Greg Haas of Stratas Advisors speaks about export potential at the recent Midstream Texas conference in Midland, Texas. (Source: Hart Energy)
MIDLAND, Texas—Export markets for both crude and refined products will be key to monetizing the growth in U.S. production, according to Greg Haas, director, integrated oil and gas with Stratas Advisors, who was speaking at the recent Midstream Texas conference hosted by Hart Energy.
“Overall we’re going to see roughly 16 million barrels per day (MMbbl/d) by 2026 coming out of North American resource plays from both onshore and offshore and in the U.S. and in Canada,” Haas forecast. This includes tight oil and field condensate production, as well as Canadian oil sands bitumen.
In addition, the market has no shortage of crude and product inventory to work off in the short term.
“We’ve still got a great overhang (of crude stocks). We’ve got about 125 million barrels of crude over the five-year average,” said Haas.
In addition to the well-documented growth in Permian Basin production, Haas pointed to Canada and the Bakken as sources of heavy crude oil and light oil, which will be able to extend their reach closer to export markets via the Keystone XL Pipeline, when built, and the Dakota Access Pipeline.
“That’s over 1 million bbl/d (of pipeline capacity) right there,” he said. “The Permian producers are also facing competition from new pipelines from the north.”
Adding to the overhang, said Haas, was a program of periodic releases of crude oil from the Strategic Petroleum Reserve. These were authorized by the prior administration, but gained attention due to a Trump administration proposal, which was “not much more than what has already been done,” he said.
“But it is material,” he observed. “It’s about 100,000 to 200,000 barrels per day [Mbbl/d], depending on how quickly these tranches are released each year. And that will add to the Gulf coast crude complex. That’s where the crude is stored and distributed.”
Offsetting some of these factors pressuring the domestic market, however, are the outlets offered by export markets, said Haas.
“The good news is that if you move downstream, refinery crack spreads have been quite strong and stable throughout the downturn,” said Haas, noting that crack spreads have been in the mid-teens and approaching $20 per barrel at times. This is “very profitable for refiners,” he noted. “It pays to refine the product that the upstream recovers and the midstream ships.”
But that’s not to say that it necessarily pays to keep those refined products in the U.S., he continued.
“You got to start looking at exports,” said Haas. In terms of crude and condensate, the U.S. has been exporting over 1 MMbbl/d, while refined product exports have totaled roughly 4 MMbbl/d and NGL exports have totaled about 3 MMbbl/d. He estimated that U.S. and Canada together produce roughly 12 MMbbl/d to 13 MMbbl/d of crude and export 4 MMbbl/d to 5 MMbbl/d, excluding NGL.
“That’s pretty impressive in terms of the amount of takeaway beyond our shores that is required to keep the drillbits going and the volumes flowing through the midstream,” he commented.
Looking at the market for light, sweet crudes—of key importance to most independents—the export markets will play a major role as Permian production rises, Haas emphasized.
“For most of the scenarios we modeled,” he said, “the U.S. will be a net exporter of light crude and condensates by the end of the decade. The only scenario in which we do not see the U.S. becoming a net exporter of light crude by 2020 is in the upside case which sees U.S. crude refined in the U.S. rather than exported to global refiners.”
In the NGL sector, Haas noted that the U.S. was a net exporter of all five purity NGL products.
“We’re clearly a net exporter of ethane and always have been,” he said. Importantly, he continued, “we’re the biggest national exporter of propane around the globe,” and the level of exports can be met almost entirely by wet gas being processed and fractionated in gas plants—in other words, without the 400 Mbbl/d to 500 Mbbl/d of propane that is produced from refineries.
Butanes and pentanes also enjoy export markets, with much of the pentanes going to Canada for blending with heavy grades, according to Haas. Demand for pentanes would rise materially higher as projected pipelines are potentially brought online, he added.
Chris Sheehan can be reached at email@example.com.