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US crude exports and re-exports

Hydrocarbon Engineering,

The EIA, in its Week in Petroleum report has stated that the US exported 401 000 bpd of crude in July 2014, the highest level of exports in the last 57 years and the second highest monthly export volume since 1920. The EIA has also pointed out that recent crude oil exports have been noteworthy for both their origins and destinations. Typically, crude exports are sourced domestically and are sent only to Canada, however, since April of this year, crude exports have included modest amounts of Canadian produced bbls that were moved through the US and reexported to Switzerland, Spain, Italy and Singapore.

To export

In order to export crude oil from the US, a company must get a license from the Bureau of Industry and Security (BIS) part of the US Department of Commerce. Pursuant to Section 754.2 of the BIS export Administration Regulations which codifies the export licensing requirements, the following kinds of transactions will generally get approval: exports from Alaska’s Cook Inlet; exports to Canada for consumption or use therein; exports in connection with the refining or exchange of strategic petroleum reserve oil; exports that are consistent with international energy supply agreements; exports of foreign origin crude; exports of California Heavy crude up to an average of 25 000 bpd; and temporary exports or exchanges. Licenses for other exports of US origin crude are considered on a case by case basis. For other exports, the regulations describe the characteristics of transactions that will generally be approved as in the national interest.

To reexport

A separate legislation was passed in 1996 to permit the export of Alaska North Slope (ANS) crude oil. The recent shipments to Switzerland, Spain, Singapore, and Italy were small volumes of permitted reexports of Canadian crude oil that were not with US produced bbls.

Canada, Alaska and beyond

Similarly to the US, some of the growth in Canada’s crude oil production is taking place in areas with limited infrastructure to bring the crude to refineries for processing. With limited pipeline and rail takeaway capacity, some Canadian producers are testing the economic viability of moving crude oil to the Gulf Coat for reexport.

The EIA has said that it is unclear if this trend in reexporting Canadian crude from the Gulf Coast will continue, and if so, for how long. Several proposed Canadian pipeline projects many provide producers with alternative routes for delivering crude to markets beyond North America, but the timing of each of them is uncertain. The Enbridge Inc. Line 9 reveral project is in its second phase, which is expected to be in service next month. The first phase, which began eastward flows earlier this year, currently allows shipment of crude from Sarnia, Ontario, to North Westover, Ontario. When completed, the second phase will expand capacity to 300 000 bpd and continue on from North Westover to Montreal, Quebec, where the crude could access refineries in Montreal or global markets via the St. Lawrence Seaway.

A separate project has been proposed by TransCanada, and is to be called Energy East, which would move 1.1 million bpd from Alberta to Saskatchewan to refineries in eastern Canada. The plan includes conversion of an existing natural gas line to crude service and construction of new pipe on both the gathering and terminal ends. The company has submitted a project description to Canada’s National Energy Board in March but it has yet to file an official application, meaning this project is several years away from being operational. Additionally, both TransCanada and Kinder Morgan are seeking approval for projects that would carry bbls from Alberta west to the Pacific Coast in British Colombia. But both of these projects face resistance along the pipeline siting routes, so the outcome of these options remains to be seen.

Another development in US crude oil exports is the recent shipment of ANS crude to South Korea, the first export of ANS in over 10 years. ANS bbls were loaded for export in late September and delivered earlier this month. ANS shipments abroad must use US coastwise compliant ships for transport, and market analysts estimate that ANS would need to trade at a discount of US$ 5/bbl to Brent to make such a movement economical. Although Alaskan crude production has recently been declining, the recent retirement of the remaining 79 000 bpd of crude distillation unit capacity at the Flint Hills refinery in North Pole, Alaska, which had been running ANS crude, means that ANS producers may consider sending additional volumes to export markets.

Edited from press release by Claira Lloyd

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