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Louisiana port project could define ceiling for shale oil demand

Louisiana port project could define ceiling for shale oil demand
A proposed Louisiana port project could define the ceiling for the future of the Texas shale oil boom, according to a new report.

While Houston and Corpus Christi are leading the way in the burgeoning crude oil export industry, they could be surpassed by proposed plans to turn the Louisiana Offshore Oil Port into a “two-way LOOP” that ships out crude as well as receives it.

The LOOP is currently gauging customer interest for major crude exports. If successful, LOOP could make oil exports comparable to the nation’s growing liquefied natural gas export industry. If the interest isn’t there, we’ll know the “ceiling on international demand for shale crude,” argues Sandy Fielden, Morningstar’s director of oil and products research.

“That ceiling could pose a greater constraint on future production than lower (oil) prices or OPEC production cuts,” Fielden concluded.

LOOP’s interest in oil exports is notable in part because its the only Gulf Coast terminal capable of handling the largest oil supertankers. The 36-year-oil LOOP only imports oil for now, carrying foreign oil to pipelines that ship it to refineries.

In 2010, LOOP took in about 900,000 barrels a day, but that amount has since fallen substantially to less than 600,000 barrels daily. Because of the nation’s decreasing reliance on foreign oil, a growing percentage of the oil LOOP receives now comes from Texas and the deepwater Gulf of Mexico, and not just other countries.

“At the same time as LOOP inbound tanker shipments are declining, U.S. crude production and exports are increasing,” Fielden noted.

U.S. crude exports have grown from more than 500,000 barrels daily in 2016 to almost 1 million per day this year, according to the U.S. Energy Department, since Congress undid the decades-old crude export ban at the end of 2015.

Much of the exports remains in the experimentation phase with a lot of foreign companies and countries opting to “buy and try” U.S. crude oil grades thus far, rather than setting up regular shipments, Fielden argued.

While most of the country’s crude exports are leaving Houston or Corpus Christi, the problem is Texas’ facilities can’t accommodate the biggest tankers carrying full cargo loads. They’re mostly spending more time and money to use smaller vessels and then transfer those cargoes to the tanker class called very large crude carriers.

The first so-called VLCC to enter Corpus Christi did so in late May for testing purposes, but such vessels can’t take even close to full cargo loads until terminal modifications are completed in a couple years or so. Houston-based Occidental Petroleum is leading the effort with the Port of Corpus Christi.

Exporting from LOOP would lower freight costs and allow for the blending of different crude grades to meet specific customer needs thanks to LOOP’s crude storage hub.

Another caveat is that a LOOP expansion could connect to the in-construction Bayou Bridge pipeline from Texas through Louisiana that’s being built by Phillips 66. The pipeline is set to receive oil from the controversial Dakota Access Pipeline, giving Bakken crude oil – and even some Canadian oil – the opportunity to be exported from the Gulf Coast.

Still, Houston and Corpus Christi remain well situated because they – and not LOOP – are best connected to crude pipeline from West Texas’ Permian Basin, where the current oil boom is focused, Fielden noted.

The California West Coast is still best situated geographically to ship crude via supertankers, but California ports don’t have the pipeline infrastructure to easily receive Texas oil.

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