The US oil industry is in a bit of a quandary. The Houston & Louisiana refining area is the largest in the world. It has just had tens of billions of dollars thrown at it, to prepare it to run heavy sour sources. These heavy sour grades are typically cheaper, and contain lots of secondary products during the refining process.
In simple terms, we have spent the last twenty years preparing to make more out of lower quality oil. It was a great idea, when the handwriting on the wall said these would be the only real sources of future growth in hydrocarbon volumes.
If they ran this stuff, they would have to turn off a significant number of units at their refinery’s that are designed to capture and crack the heavy sludge. This leave the US refining patch in a bit of a jam.
The new Eagle Ford shale oil is coming online in large volumes. Rumors are that Eagle Ford production will crack 500,000 barrels by the end of 2012, if they can get around localized shipping constraints.
Right now it is the gathering of the stuff in quantities that are easy to ship/export that is the issue.The crude is so light in some places, they need specialized trucks to collect it and bring it to a gathering location. There isn’t the capacity to pick up the crude and bring it to market available right now.
We are talking about 100,000 barrels of oil production behind pipe right now, and growing daily as people rush to install new smaller capacity pipelines around Texas to help haul it away.
The irony is that the new supply is super light & sweet. A mix never expected in the US again.
Platts had an article on this exact topic in June of 2011.
The US could resume exporting some of its domestic crude oil production in 2012 when the output from Eagle Ford Shale in Texas ramps up.
Eagle Ford shale crude’s gravity ranges from 42 API to 60 API with very low sulfur content, which in the US Gulf Coast refining terminology is considered a super light crude.
But that’s the problem for US refiners: they aren’t built to process that type of crude. So the highest value for it may be outside the country.
The US exports may be to the US East Coast first. The refinery’s based on the east coast tend to have a higher sweeter demand over their Southern units.
In fact, the blow out in Brent prices has severely affected their profits due to sourcing costs increasing significantly this spring with the Libya revolution. There have been at least 3 refinery’s put up for sale or being put into mothballs until a cheaper source of crude is available.
“U.S. east coast refining has been under severe market pressure for several years. Product imports, weakness in motor fuel demand and costly regulatory requirements are key factors in creating this very difficult environment,” ConocoPhillips said when it put Trainer on the auction block.
If the three refineries on the block shut down, what does this mean for oil markets?
In the case of the US, if Texas starts to export light sweet crude by large barges to the east coast. You could see a Renaissance in US exports of refined products as these units produce above domestic demand needs.
The irony is that in the US we have removed the demand for the lighter sweet crude’s, so much so we will soon be exporting it from our primary refining center due to excess capacity in supplies. NOT DEMAND.
The energy crisis of 2005 is not the supply crisis everyone was looking for. I wonder how long it will take society to catch up to the new reality. The US is going to become an energy exporter, even if its Texas shipping crude to those Yankees up north.
Before you fall out of your chair laughing, look at this chart, conceptualize it, and then leave me a comment in the section below. I look forward to your thoughts on this chart.
Its a chart of barrels of oil produced per year from a specific zone in Texas. It will double every year for the next few. Then think about other new zones like it coming online in the next few years. Its a small amount today, but a not so small amount by tomorrow.