Analysis: US crude exports a black box for buyers

OREANDA-NEWS. February 15, 2016. US crude exports have begun to trickle out after a wide-scale ban was lifted last year, but their ill-defined quality leaves questions as to how they will compete with other more well-known global grades.

Shipments exported from the US since December have been an unspecified blend of west Texas grades that could be loaded relatively quickly and easily onto vessels. This contrasts sharply with exports from other established exporters, which have defined, well-known crude characteristics.

For exporters like Saudi Arabia, Russia or Mexico, crude quality tends to be clear and widely known by refiners, who look for predictable supply streams to ensure their targeted yields.

For example, Saudi Arabia, which has exported crude to the US for decades, divides its exports into four clearly defined quality groups: Arab Extra Light, Arab Light, Arab Medium and Arab Heavy crude.

Export grades can vary in quality over time as new wells are brought on line, but baselines for API gravity, sulphur levels and metals content remain within a well-defined band. This allows refiners and other buyers to accurately estimate a cargo's value and quickly compare it to other material on offer.

But such standards have not yet evolved in the budding US export market and initial cargoes appear almost tailor-made to suit buyers' specific requirements.

So far, a narrow price differential between US benchmark WTI and international marker Ice Brent has kept an economic lid on US export volumes.

But a wider WTI discount to Ice Brent would make US exports increasingly attractive to foreign buyers.

For US exports to compete for a larger global market share, buyers abroad also will need specific quality measures to compare with other available cargoes.

"I think, over time, you will see some standardization happening (for exports)," Crude Oil Quality Association (COQA) executive director Dennis Sutton told Argus.

COQA is a group of US refiners and producers that have worked together to develop common, specific standards for the integrity and consistency of the refining characteristics of crude oil streams that go beyond commonly used gravity and sulfur content specifications.

The first crude shipment to be exported from the US following

the lifting of 40-year-old restrictions on 18 December was a blend of processed and unprocessed lease Eagle Ford condensate or crude oil with an API gravity of 45-55°. The second shipment was 45-47° API Eagle Ford crude. Both shipments were bought by trading firm Vitol.

More recently, Venezuelan state-owned PdV bought a 550,000 bl cargo of what was said to be WTI crude in the first export of US crude to Latin America since restrictions were lifted. That shipment was for blending with Orinoco extra-heavy crude to yield a Merey 16°API crude, according to Venezuela energy ministry officials. But because the grade was for blending and little other information emerged on its quality, it is unclear whether the shipment was WTI quality crude and not a blend similar to that purchased by Vitol.

US refiners are used to managing the variable quality of crude from Texas' Eagle Ford shale. But that variability is not conducive to a wider export market. "If the selling community wants acceptance of their material, they have to have transparency," COQA's Sutton said.

Pinning down the quality of Eagle Ford crude is possible if shippers or terminal operators agree to take on the extra disclosures to buyers, he said.

When the Louisiana Offshore Oil Port (LOOP) set up a storage cavern for Eagle Ford crude, it set quality specifications for volumes to be allowed into the cavern. LOOP will only accept Eagle Ford crude with a maximum 46.5°API, 0.33pc sulphur and has set maximums for total acid number (TAN), light ends and distillation yields, among others.