Production of light, sweet crudes from unconventional oil fields in the US is ramping up so fast that at some point it will outpace the country's refining capacity and -- at least for the Gulf Coast -- this could occur within two years, a top analyst for Standard & Poor's said.

While producers in the Midcontinent are using all available means to deliver their crudes to refineries from plays such as the Bakken in North Dakota, the Eagle Ford in South Texas and Permian in West Texas, "not all crude types will fare the same under all these new dynamics," Mark Habib, S&P director, utilities and infrastructure, said during a Wednesday webcast on emerging tight oil plays.

S&P and Platts have the same parent company, McGraw Hill Financial.

"There will be pressure on light sweet crude prices in the US," Habib said. "Largely this will be a function of the increasing production we're seeing [from unconventional plays]. Essentially we anticipate light sweet production in the US will exceed the needs of US refiners."

Certainly on the US Gulf Coast, light sweets from the Eagle Ford and Permian are increasingly backing out waterborne imports and could also replace Bakken oil there, he said.

While the timing of this depends on a suite of factors that include refinery utilization, what the refining cracks look like and the rate of crude production growth, at least for the Gulf Coast, "we're generally saying this could occur within two years," he said.

If some refineries debottleneck their crude streams to take a little more light crude, "that could help to push [the timing] out a little bit," he added. "But it's not matter of if, but when."

The US Gulf Coast, also designated within industry as PADD 3, is the US' largest refining area with over 9 million b/d of throughput capacity. The region is largely geared to process heavy oil, which should increase over time -- particularly from Canada which eventually should be a big beneficiary of the area's ramped-up refining capacity. Industry several years ago began conversion projects in anticipation of increasing volumes from Canadian oil sands, and this has also occurred in the US' Midwest refining areas.

"That creates greater reliance on heavy [oils], to the detriment of light demand," Habib said. "In face of the Eagle Ford, Permian and other light production volumes, we believe imported volumes of light crude will be increasingly backed out to the point of being completely eliminated from PADD 3."

That is likely to drive a discount in Louisiana Light Sweet crude relative to Brent pricing, he added. The discount "will have to fall to levels that allow for economic clearing of that excess crude, either by rail, vessels or other means."

With light crude oversupplied in PADD 3, "We believe Bakken production will get shut out of the Gulf Coast market and no longer will find an economic outlet to the south," he said.

Instead, the market for that production may increasingly become the East and West Coasts, "but we see a similar dynamic where [price] discounting will have to occur to ... move that crude by the most economic means available to demand centers," he added.

Meanwhile, production just keeps flowing from unconventional and shale plays, particularly what industry is coming to call the "Big Three" fields -- the Bakken, Eagle Ford and Permian Basin. Since 2008 alone, applying modern technologies to these fields has driven up US oil production to over 6.5 million b/d from 5 million b/d in 2008, said Carin Dehne-Kiley, S&P director, commodities ratings.

S&P and many producers claim the Eagle Ford is the most economic of these plays, with roughly a 32% return rate, followed by the Bakken core area in Mountrail County, North Dakota, at 25%, ]S&P said.

The Eagle Ford condensate and gas windows show a 24% return rate, followed closely by a 23% return rate in the Wolfcamp formation of the Permian basin and 10% by the Permian's Bone Spring formation, all based on a $75/barrel oil price, Dehne-Kiley said.

The Eagle Ford shale produced about 800,000 b/d in January, according to data supplied by Platts' unit Bentek Energy, which sees it ramping to 1.3 million-1.4 million by 2016. Bakken output totaled 738,000 b/d in January, and should reach 1.2 million b/d by 2016.

Permian oil production was close to 1.2 million b/d in January, and Bentek estimates 1.3 million b/d by year-end and up to 1.9 million b/d by 2016.

 


Comments

06/07/2016 2:40am

I am really happy to read your blog post. I found a lots of approaches after seeing your blogs. Great work.

Reply

I am really surprised after reading this article related to the types of the oil that are having very interesting aspects in their use. After reading this post my knowledge about the world of the oil is really boosted by your shared words.

Reply
07/10/2017 4:33am

Are you looking for ways to save at your mounting power bills for you are already annoyed with the high cost bills you've been receiving? If you want to be free from this thing, you can surely do something in order to help your situation and if you are not yet aware of the solar electric power, then be ready to include this thing onto your list of alternatives for cheap electricity.

Reply
11/03/2017 11:38pm

Reply



Leave a Reply


SPYDR Oilfield Service LLC. Copyright 2013 - 513 East Broadway, Williston, North Dakota 58801 701-774-2340 SPYDR OILFIELD SERVICE -Roustabout -Oil Field Contstruction- Oilfield Maintenance