The world’s biggest oil buyers are getting pickier about their American crude purchases.
Asian refiners are discovering that the quality of cargoes varies, leading to fluctuations in the type of fuels they can produce. The shale boom and the end of a US oil-export ban have proven a boon to buyers from China to India as traditional suppliers such as Saudi Arabia cut output to clear a glut. And while shipments from the Gulf Coast have soared, refiners are shifting their focus to crudes with consistent characteristics.
That’s because varieties such as Eagle Ford are a blend of shale oils pumped from wells in south Texas spanning an area about 65 times the size of New York City. Crude from the Middle East, Africa as well as the US Gulf of Mexico come from a small cluster of fields with more stable chemical specifications. Buyers are now turning to conventional American grades such as Mars and Poseidon, or favouring shale supply piped from specific assets.
“The flow of US oil to Asia is here to stay, but Asian importers are learning that not all grades are equally desirable,” says Tushar Tarun Bansal, a consultant from McKinsey Energy Insights. “Buyers are wary of grades such as Eagle Ford and can’t take much more of it.”
Three Asian refiners that purchased and refined Eagle Ford shale oil don’t plan to buy significant volumes of the grade due to concerns over the consistency of its quality, according to a Bloomberg survey of officials at the companies. Two of the three respondents said their cargoes – each between 500,000 and 1mn barrels in size – yielded more light distillates such as liquid petroleum gas and naphtha than they expected.
Companies typically select a mix of different crudes to process, choosing grades based on chemical characteristics that will yield higher volumes of the fuels that are most in demand. When the oil specifications are inconsistent, plants may pump out less of the products that the refiners want and more of what they don’t require at the time.
According to the refiners and two sellers of US crude to Asia, the variance in characteristics is acute for grades such as Eagle Ford and Domestic Sweet Crude – an aggregate of oil from numerous streams that’s blended in tanks such as those in the storage hub of Cushing, Oklahoma.
“Unlike Middle Eastern or West African crudes, which originate from one single large and stable reservoir, shale crudes are often extracted from multiple layers and can originate from different parts of a basin which have varying geological characteristics,” said Virendra Chauhan, an analyst at industry consultant Energy Aspects.
Eagle Ford consists of a blend of oil and ultralight crude called condensate that’s pumped from thousands of wells in a formation that sprawls from Texas to Mexico. Its American Petroleum Institute gravity – a measure of density – ranges from 45 degrees to over 60 degrees. Domestic Sweet Crude, or DSW, is a composite of crude from conventional and unconventional acreage in the US and Canada with an API gravity reading of 37 to 42 degrees.
In West Africa, Nigerian Qua Iboe crude is pumped from fields 20-40 miles off the country’s coast and brought to shore directly via an under-sea pipeline linked to a designated export terminal. And in the Middle East, Abu Dhabi’s Upper Zakum crude is extracted from three fields to Zirku Island for shipment abroad.
Refiners are now trying out American oil from conventional Gulf of Mexico assets, as well as shale crude pumped and transported from a specific acreage. Some buyers like Taiwan’s state-owned CPC Corp are turning to imports of WTI Midland, a blend of shale oil from the Permian Basin that can be directly transported via the BridgeTex pipeline to Houston for export.
In its most recent tender, CPC bought 4mn barrels of the grade in its single largest purchase of the variety since buying its first cargo in May. South Korea’s imports of WTI Midland in October more than doubled from a month earlier.
Asian refiners are also seeking to load smaller quantities of US shale oil with more-familiar grades from Mexico in big ships to mitigate quality risks and cut freight costs. The total volume of US and Mexican crude that were loaded onto a single ship for export surged more than fivefold to 11.8mn barrels through the end of November, from 2.1mn barrels in 2016, data from vessel-tracking and intelligence company Kpler show.
About 350,000 barrels per day of oil flowed from the US to Asia from January to September this year, according to Chen Bo, the president of Unipec. Asia was the top destination for American crude during the period, taking 37% of exports, said Chen, who heads the trading arm of refiner China Petrochemical Corp, also known as Sinopec.
LEAVE A COMMENT Your email address will not be published. Required fields are marked*
QFC, Agaoglu sign MoU to support Qatar-Turkey business, trade relations
Qatar Airways bags award for IATA safety audit feat
‘Milaha stays committed to expanding presence in India’
Saudi seeks oil as high as $100 ‘to support Aramco IPO plan’
Ahlibank net profit rises 3.6% to QR176.1mn in first quarter
Pound bulls get reality check as slowing inflation hits BoE bets
Japan exports disappoint on strong yen, trade friction
China fans trade row with hefty deposit on US sorghum imports
UK inflation drop muddies outlook for interest rates