Investors are banking on increasing U.S. onshore condensate supplies as an impetus to push for exports, but by 2015, startups in the Gulf of Mexico (GOM) may back out even more waterborne crude imports than incremental tight oil supplies, Barclays Capital analysts said Friday.
Because of the plethora of onshore crude oil supply, many in Congress and independent analysts of late are pushing for the United States to relax export restrictions (see Shale Daily, July 10). However, those onshore barrels may face pressure from even more production from the GOM deepwater, with several huge projects set to go online late this year and into 2015 including:
Chevron Corp.’s Jack/St. Malo (50%) in the Lower Tertiary; Tubular Bells (43%); and Big Foot (60%) (see Daily GPI, Jan. 31);
Anadarko Petroleum Corp.’s majority owned Lucius (see Daily GPI, June 30); and
BP plc’s two additional producing wells at Thunder Horse (see Daily GPI, Feb. 4).
“Most of these projects are set to start on time after prior delays for some projects,” such as Big Foot, analysts said. All projects were put on hold for six months and longer following the BP Macondo well blowout in 2010. New well performance and the decline rates may keep the GOM’s influence in check, in part because new output from the Lower Tertiary play “is still in its infancy and comes mainly from experimental production at Cascade and Chinook,” also in the trend.
Petroleo Brasileiro SA started up Chinook and Cascade two years ago in the first-of-its-kind floating production, storage and offloading system (see Daily GPI, Sept. 17, 2012; March 5, 2012). However, the “first real test of production comes from the Jack and St. Malo fields,” heavily touted since the discovery in 2006. When the joint well project ramps up, it is expected to produce up to 42.5 MMcf/d of gas and 170,000 b/d of oil.
GOM’s production levels on balance may not match Energy Information Administration annual outlook forecasts because of start-up slippage. “However, new production would do more to reduce PADD 3 imports of crude oil than incremental additions of light tight oil onshore since light imports of 35 API and greater have already fallen away,” said the Barclays analysts.
PADD, the Petroleum Administration for Defense Districts, are geographic aggregations of the 50 states and the District of Columbia into five districts: 1 is the East Coast, 2 the Midwest, 3 the Gulf Coast, 4 the Rocky Mountain Region and 5 the West Coast.
If GOM production were to disappoint in 2015 and global distillate demand strengthen, the Brent oil price differential would narrow.
As well, if restrictions on condensate exports were relaxed, the differential between Brent-Light Louisiana Sweet (LLS) might increase the need for more medium grades (imported and domestic) in the Gulf Coast to fill the light void.
“Also, keep in mind that with several months left in the 2014 hurricane season, weather remains an upside risk to Gulf Coast pricing,” said Barclays.
A “lively debate” has ensued about how quickly waterborne crude imports might be reduced from new supplies of domestic U.S. crude oil, but the price differential between West Texas Intermediate/LLS and Brent would boil down to how the price of U.S. coastal crudes would compare with “Mexican, Persian Gulf or other Latin American sources of new oil.”
If the new GOM crude has to be processed domestically, waterborne imports would have to discount “to compete or be redirected to other parts of the U.S. or the rest of the world.
“The Gulf Coast still imports 900,000 b/d of medium-light sour crudes (about 400,000 b/d more than 2013), of which 70% is imported by non-Motiva refineries. In this context, and given the likelihood that more condensate supplies could be exported in 2014 and 2015, the amount of new GOM production becomes an important variable.”
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