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Global oil traders are looking to grow their exposure to the surging flows of US shale oil, taking stakes in pipelines, storage tanks and export terminals as the world’s biggest oil producer wins an increasing share of the global oil market.
More than three years after a ban on US crude exports was lifted, independent trading houses are acutely focused on controlling US export infrastructure in the hunt for trading margins from shipping US light oil to refiners around the world, speakers at the FT Commodities Global Summit in Lausanne, Switzerland, said Tuesday.
US oil exports surged by more than 70% last year to just over 2 million b/d, according to the US Energy Information Administration, and export flows are expanding fast. Since the end of February, US exports have averaged over 3 million b/d.
Driven by shale, the International Energy Agency forecasts that the US will become net oil exporter in two years with gross US oil exports doubling by 2024 to 9 million b/d, overtaking Russia and closing in on Saudi Arabia.
“For our business, it’s important that we own some of the export infrastructure, some of the capacity to move this oil out,” Russell Hardy, the CEO of Vitol, the world’s largest independent oil trader, told the conference.
“It’s going to be a very significant flow, mostly to Asian customers…so it’s about positioning ourselves to participate in the exports.”
VLCC SHALE EXPORTS
Vitol’s trading rival Trafigura — one of the biggest exporters of US crude since the 40-year-old curbs on oil exports the country were lifted in 2015 — is already vying to become the first to open a deepwater export port off Texas to handle more shale exports.
If approved, the planned offshore terminal would allow the loading of VLCC tankers of US shale oil, which can carry up to 2 million barrels, likely shipping them to Asian customers.
Trafigura is facing competition for its offshore terminal off Corpus Christi on a number of fronts including plans by investor Carlyle Group and midstream giant Enterprise Products Partners. Given expected approval and permitting schedules, it is seen as unlikely the export terminals will be operational before 2021.
Trafigura is also an anchor tenant in the Cactus II pipeline from the Permian to Corpus Christi, which it expects to come online late this year.
“With large amounts of oil from the West being exported to the East, significant numbers of vessels are also needed,” Trafigura CEO Jeremy Weir told the event. “Trafigura are adding capacity and are currently taking delivery of 35 modern and lower emission vessels to help plug this gap.”
CRUDE QUALITY
The head of oil at mining and trading giant Glencore, Alex Beard, agreed about the need for more US oil export infrastructure, saying his company was also targeting US shale infrastructure. “The US is an enormous opportunity but it is also heavily competed,” Beard said. “We are focusing more on the export flows of oil, whether that’s funding producers or long-term commitments on pipeline capacity, rather than buying assets and developing them.” BP, which took over major US shale portfolio with its $10.5-billion purchase of BHP Billiton’s US shale assets in 2018, plans to integrate its shale access further into its US refining system and look at export infrastructure to the US Gulf Coast, its head of supply and trading Alan Haywood said.
As more light US shale oil flows to world markets, much of the margins available to intermediaries such as Vitol will be found in trading differentials between different crude qualities, Haywood said.
“[Over the coming years] we’ll have more light sweet coming out if the US and heavy coming into the US, that’s exactly what traders are trying to do to create efficiency in those value chains.” The CEO of trading house Gunvor, Torbjorn Tornqvist, said he is still looking to take more advantage of rising US exports but was tight-lipped on specific projects. “Looking around the world, the US is probably the most interesting place going,” he said.
via HSN