U.S. Crude Exports Hit A Major Milestone

“There could not be a better time to offer this service as domestic production surpasses 10 million barrels per day in the ever-dynamic global crude oil market,” Tom Shaw, president of the Louisiana Offshore Oil Port (LOOP) said on Sunday as the first supertanker loaded with U.S. crude oil set sail from the Gulf Coast en route to Asia.

LOOP is the only U.S. port capable of fully loading a very large crude carrier (VLCC) — a supertanker capable of carrying around 2 million barrels of oil — and the first outbound super-vessel from that port now steps up the United States’ competitiveness in crude oil sales overseas. The port is expected to reduce shipping costs, thus making U.S. exports more attractive, especially on long-haul routes to the oil-hungry markets in Asia.

The U.S. has already exported crude oil in supertankers, but because all U.S. ports except for LOOP are too shallow for the very large tankers, smaller tankers have had to make multiple short voyages to the supertankers to load them while they dock offshore.

The smaller tankers, Aframax and Suezmax, can carry up to 800,000 barrels and up to 1 million barrels of oil, respectively. Loading a VLCC outside ports in the U.S. Gulf Coasts usually requires three to four Aframaxes to make the short trips for ship-to-ship transfers. Direct loading of the very large tankers at LOOP would eliminate the ship-to-ship oil transferring, therefore reducing costs.

But it’s more than just that. Until now, LOOP would receive inbound foreign cargoes on VLCCs, which then returned empty. Now the port can send out those supertankers fully laden with U.S. crude oil, optimizing the oil flows in and out of the U.S. and boosting the profitability of American oil exports.

Since the U.S. removed restrictions on oil exports in late 2015, exports have started to increase and surged in the aftermath of the hurricanes at the end of last year, significantly boosted by a wide WTI-Brent spread that made shipping U.S. oil to Asia more profitable.

U.S. crude oil production continues to grow and exports in January also increased significantly compared to January 2017. According to EIA data, U.S. crude oil exports averaged almost 1.4 million bpd for the four weeks ending January 26, compared to around 700,000 bpd on average in January last year. U.S. crude oil production is currently expected to average 10.6 million bpd this year to an all-time high, and to further grow to average 11.2 million bpd next year.

After Hurricane Harvey disrupted the U.S. Gulf Coast oil and refinery industry, U.S. exports surged as export facilities reopened after the storm and before many refineries returned to pre-storm levels of utilization. The U.S. increased its market share in the prized Asian market, which has been the traditional stronghold of OPEC exports.

Exports to Asia accounted for 35 percent of total U.S. exports of crude oil in the first eight months of 2017, averaging 312,000 bpd, the EIA said last month. In September and October, exports to Asia accounted for 40 percent of total U.S. exports of crude oil, averaging 636,000 bpd. This was more than double the pre-Harvey export levels.

Headwinds for U.S. exports include the Brent premium over WTI, which has halved since its peak at $8 a barrel following the hurricane season, but while smaller today, the spread is still supportive of U.S. exports.

The direct loading of supertankers at LOOP could add to the appeal of U.S. oil relative to other source countries, because it cuts shipping costs and eliminates the need for cumbersome ship-to-ship transfers in loading very large tankers out at sea.

The U.S. also has the chance to further boost its importance on the fast-growing Asian oil markets.

According to a Q1 2018 poll by research firm Gulf Intelligence, 63 percent of industry participants surveyed said that the Middle Eastern producers will be the biggest losers as U.S. oil and gas exports gain more Asian market share. Another 30 percent expect the African producers to be the biggest losers. In addition, 67 percent of the polled expect U.S. exports to Middle Eastern countries to become a trend, after the UAE and Kuwait have imported U.S. oil and gas cargoes over the past year. The UAE has recently received a U.S. condensate cargo in a historic shipment of U.S. ultra light oil to the Middle East.

Direct loading of very large tankers at a U.S. port could make shipping costs cheaper and give America more influence and market share among the global crude oil exporters.

By Tsvetana Paraskova for Oilprice.com