Loop weighs the possibility of US oil exports

Argus Media
8 November 2012     

New Orleans, 8 November (Argus) — The Louisiana Offshore Oil Port (Loop), the US' top offloading port for foreign and domestic crudes, is weighing whether to outfit its facilities to load vessels with crude amid growing interest from customers who hope to one day to be able to export domestically produced oil.

Exports of American crude are virtually banned, with a very few exceptions. Firms can and have recently received government waivers to move crude in small batches from the US to Canada. But an onslaught of domestic oil output coupled with an expected future oversupply of light, sweet crude has many clamoring for those US oil export restrictions to be lifted. Loop has fielded interest from customers who hope to win licenses to export US-produced oil, according to Loop's vice-president of business development David Carrere.

“We're in the very early stages of those discussions,” Carrere said in an interview with Argus. “If we can build a business case around that, that's definitely something that Loop would be interested in, and I think we're well positioned to be a significant player in that market.”

Loop recently modified one of its three buoys to handle medium-range tankers of Eagle Ford crude production loaded at Corpus Christi, Texas, but those shipments are constrained by the lack of vessels compliant with the 1920 Jones Act, which mandates that only US-flagged ships may move goods between US ports.

The changes at Loop are indicative of shifts in US crude dynamics. It, like much of the country's oil infrastructure, was built on the assumption that the US would remain import dependent. Pipelines point into the US from ports to refineries, and refineries have invested in the ability to run heavy crude from Canada. Now, faced with abundant and cheap light, sweet US-produced crude, infrastructure is being reversed or built anew, barge and rail are increasingly being used to transport oil, refineries are changing crude slates and ports like the one in Corpus Christi have seen outbound crude volumes skyrocket.

Diversification is key to Loop's strategy going forward, according to Carrere. The company is boosting its offerings in blending, storage, offloading and – potentially – oil loading.

“It would be unlikely that we would completely turn our business around and start exporting,” Carrere said. “We believe there's still a demand for imports…But we're not going to put all our money on that horse.”

Loop officials say they could modify the other two buoys to handle the smaller vessels or even consider taking barges, though the large port could face barriers in offering an economic rate for barge service. Right now Loop offloads about 200,000-300,000 bl of crude at a time from the available Jones Act-compliant tankers, which are limited in number but currently include the Pelican State, American Phoenix and Pennsylvania. Ship tracking data indicates the site has offloaded four to five tankers of Eagle Ford crude since adding the capability last summer.

Loop is also beginning to think smaller when it comes to storage. US crude arriving by pipeline or vessel come in smaller batches, which would better suit smaller tanks, so the company is considering building storage in the 250,000-350,000bl range. It is also testing a technology that may boost the sophistication and efficiency of crude blending in its existing large, 600,000bl above-ground tanks. Refiners are interested in receiving better-blended crudes from Loop because it saves them from using valuable and limited on-site tankage at their refineries.

Loop is a major piece of US oil infrastructure, with pipeline connections to sizable refineries at the US Gulf coast and 58mn bl of underground crude storage and 9mn bl of above-ground storage at its Clovelly, Louisiana, facilities. It is the only port in the US capable of unloading very large crude carriers (VLCCs). But Loop has been battling a drain on imports ever since domestic shale drilling in formations like the Bakken, Eagle Ford and Permian basin exploded, sending ever-growing volumes of light, sweet crude into the market and at a discount to imported crudes. Loop's significant pipeline access to refineries is being cut off due to the reversal of Shell's 300,000 b/d Ho-Ho pipeline to move crude eastward from Houston, Texas, to Houma, Louisiana. Just last week it lost access to many Texas refineries when Shell shut the segment of Ho-Ho between Houston and Port Neches, Texas. Adding new services, like the ability to handle tankers of Eagle Ford crude, has been key.

“We're bringing in domestic sweets to compete with foreign sweets we were already bringing in. We basically sped up some of what was happening with the Ho-Ho reversal. But we felt it was important for us to get in front of that and offer that capability to our customers,” Carrere said. “It will in some measure compete with Ho-Ho, because Ho-Ho's bringing the same barrels.”

It's unclear whether the reversal of Ho-Ho line to take onshore crudes east from Texas to Louisiana will hurt Loop's new Eagle Ford tanker business, or vice versa. “There certainly seems to be enough of Eagle Ford to go around,” Carrere said. It's also unclear who the shippers on Ho-Ho are and what types of crude they will be shipping.

Even after the Ho-Ho reversal, Loop's pipelines can take crude to St James, Louisiana, and to significant refining capacity in the eastern part of the state. At its max, the Loop's offshore marine facility can unload 1.1mn b/d, and Loop is also the landing site for Gulf of Mexico crudes Thunder Horse and Mars, as well as significant crude imports from the Middle East. But the surge in US crude output has already backed out significant amounts the light, sweet imports Loop used to handle – namely west African sweets (WAF), prompting its retooling and consideration of new strategies.

Though the port is scrambling to keep up with shifts, one trend could work in its favor – the expectation that US Gulf of Mexico oil production will rise. Medium sours yielded from deepwater drilling could be channeled into Loop, then delivered via the forthcoming Westward Ho crude pipeline, which is slated to go into service in 2015. That 300,000 b/d line would take the Gulf crudes to Texas and western Louisiana refineries.

Loop is owned by Marathon Petroleum, Shell and Murphy Oil, which is in the process of transferring its stake to Valero.