RPT-Enterprise builds oil 'switchyard' near Houston that could export

 

Download a PDF version of the map.

 

http://www.reuters.com/article/2013/11/27/enterprise-echo-crude-exports-idUSL2N0JC1BX20131127

 

* Hub provides better routing of incoming crude to refineries

* Three access points to water could handle exports if needed

 

By Kristen Hays

 

HOUSTON, (Reuters) - The 6 million barrel crude oil "switchyard" Enterprise Products Partners is building in Texas will tie together a slew of pipelines to better feed U.S. Gulf Coast plants with a fifth of U.S. refining capacity and could - if the government lifts a ban on domestic crude exports - help export oil.

 

Although the company says it is not outwardly pushing for exports or building the system to that end, it says clients want it to be prepared to handle exports in the future from the sprawling Enterprise Crude Oil Houston (ECHO) storage and distribution complex in south Houston.

 

"Talking to the customers we're talking to, this is a big driver when they choose a storage facility," said Brent Secrest, vice president of onshore crude oil, pipelines and terminals for Enterprise. "We have several opportunities, several options," which includes loading crude vessels, he said.

With rising U.S. output on track to top what refiners can absorb - particularly when it comes to abundant light-sweet crude not favored by refiners geared to run heavy - many in the industry think the export ban imposed after the 1973 Arab oil embargo will eventually be scrapped.

 

It's just one more illustration of how U.S. crude production, which is booming thanks to horizontal drilling and hydraulic fracturing, has upended traditional oil flows.

 

Traditional infrastructure takes imports from tankers at coastal docks and moves it inland via pipelines. Now, companies are building pipelines, storage and rail infrastructure to move inland crudes toward coastal refining centers.

 

Growing output from Texas and North Dakota's Bakken shale oil play, as well as others, have prompted calls to re-examine the ban. Refiners running full-bore are already exporting record amounts of refined products.

 

Mike Mears, chief executive of pipeline company Magellan Midstream Partners LP, with assets including distribution and storage infrastructure in Houston and a marine terminal in Corpus Christi, told Reuters last week that the industry should be prepared for eventual U.S. crude exports, though he noted there is no certainty the ban will be lifted.

 

John Mayes of the consultancy Turner Mason & Co has said the U.S. will be saturated with its own light-sweet by 2017.

 

Several refiners, including Valero Energy Corp and Phillips 66, have already stopped taking light-sweet crude imports into the Gulf.

 

"We're rapidly approaching an issue that needs to be resolved," Mayes said.

By 2022, Turner Mason expects about 2 million barrels per day of some kind of crude-based exports on top of existing refined product exports, Mayes said. At this point, the U.S. lacks the infrastructure to handle that kind of crude outflow.

ECHO II AND ECHO III

 

ECHO isn't planned as a smaller version of the U.S. crude futures hub at Cushing, Oklahoma. It's designed to hold crude for less than two weeks on its way to refineries, executives said. Cushing, which has capacity of nearly 80 million barrels, can park oil for months.

 

Crude export readiness, if needed, is part of further expansion plans that already have Enterprise executives envisioning an ECHO II and ECHO III, Secrest said.

 

Enterprise has docks in Texas City, and is working with the Port of Texas City to access others. The company's Morgan's Point marine terminal on the Houston Ship Channel handles only barges, but Enterprise has already done an engineering study on what it would take to expand it to handle tankers, Secrest said.

 

Docks at Freeport, Texas, the endpoint of Enterprise's joint-venture Cushing-to-Texas Seaway Pipeline, also could become an export facility.

 

"In the past, Texas City and Freeport, all these docks in this area, handled imports," Secrest said.

OPEC Renews 30M Output Cap

 

http://www.foxbusiness.com/markets/2013/12/04/opec-renews-30m-output-cap-for-first-half-14/

 

OPEC agreed to renew its oil production cap of 30 million barrels a day for the first half of 2014, as oil prices remain well above the cartel’s threshold.

 

The Organization of the Petroleum Exporting Countries, which has 12 members, alters its output based on oil prices. With Brent crude at $112 a barrel, prices currently sit higher than OPEC’s preferred level of $100 a barrel.

 

Libya is already producing below its capacity due to civil unrest, while Iran’s production is limited as a result of sanctions. Both scenarios have helped lift oil prices.

 

Also on Wednesday, OPEC extended Abdalla el-Badri’s term as secretary general for another year.

 

Brent crude, the international benchmark, was trading 57 cents lower at $112.05 early Wednesday morning. Nymex WTI crude rose 95 cents, or 1%, to $96.99.

WTI-Brent spread neared $20 per barrel as US oil surge continues

http://marketrealist.com/2013/12/wti-brent-spread-neared-20-per-barrel-us-oil-production-continues-surge/

 

WTI and Brent used to trade in line, but prices had diverged over the past few years

 

The spread between West Texas Intermediate (WTI) and Brent crude represents the difference between two crude benchmarks, with WTI more representing the price U.S. oil producers receive and Brent more representing the prices received internationally. The two crudes are of similar quality and theoretically should price very closely to each other. However, the prices had differed greatly between the two crudes because a recent surge in production in the United States has caused a buildup of crude oil inventories at Cushing, Oklahoma, where WTI is priced. This created a supply and demand imbalance at the hub, causing WTI to trade lower than Brent. Before this increase in U.S. oil production, the two crudes had historically traded in line with each other.

 

 

The above graph shows the WTI-Brent spread over the past few years. Note that when the spread moves wider, it generally means crude producers based in the United States receive relatively less money for their oil production compared to their counterparts producing internationally.

 

The spread continued to move wider last week, following the past few months’ trend

 

The WTI-Brent spread moved wider again last week, from $16.21 per barrel to $16.97 per barrel. The spread reached as wide as $19 per barrel mid-week. WTI crude oil, the U.S. benchmark, has been under pressure, as U.S. oil production continues to grow and the supply surge is weighing down prices. Meanwhile, Brent—largely viewed as the international benchmark—had price support due to geopolitical events. Tension around nuclear negotiations in Iran have helped support international oil prices, as geopolitical events in the Middle East can have the effect of causing oil prices to trade up. For more on this phenomenon, please see

 

Why could sanctions against Iran affect the global oil markets?

 

The domestic benchmark of WTI has had downward pressure on price movements, as U.S. oil production remains strong. In recent weeks, the spread has been moving wider again, as data from the U.S. Energy Information Administration has posted several reports showing that domestic crude inventory stocks have risen more than anticipated. Maintenance on refineries could have hampered crude demand from the Cushing hub, though note that maintenance is a temporary event.

 

For more on crude inventories, please see Why crude oil prices continue to slide on inventory figures.

 

Background: The WTI-Brent spread over 2013

 

WTI had been trading as low as $23 per barrel under Brent in February of 2013. Over the course of the year, the spread narrowed due to several factors. Firstly, increased midstream infrastructure has come online, facilitating the movement of crude from inland to refiners on the coast. One notable example is the expansion of the Seaway Pipeline in January 2013, which allows more crude to flow from the Oklahoma crude hub at Cushing to the Gulf Coast, where a great amount of refining capacity sits. Also, Sunoco’s Permian Express Pipeline and the reversal of Magellan Midstream Partners’ Longhorn Pipeline are allowing more crude from the Permian Basin in West Texas to flow directly to the Gulf Coast. Plus, increased pipeline capacity and crude transportation by rail have allowed inland domestic crude to more efficiently travel to refiners on the East and West coasts, which has also backed out Brent-like imports.

 

U.S. refineries began running at higher rates earlier in the year, which caused increased crude demand. Since spring 2013, many U.S. refineries started to come back online from performing routine maintenance, and the EIA reported that in July, domestic refineries were running crude through their facilities at a rate of ~16.3 million barrels per day through June 2013. This is a ~2.1 million-barrel-a-day increase over the first week of March. Also, new refining capacity opened up in the Gulf Coast, helping increase refiners’ demand for crude.

 

So the spread between WTI and Brent closed in through the year until the two crudes traded nearly at par in mid-July. Since then, the spread gradually widened to levels as wide as ~$17 per barrel currently. In late August and early September, the spread widened to nearly $8 per barrel. This was partly because supply from Libya had dropped sharply due to unrest. The escalation of tensions in Syria had also caused traders to take bullish bets on the international oil benchmark of Brent crude, and has possibly driven the price differential between WTI and Brent too. Since then, fears about Syria eased somewhat, and production from Libya started to recover, so that spreads closed in again to ~$3 per barrel in mid-September.

 

After that, data continued to show growing U.S. crude production—particularly from areas like the Bakken in North Dakota and the Permian in West Texas. Accompanying the crude production growth were increasing crude inventories—particularly at Cushing, a major crude hub in Oklahoma. Cushing inventories have risen for seven weeks straight, after several months of steep declines. This is a signal that inland crude production flowing into Cushing may be starting to overtake the existing takeaway capacity, which would depress WTI crude oil prices compared to Brent prices.

 

The future of the Brent-WTI spread

 

As we’ve seen, WTI and Brent had historically traded at near par and reached near par at points earlier this year. However, given the structural change of significantly more oil being produced from the U.S. (with projections of continued future growth), many market participants expect WTI to continue to trade under Brent. The U.S. Energy Information Administration, for example, notes in its monthly report titled “Short Term Energy Outlook” that it expects a spread of ~$8 per barrel in 2014 (recently increased from $6 per barrel).

 

The EIA also noted in an article in June, “The future of the Brent-WTI price spread will be determined, in part, by the balance between future growth in U.S. crude production and the capacity of crude oil infrastructure to move that crude to U.S. refiners.” One such major piece of infrastructure is expected to come online in the next few weeks. TransCanada Corp., a midstream company, announced that the southern portion of the Keystone XL pipeline—a 700,000-barrel-per-day pipeline from Cushing, Oklahoma, to Nederland, Texas—would be completed in early November, with the line filling shortly afterwards. The completion of the pipeline brings on significant capacity to move crude oil away from Cushing towards seaborne markets and could bring the spread tighter.

 

The spread’s effect on oil companies

 

When WTI trades below Brent, this generally means that companies with oil production concentrated in the United States will realize lower prices compared to their international counterparts, as WTI is the de facto U.S. benchmark and Brent is the international benchmark.

 

For example, see the table below for a comparison of oil prices realized by U.S.-concentrated companies versus companies with a global production profile.

 

	3Q13 Average Price Per Barrel
BENCHMARK OIL PRICES
West Texas Intermediate	$109.65
Brent	$102.44
	3Q13 Realized Oil Prices Per Barrel (excluding hedge gains/losses)
DOMESTIC PRODUCERS
Chesapeake Energy (CHK)	$101.08
Concho Resources (CXO)	$102.10
Range Resources (RRC)	$91.82
Oasis Petroleum (OAS)	$100.75
INTERNATIONAL PRODUCERS
Total Corp. (TOT)	$107.20
ConocoPhillips (COP)	$106.60

 

From an investment point of view, if Brent is expected to continue to trade significantly above WTI, you might favor buying oil names that receive crude prices closer to the Brent benchmark than the WTI benchmark. Generally, this would represent oil names with more international production relative to domestic (U.S.) production.

 

Monitor the spread

 

Investors may want to monitor the spread, as a wider spread may make international producers more attractive relative to domestic producers. The difference between Brent and WTI has caused domestic producers such as those mentioned in the above table (CHK, CXO, RRC, and OAS) to realize lower prices on oil compared to international producers. But over the medium term, the spread has closed dramatically and now signals better takeaway capacity for inland U.S. oil. Investors should note that many international names are in the XLE ETF (SPDR Energy Select Sector), an ETF whose holdings are primarily large-cap energy stocks with significant international exposure. In comparison, the XOP ETF (SPDR Oil & Gas Exploration & Production ETF) is weighted towards domestic-only names.

FPSO Abo Extends Stay Off Nigeria

 

http://www.petroleumafrica.com/fpso-abo-extends-stay-off-nigeria/

 

Italy’s ENI signed a contract extension for use of BW Offshore’s FPSO Abo offshore Nigeria. The contract extension is for six months, taking the vessel’s stay offshore the West African country until the end of Q2 2014.

 

The extension has been agreed to secure operational continuity while joint work to detail longer term programs for investment and production is completed.

 

The FPSO Abo has a storage capacity of 930,000 barrels of oil and oil treatment capacity of up to 45,000 bpd of oil, a water injection capacity of 30,000 bpd, and 48.4 Mmcf/d of gas.

Curfew Declared After Boko Haram Attack

 

http://www.petroleumafrica.com/curfew-declared-after-boko-haram-attack

 

Northern Nigeria saw Boko Haram militants launch a daring raid on the military in the city of Maiduguri. According to reports hundreds of heavily armed Islamist gunmen attacked an air force and army base, destroying aircraft, and setting buildings on fire.  The raid led to the government declaring a 24-hour curfew that shut airspace and cut off roads.

 

This latest attack voids military claims that they had the Boko Haram on the run out of major cities into the rural areas of Borno state.

 

“I saw two air force helicopters burnt while in the whole of the 79 Composite Group (of the Nigerian Air Force) few buildings are still standing. Most of the structures have been attacked and destroyed,” said one man in an AFP report.

 

It was also reported that two people had been shot dead. There was no immediate confirmation of fatalities or other casualties from the authorities.

 

The Nigerian army’s spokesman in Maiduguri, Colonel Muhammed Dole, said the Boko Haram fighters had been “successfully repelled” and had suffered “serious casualties”, without specifying numbers.

 

The areas around the airport were “calm and under control”, Dole said, adding: “Our troops supported by the Nigerian Air Force aircrafts are presently pursuing the terrorists towards the Maiduguri-Benisheik road.”

Ghana Oil Sits On Time Bomb

 

http://allafrica.com/stories/201311280670.html?viewall=1

 

Ghana's oil and gas assets could face serious threats from increasing pirate activities in the Gulf of Guinea, as a new report suggests that these activities in the region could double, with attacks, presently one a day, set to rise to two a day in 2014.

 

According to Paramount Group, Africa's largest privately-owned defence and aerospace business, unless pragmatic measures are put in place to protect the country's offshore assets, "piracy could do serious damage to Ghana's oil and gas industry, slowing development for years to come."

 

A main driver of pirate activities in the Gulf of Guinea has been the boom in the regional oil 'black market', where stolen oil finds a ready market on the high seas, and also serving as a conduit for drug and arms trafficking in the West Africa region.

 

The problem has, however, assumed an international concern, on the basis that more than 30 percent of US oil and 40 percent of Europe's oil passes through the Gulf, and is vulnerable to pirate activities.

By the beginning of the last quarter of 2013, the International Maritime Bureau's Piracy Reporting Centre had recorded 30 pirate attacks in Nigeria alone, including two hijacking acts.

 

The International Maritime Organisation's 2012 Annual Report also indicated that despite a decline in Somalia-related piracy, the pirates' success rate had seen significant increase.

 

Finding home-grown solutions A security analyst at the Kofi Annan peace keeping centre, Dr. Kwesi Aning, has often expressed concern over the sophisticated nature of pirate activities in the region, and called for consistent study on the strategies, the groups, their modes of attack, and their weaponry, to be able to design the response mechanisms needed to tackle the menace, but laments:

 

"Unfortunately, I think there is a certain unwillingness to accept that this is going to be a growing trend, therefore, we need to start designing the response mechanisms."

 

According to the International Crises Group, an independent, non-profit, non-governmental organisation committed to preventing and resolving deadly conflict, has warned that "the Gulf of Guinea piracy is, above all, an organised crime problem. Ships will never be safe until authorities strengthen police capacity to investigate and prosecute criminal networks, as well as enforce a zero tolerance policy for corruption in security services."

 

James Fisher, CEO of Paramount Naval Systems, says: "The solution is not to seek international help to solve these African problems, but to build African solutions to them. The development of a strong African shipbuilding industry means it is possible for African nations to find African solutions to the threat of piracy."

 

He maintains that his company, now part of the largest privately-owned defence industry conglomerate in South Africa, is responding to demands from sovereign governments across Africa, by developing a fleet of multi-role patrol vessels.

 

"The speed and flexibility of Paramount's ships mean they are well-suited for a range of operations in coastal waters to prevent illegal activity and protect both assets and territory."

 

Last month, a team of navy experts from the Kingdom of Netherlands were in Ghana, as part of a West African programme dubbed the "African Winds 2013", to offer a high level of technical training for Ghanaian forces in the development of ports and maritime operations.

 

The government of Ghana has, in recent times, made some logistical provisions for the Ghana Navy to effectively man the country's offshore oil assets. Notably among them is the provision of a fleet of patrol boats.

 

Again, there are plans far advanced to set up special boat units at the various naval bases of the Ghana Navy to protect the country's territorial waters and oil assets.

African Consumption On Rise

 

http://www.petroleumafrica.com/african-consumption-on-rise/

 

Africa is the region with highest increase in oil consumption globally – 5% in 2012 versus only a 1% increase Globally

 

CAPE-TOWN, South-Africa, November 25, 2013/ – The recent oil and gas finds in Africa will continue to have a positive impact on local economies, if local African suppliers, service providers and other businesses are geared up to service this growth.

 

This is according to Steve Harley, President of the Energy Sector, for DHL Customer Solutions & Innovations (http://www.dhl.com). Harley says that these energy finds provide many possibilities for local businesses, to echo the express operator’s own marked increase in the transportation of energy-related material in the region.

 

Harley says that forecasts expect African oil supply growth to continue over the next 25 years, with predicted ranges of growth over the period of between 0.5 million and 2.0 million barrels per day. “Africa will need to adapt in order to keep up with the demand, as well as evolving trends in this highly competitive sector.”

 

He says that globally, the steady and reliable supply of energy is critical to economic activity, and due to Africa’s availability of the resource, it is expected that the continent will see continued and steady economic growth.

 

“We have also witnessed an increased demand for the resource on the continent, and currently Africa is the region with highest increase in oil consumption globally – 5% in 2012 versus only a 1% increase globally. This is likely to continue as many of the fastest growing economies are situated on the continent.”

 

Harley does warn though that, as the easily obtainable oil reserves have been has depleted, that most of the new developments are either very remote or technically challenging, which brings issues of infrastructure, transportation and expertise to the fore.

 

“Forecasts predict that conventional oil production will decline by five percent per year. Extraction from unconventional sources is more complex and relatively more expensive from a supply chain perspective. As such, customers will need complementary expertise from integrated logistics suppliers to meet the challenges of these new geographies and technologies.”

 

Harley points to DHL’s recent global white paper on Maintenance, Repair and Operations (MRO) supply chain management for energy companies (http://www.dhl.com/energywhitepaper), which shows the oil and gas businesses will require integrated suppliers that are able to support them with end-to-end supply chain solutions. According to the white paper, logistics suppliers need to provide a global footprint in combination with local market expertise. As a trustworthy partner, they also need to drive cost and process optimization and maintain safety and compliance both on and off-site.”

 

“This is particularly true in Africa,” notes Charles Brewer, Managing Director for DHL Express Sub-Saharan Africa. “While the continent is showing promise, issues around infrastructure, regulatory hurdles, and lack of an integrated supply chain in most markets, can be a major hindrance for energy businesses. Couple that with the need to optimise production and improve supply chain management to enhance service and reduce cost, and you understand the need for integrated suppliers to introduce more robust metrics, optimize the inventory and find cost-effective transport solutions.”

 

Brewer concludes, “This highlights the need to partner with an experienced provider who has extensive knowledge on the region. DHL has an unrivalled global presence and experience to ensure partners are offered integrated solutions that address today’s energy industry challenges.”