US shale crudes come of age at Cushing

OREANDA-NEWS. September 27, 2016. Rising interest in US shale crudes delivered at Cushing, Oklahoma, has sparked three new spot markets trading at the key storage and trading hub: Bakken, Niobrara and White Cliffs.

Argus will begin assessing all three grades today as November trade becomes prompt for US pipeline grades. All three grades trade actively at a differential to WTI at Cushing. These are the first US shale crudes to be assessed at Cushing by Argus.

The increasingly uncertain quality of domestic sweet crude (DSW) at Cushing has led market participants to search for a clear valuation for grades that are kept segregated from the DSW stream. Refiners have noted problems with asphaltenes precipitating from some DSW batches, and they note relatively high metals concentrations in some DSW samples, likely the result of blending with Canadian grades.

The robust trade for shale crudes at Cushing also reflects the completion of new pipelines from North Dakota and the Rockies, as well as the market's shift away from moving crude by rail.

Rail routes took the majority of Bakken crude to the east or west coasts, but pipelines now direct more of that volume to Cushing.

Three major new pipeline networks to Cushing have either been built or expanded over the past two years: Pony Express, White Cliffs and Saddlehorn.

The 84,000 b/d Double H pipeline runs from North Dakota to the initiation point of the Pony Express in Guernsey, Wyoming.

Tallgrass Energy's 230,000 b/d Pony Express pipeline, which runs from Guernsey, Wyoming, to Cushing accepts Bakken Light Sweet (BLS) crude at Guernsey between 40-46°API and less than 0.2pc sulphur.

The premium to WTI for Bakken at Cushing has ranged from 50?/bl to 80?/bl since September 2015.

The Pony Express pipeline also accepts Niobrara (NIO) crude at Guernsey between 34-42°API and less than 0.42pc sulphur, while SemGroup's 215,000 b/d White Cliffs pipeline, which runs from Platteville, Colorado, to Cushing accepts Niobrara between 35-44°API and less than 0.4pc sulphur.

The premium to WTI for Niobrara at Cushing has ranged from 45?/bl to 95?/bl.

The White Cliffs pipeline also ships "DJ Common Grade Crude Petroleum" between 35-57°API and less than 0.4pc sulphur. That common stream trades as White Cliffs (WCC) at Cushing.

The differential to WTI for White Cliffs at Cushing has ranged from a discount of 70?/bl to a premium of 5?/bl.

Pony Express began commercial service in late 2014 as Wyoming crude oil output climbed to 235,000 b/d in December 2014.

White Cliffs began service in 2009 with an initial capacity of 30,000 b/d, and its capacity climbed to 150,000 b/d in 2014 and 215,000 b/d in 2015. Colorado crude oil production reached 87,000 b/d in February 2009, climbed to 311,000 b/d in December 2014 and hit 357,000 b/d in August 2015.