OREANDA-NEWS. If a profitable arbitrage emerges to export Alaskan North Slope (ANS) crude to Asia-Pacific shippers would still find some logistical and marketing challenges in their way before trade could flow.

The US budget law that removed longstanding restrictions on crude exports in December also erased the 20-year-old requirement that ANS exports must utilize US-flagged tankers, such as the Jones Act-compliant fleet that shuttles crude from Valdez to west coast refineries.

Alaska law prohibits tankers from operating in state waters unless the state has approved the shipper's oil discharge contingency plan and its proof ability to respond to a spill, but meeting those requirements does not appear onerous. Alaska officials said they could approve a request to export a spot cargo on a new tanker within five days for companies that already have the state-approved plans, including BP, Alaska Tanker, ExxonMobil's SeaRiver Maritime, Polar Tankers, Chevron Shipping and Tesoro Alaska.

"That could happen quickly," said John Kotula, regional manager for prevention preparedness and response at the Department of Environmental Conservation (DEC). The state regularly meets the five-day turnaround time for spot cargoes that carry fuel and occasionally crude imports, he said.

A company applying for its own oil discharge prevention and contingency plan would have a longer wait for approval, likely about three or four months including public comment periods. But a buyer of crude from one of the companies already approved could apply under the seller's permit and be added for single voyages, Kotula said.

While no foreign exports have occurred since the restrictions were lifted, Japanese and South Korean companies have inquired about foreign-flagged vessels in the region that would be suitable for the voyage. Korean buyers get a freight rebate from the government for term crude supplied from somewhere other than the Middle East, which could encourage them to look at ANS supply.

Estimating the cost to move ANS overseas can be tricky, however, since there is no active tanker trade between Valdez and Asia. The only analog is ANS to the US west coast.

The state of Alaska assumes for tax purposes that Jones Act freight to the west coast coasts about $1.60/bl this year. ANS is typically cheaper than foreign spot Pacific basin alternatives for US west coast refiners, although spot market alternatives reach the west coast as economics permit. Russian ESPO Blend typically reaches the west coast in summer as ANS production declines amid maintenance, causing the grade's discount to Ice Brent to narrow.

ConocoPhillips exported an ANS cargo in the fall of 2014 — as allowed under a 1996 presidential order — to the 775,000 b/d GS Caltex refinery in Yeosu, South Korea, using one of its own Jones Act tankers. The ANS discount to Oman delivered to Singapore by 80,000t vessel averaged $4.92/bl during October 2014 ANS trade.

The US independent sent another cargo a year ago, when the same discount averaged $3.79/bl during April 2015 trade, and ANS in turn held an average discount of $3.97/bl to CMA Ice Brent. The prospect of using cheaper international tankers should lower the bar on those differentials, although the arbitrage currently is strong in the opposite direction.

West coast refiners last took Oman crude in 2013, but VLCCs of the medium sour will reach the west coast this spring, thanks to a deep discount for Dubai to Ice Brent. Dubai is the basis for both ESPO Blend and Oman, while ANS is priced against Brent.

It would make little sense for west coast refiners to pay more for overseas imports than ANS, so ultimately a broader market for the Alaska grade could support its price even if it ultimately stays stateside most of the time.

The tipping point someday could be a resurgence of onshore crude movements to the west coast. This could be either by rail — US refiner Tesoro is trying to build a 360,000 b/d transloading terminal near Portland, Oregon — or through the 590,000 b/d Trans Mountain Expansion pipeline from Alberta to the British Columbia coast. Both projects could be years away, though, and unattractive economics have rendered rail receipt capacity underutilized, especially in California.

But Sarah Emerson, president of research firm ESAI, recently said she believes ANS to be a prime candidate to begin moving to Asia-Pacific as it did from 1996 to 2004.

Development of an ANS export market would be welcome in Alaska, where North Slope crude output has been falling since it peaked at 2mn b/d in 1988. Alaska's average field production of 479,000 b/d in the second half of last year marked a 7,000 b/d rise from the same period of 2014 thanks to recent tax regime changes, according to the Energy Information Administration.

In a presentation last summer, ConocoPhillips Alaska vice-president Leo Ehrhard said rail unloading capacity on the west coast is a looming threat to the ANS market, although regulators have delayed or rejected terminal projects in California and Washington in recent months. He said opening exports would strengthen market demand for ANS and provide additional cash for reinvestment in Alaskan production.

ConocoPhillips last week said it is keeping its options open.

"We cannot speculate on what specifically will occur, but we will consider all commercial options as it relates to exporting crude," the company said. "Realizing maximum value for Alaskan crude is good for our shareholders and good for the people of the great state of Alaska."