Survey: US crude exports poised for record year
US crude exports are poised to hit record highs this year as US shale output expands and European countries seek to diversify their import slates. But even as Europe has become a key market for US crude, high freight rates for some tanker classes could inhibit the trade.
The EU ban on Russian seaborne crude imports from 5 December has left some eastern and central European refiners looking to replace up to 40pc of their traditional supply. Germany and Poland have also been promoting a plan to impose an EU-wide ban on imports of Russian crude to their countries along the northern leg of the Druzhba pipeline. Germany opted to stop importing Russian crude through the line on 1 January, even though such deliveries are exempt from the import ban. The 226,000 b/d Schwedt refinery has been testing US WTI and Mars since August. The refinery was operating at around 55pc of nameplate capacity in early January following the halt to Russian crude supplies.
Poland's PKN Orlen says it will turn to North Sea, Mideast Gulf and possibly US and west African crudes when its 72,000 b/d term contract with Russian firm Rosneft for Russian pipeline imports along the Druzhba line expires at the end of January. And it is considering term contracts for US crude imports if its pipeline deliveries are sanctioned by the EU. The US shipped an estimated 13-16 cargoes of crude to Poland last year, up from two in 2021, according to an analysis of customs data, as well as data from oil analytics firm Vortexa.
High freight rates for Aframax tankers because of the increased demand for US crude in Europe continued to erode export economics for loading in January but have recently started trending lower, this week hitting a five-month bottom. Cooling transportation rates have helped improve the arbitrage and renewed interest from European participants has kicked off the February US trade month with an active waterborne market. Arbitrage economics appear even more favorable if exporters opt to load larger vessel sizes, which are assessed at less than half the Aframax rates.
Record rates
US crude is already flowing at record rates to Europe. Exports there were an estimated 1.5mn b/d in 2022, only slightly lower than the amount shipped to Asia-Pacific last year, as EU refiners sought out new supply.
Total US crude exports averaged 3.61mn b/d in 2022, according to an analysis of data published by the Energy Information Administration and Census Bureau. That rate reflects a roughly 22pc increase over 2021 and is the highest on record since the US Congress first lifted decades-old restrictions on exporting crude in December 2015. US crude exports eased by 2.7pc in November but remained above 4mn b/d for a second month as global demand remained strong, while loading operations experienced disruptions.
The Texas port of Corpus Christi should remain the top US export port in 2022, owing to its plentiful pipeline connections to the Permian basin and favorable export economics. Two Corpus Christi-area terminals account for the lion's share of the region's exports: the Enbridge Ingleside Energy Center and the South Texas Gateway Terminal. Both terminals are capable of partially loading very large crude carriers (VLCCs) up to 1.6mn bl, about 80pc of their 2mn bl capacity. An ongoing project to deepen and widen the Corpus Christi Ship Channel, expected to be complete in mid-2023, would allow the terminals to fully load VLCCs.
Enbridge in 2021 acquired a large crude export terminal at Ingleside near Corpus Christi from Moda Midstream, providing a direct dock-connected path to load VLCCs, the most efficient vessel option for long-haul exports. In Houston, Enterprise Products Partners' Houston Ship Channel Terminal saw the heaviest crude export activity, although flows through the Magellan/LBC Seabrook terminal have also increased in recent years.
Houston-area crude exports could also get a boost from an offshore terminal that Enterprise hopes to build off the coast of Freeport, Texas. The Sea Port Oil Terminal, which won preliminary approval from President Joe Biden's administration in November 2022, would be capable of fully loading VLCCs.
US crude exports have also been supported by rising domestic production, coupled with firmer international demand. Total output averaged 12.05mn b/d in the third quarter of 2022, up by about 870,000 b/d, or over 7pc, compared with the same period a year earlier.
The EIA expects crude production from the top US shale basins to climb further in January, led by record output from the Permian basin, where primary export grade WTI is produced. Shale production is forecast to rise by roughly 90,000 b/d from December estimates to 9.32mn b/d in January, with Permian growth comprising about 40pc of the total.
Overall US output in 2023 is forecast to hit 12.41mn b/d in 2023, the Energy Information Administration (EIA) said this week, surpassing the record 12.32mn b/d posted in 2019.
By Amanda Hilow and Chris Baltimore
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