by ROCKMAN » Wed 09 Apr 2014, 07:48:03
A quick background: At least 50,000 bbls per day of Eagle Ford Shale production is exported to Canada. This doesn’t violate the US oil export ban: the production is run thru a simple upgrader and reclassified as “refined product” for which there is no ban. The port of Corpus Christi has become a major hub for this activity given that 2 pipelines have been reversed to it from the EFS trend. Additionally since the production is being shipped to a foreign there no requirement to use a US flagged tanker.
Now the rest of the story: Will Texas Ship Crude to California?
From Rig Zone: In September 2013, Texas produced 2.7 million bopd, the highest average of oil output in over 32 years. With this excess crude, Texas might become a supplier of oil to California if the trade is profitable. The Golden State now depends on imports for more than 60 percent of its oil supply. Because of California’s history as an oil producer its refining industry was originally built to process local crudes.
{So the question: why are we sending EFS production to Canada and not CA?}
Until now, a U.S. policy, the Jones Act, made domestic shipping more expensive, as California imported oil from the Middle East, Ecuador and Alaska’s North Slope. If a shortage of qualifying ships can be overcome, Texas crude could become affordable on the West Coast as the highest domestic output creates a surplus of light oil while driving prices down. It always comes down to economics. Traditionally, Alaska had been the source for a huge chunk of California’s resources, and that’s still the case, but if you look at the economics, it’s significantly cheaper, both from the initial price per barrel, as well as transportation costs, to move Canadian Albertan crude or Texas crude. Both Middle Eastern, as well as African imports, are going to erode pretty quickly. When this comes on line, there is no way that Middle Eastern crude can compete both at a per barrel cost, plus knowing that a lot of U.S. is trading at a discount to WTI, plus cheaper transport costs.
{The situation has already significantly hurt Nigerian exports to eastern Canada}
The Jones Act: With the lack of infrastructure from Texas to California, industry players are petitioning the government for a waiver of the Jones Act, a maritime act in place since the 30s, which demands for U.S.-flagged only vessels to transport goods between U.S. ports. This waiver would allow for domestic sweet crude to move economically between ports, displacing foreign sweet imports, while maintaining the crude oil export moratorium for the United States. The primary problem is that with so little oil moving between US ports there have been very few US flagged oil tankers. And most are already tied up in long term contracts.
{So it’s simple: because of a US govt policy to protect an almost non-existent business (domestic oil tanker trade) CA has been buying more expensive oil while we’re sending production to Canada. One might think the CA politicians would have been screaming at the feds to allow an exception. In the last 14 months the feds have allowed over 120 exceptions to the oil export ban. But, given the nature of the CA electorate, maybe those politicians didn’t want to be associated with Texas oil from frac’d wells. So better to have their voters pay more for gasoline. LOL.
And there's even a worse horror for a CA politician get tagged with: the potential to re-export Canadian oil sands production from Texas to CA. Of course, it's already happening with the Canadian production slipping through Washington state to CA but they don't talk about that out loud on the "green" left coast. LOL.
