U.S. Crude oil export boom will test limits of its infrastructure

To tap the booming U.S. crude oil export potential, many port operators are expanding facilities.

With U.S. President Donald Trump making sustained efforts at boosting export levels of the country, tankers carrying record levels of crude oil are leaving ports located in Louisiana and Texas in droves thus significantly boosting growth in the fledging U.S. oil export market and putting to test the limits of its infrastructure, including, ship traffic, pipelines and dock space.

Although the United States has been exporting crude oil since decades, oil shipments have recently hit a milestone of 2 million barrels per day, which has stoked fears in trade circles that the trend may not be sustainable and is likely to push down the prices of U.S. crude.

Just how much crude the U.S. can export sustainably is still a mystery since the majority of companies and terminal operators do not disclose capacity and government agencies, including the U.S. Energy Department not tracking it.

Nevertheless, oil export related infrastructure will need to be ramped up in the coming years given the current spate of storage limitations, loading capacity, pipeline connectivity and shipping traffic.

As per analysts, operators are likely to see increased bottlenecks once export levels touch 3.5 million to 4 million bpd.

Analysts from RBC Capital put this figure lower to around 3.2 million bpd.

Although its current loading levels does not, as yet, come close to the aforementioned levels, however, with the total U.S. crude production currently touching 9.5 million bpd and with an addition of around 800,000 to 1 million bpd annually, the country’s export infrastructure facilities are likely to be severely tested.

In the past four weeks, crude oil exports have averaged to 1.7 million bpd, triple the quantity from a year ago.

“Right now, there seems to be a little more wiggle room for export levels,” said Michael Cohen, head of energy markets research at Barclays.

“Two to three years down the road, if U.S. production continues to grow like current levels, the market will eventually signal that more infrastructure is needed. But I don’t think a lot of those plans are in place right now.”

If exports were to hit a bottleneck, it would effectively cap the quantity of oil shippers can get out of the country, which would have a cascading effect on domestic oil production and limited U.S. crude oil export opportunities which could sink U.S. crude prices.

At a recent industry event in Singapore, executives from Enterprise Products Partners LP disclosed that U.S. crude oil exports is likely to touch 4 million bpd by 2022.

Although a few operators are eyeing expansion plans, these however have limitations, said Carlin Conner, chief executive at SemGroup Corp, which owns the Houston Fuel Oil Terminal.

“There aren’t very many terminals with the needed pipeline capabilities, tank farm capacity and proper docks to load the ships … Adding this is expensive and not done easily. So there are limitations to unfettered export access,” said Conner.

Case in point: exports are expected to commence from the Louisiana Offshore Oil Port (LOOP) in early 2018 at around one supertanker a month, said two sources. The LOOP is very important for exporters given its its location of 18 miles (29 km) offshore, which means it can handle large vessels.

Although its operating capacity is at nearly 40,000 bph, it cant sustain it since the same pipe is also used to offload imports, said sources.

LOOP did not respond to a request for comment.

No wonder terminal operators, including NuStar Energy LP, are developing additional facilities.

NuStar Energy LP, for instance, can currently load between 500,000 to 600,000 bpd at its two docks in Corpus Christi, which has about 1 million in capacity, according to a port spokesman.

The company is also developing a third dock, which is likely to become operational either in the first quarter of 2018 or in its early second quarter.

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