handling offshore crude flows to local refiners, new inbound pipeline capacity has shifted the focus to “protecting the quality of that barrel” and exporting it, Plains executive vice president Chris Chandler told the event.

To be sure, some volumes are still being blended at St James to LLS specifications, Chandler said. But as local refiners and export customers place a higher premium on quality, “we are seeing more and more value placed on the ability to segregate volumes,” Chandler said. Even for crude volumes shipped from as far afield as Canada or the US midcontinent, refiners are increasingly looking to utilize the 40mn bl of tankage at St James to create custom blends to maximize yields that match their specific kits, he said.

A flood of new crude supply headed to the eastern Louisiana coast will require more exports to soak up the supply, the head of Loop said.

“There’s going to be a tsunami of crude coming into the area,” as more supply from the Permian basin creates the need for more exports, Loop chief executive Terry Coleman told the summit.

Loop, currently the only US facility capable of fully loading very large crude carriers (VLCCs) with a capacity of 2mn bl, can export about 1mn b/d using existing infrastructure.

Loop sees storage and larger batch sizes as the key factors for maintaining crude quality, Coleman said. And those larger batch sizes will require more tankage to manage the flows that are required. To maintain quality, crude moving by pipelines needs to be batched in flows of 100,000-150,000 bl, he said.

Crude Lines

 

The risk point

Smaller pipeline batches will cause more inter-mingling of material between shipments, which can degrade the quality and purity of the crude, Chandler said. “The interface is obviously the risk point between batches,” and “larger batches require larger tanks,” he said.

The shift to batched volumes at St James is also apparent at other regional logistical hubs like Midland in Texas and Cushing, Oklahoma. With grades from the Permian basin becoming increasingly specialized, “It’s all about storage,” Chandler said.

Permian grades are often being segregated into four main categories: West Texas Intermediate, West Texas Light, West Texas Sour and condensate. Plains is seeing demand for specialized tankage all the way from the field where the crude is produced to the dock where the crude is loaded for export. “You need tankage and segregated pipelines or at least batch-capable pipelines to maintain that quality all the way through the system,” Chandler said.

Spot market volumes

The WTI Houston market has been gradually expanding its benchmark role since exports began to rise. It has taken over from LLS as the de facto light sweet marker price in coastal refinery economics. Trade volumes attest to the switch.

LLS and WTI Houston traded in roughly equal volumes in the spot market in late 2017. But WTI Houston registered a record 710,000 b/d in trade for delivery in February, compared with LLS volumes of just 30,000 b/d.

Through a concerted industry effort, US producers, pipeline operators and refiners have agreed on key quality standards that have allowed US crude exports to reach new markets, especially in Asia.

That effort came after early export buyers complained about a “bastardized type crude quality,” and US exporters “paid dearly for it,” Brent Secrest, chief commercial officer at Enterprise Products Partners, told the summit.

“Everybody in our chairs has heard the market loud and clear that quality matters and if you can’t maintain quality, you’re not going to have access to the markets,” Secrest said.

Comments

The crossroads of energy information for minerals owners in Oklahoma. Where you can: See recent prices of mineral and lease transactions. Receive an offer to lease or buy your minerals.

Find relevant news stories on the most active areas, including the Scoop and Stack Plays.

Data Powered by Oseberg

Today’s E&P world is rapidly shifting towards data-driven decision making, but those decisions are only as good as the data behind them. Access Oseberg's deep, accurate, and detailed pool of insight-rich industry data with our powerful analytical and search tools and get the clearest picture of what's happening as soon as it happens.

Disclaimer

This web site is maintained solely for the personal use of our visitors. Although we at Oklahoma Minerals have made all reasonable efforts to provide accurate information, we cannot guarantee the completeness, timeliness or accuracy of the information contained herein. Nothing in this web site contains investment advice. Any decisions based upon the information contained in this web site are the sole responsibility of the user.

Copyright © 2020 OklahomaMinerals.com

To Top
Apache Updates Offshore Discovery Full Story