permian crude takeaway & pricing - the energy forum · g~ 450 mb/d processed in permian...
TRANSCRIPT
©2017 Morningstar, Inc. All rights reserved.
Sandy Fielden
Director of Research, Commodities and Energy
November 9, 2017 – New York Energy Forum
Permian Crude Takeaway & Pricing
Agenda
2
gOil Shale Boom & Plumbing
gPermian Takeaway
gChanging Gulf Coast Balance 2010 - 2017
gExport Infrastructure
gPrices and the Permian Spigot
3
U.S Crude Production Since 1970
Oil Shale Boom & Plumbing
Source: EIA, Morningstar
0
2
4
6
8
10
12
Mm
b/d
October 1970 –
10 mmb/d
April 2015 –
9.6 mmb/d
Shale
Boom
August 2017 –
9.2 mmb/d
4
0
1
2
3
4
5
6
Jan-
11
Jun-
11
Nov
-11
Apr
-12
Sep-
12
Feb-
13
Jul-1
3
Dec
-13
May
-14
Oct
-14
Mar
-15
Aug
-15
Jan-
16
Jun-
16
Nov
-16
Apr
-17
mm
b/d
Eagle Ford
Bakken
Permian
Three Plays That Shook the World
Source: EIA
gPermian 100 years old - up 1.5 mmb/d since 2011
gBakken up 0.7 mmb/d since 2011
gEagle Ford up 1.1 mmb/d since 2011
5
0
1
2
3
4
5
6
7
8
9
10
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
Mm
b/d 50 + API
40.1 - 50 API
30.1 - 40 API
<30 API
Frothy Crude – Getting Lighter
Source: EIA, Morningstar
gAPI measures crude density
gShale crude is light and sweet
gRefineries configured for heavier crude
gCreates a quality mismatch
Gulf Coast Refinery average
= 31.4 API
6
New Plumbing at the Gulf Coast
Houston
Corpus
St James
Permian
Cushing
BPA
LOOPEagle Ford
• 47 Refineries & 5 Condensate splitters
– 9.8 mmb/d capacity (1.2 added since 2010)
• 18 Unload Rail Terminals
– ~1.7 mmb/d built since 2012
• Storage
– 291 mmBbl tank capacity Sep 2016
– 85 mmBbl added since 2011
• 17 Marine Ports in use to transfer crude
• 26 Long distance transmission pipelines
– ~ 6.5 mmb/d capacity
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Permian Takeaway Infrastructure
Source: Company Filings, Morningstar
0
1000
2000
3000
4000
5000
6000
Mb/
d
Rail
Cactus 2
Basin Expansion
Sunrise Expansion
EPIC
South Texas Gateway
Midland Sealy
PELA
Cactus
Bridgetex
Permian Express II & III
Existing Pipelines
Refinery Consumption
Production Forecast
Forecast
Proposed
gRapid pipeline build out in response to growing production
gProduction forecast to double from 2.6 mmb/d at end 2017 to 5.2 mmb/d in 2020
gAdditional 1.6 mmb/d pipeline capacity proposed
8
-
1,000
2,000
3,000
4,000
5,000
6,000
1Q 2
014
3Q 2
014
1Q 2
015
3Q 2
015
1Q 2
016
3Q 2
016
1Q 2
017
3Q 2
017
1Q 2
018
3Q 2
018
1Q 2
019
3Q 2
019
1Q 2
020
3Q 2
020
mb/
d
Gulf Coast
Cushing/Midwest
Refinery Consumption
Permian Takeaway Capacity: Destinations
Source: Company Reports, Morningstar
g~ 450 mb/d processed in Permian refineries
g Traditional market = Cushing & Midwest
gMost new production goes to Gulf Coast
9
0
2
4
6
8
10
12
2010 Supply 2010 Demand 2017 Supplythru August
2017 Demandthru August
$/ba
rrel
Exports
Sent to other PADDs
Refinery Throughput
Received from other PADDs
Imports
Production
Changing Gulf Coast Crude Balance 2010 - 2017
Source: EIA, Morningstar
g2010 - 8.8 mmb/d, 2017 supply mostly imports, demand all domestic - balanced
g2017 – 10.3 mmb/d, supply, 10.8 mmb/d demand – stock draw and exports
10
0
50
100
150
200
250
300
Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2017
mill
ion
barr
els
Gulf Coast Inventory
Source: EIA
g Increasing since 2013 as new flows reach Gulf Coast
gRecord high 281 mmbbl in early April 2017
g Falling since then (except Harvey) 219 mmbbl Nov 3, 2017
11
-5
0
5
10
15
20
25
30
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
$/ba
rrel
Brent Premium Over WTI
Source: CME Group
gBrent is international marker and WTI is domestic price
gShale congestion 2011 – 2013 blows out Brent premium
gEnd of export ban flattens premium until August 2017
12
gExports restricted prior to December 2015
g2016 average 280 mb/d
gMore than doubled to 638 mb/d average through August 2017
Gulf Coast Exports - Monthly
Source: U.S. Customs, Morningstar
0
100
200
300
400
500
600
700
800
900
Mb/
d
13
0
500
1000
1500
2000
2500
0
1
2
3
4
5
6
7
Mb/
d
$/ba
rrel
Brent Premium Total Exports
(Total) Crude Exports and Brent Premium
Source: EIA, CME Group, Morningstar
gBrent premium above $3/barrel encourages exports
gOctober 27, 2017 peak = 2.1 mmb/d exports, Brent premium = $6.16/bbl
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0
1
2
3
4
5
6
7
8
$/ba
rrel
Brent
LLS
WTI Houston
Gulf Coast Premiums to WTI Cushing
Source: Argus Media, CME Group, Morningstar
gBrent premium over WTI Cushing does not account for Gulf Coast transport
g LLS at Gulf Coast is priced too close to Brent for export
gWTI Houston premium supports exports
15
4.00
4.50
5.00
5.50
6.00
6.50
40
45
50
55
60
65
Jan-
18
Jun-
18
Nov
-18
Apr
-19
Sep-
19
Feb-
20
Jul-2
0
Dec
-20
May
-21
Oct
-21
Mar
-22
Aug
-22
Jan-
23
Jun-
23
Nov
-23
Apr
-24
$/ba
rrel
pre
miu
m
$/ba
rrel
Brent WTI Brent Premium
Forward Curves November 7, 2017
Source: CME Group, Morningstar
gBrent & WTI curves backwardated through 2021
gBrent premium declines in 2018 but recovers to $6/barrel in 2020
gExports likely to continue
16
0
1
2
3
4
5
Jan-
10
Apr
-10
Jul-1
0
Oct
-10
Jan-
11
Apr
-11
Jul-1
1
Oct
-11
Jan-
12
Apr
-12
Jul-1
2
Oct
-12
Jan-
13
Apr
-13
Jul-1
3
Oct
-13
Jan-
14
Apr
-14
Jul-1
4
Oct
-14
Jan-
15
Apr
-15
Jul-1
5
Oct
-15
Jan-
16
Apr
-16
Jul-1
6
Oct
-16
Jan-
17
Apr
-17
Jul-1
7
mm
b/d
Diesel Gasoline NGL Other Refined Crude
g2010 average daily refined product export was 1.7 mmb/d
g2016 average was 3.6 mmb/d – more than double (2017 to August = 3.9 mmb/d)
gCrude exports small by comparison (14% in 2017)
Infrastructure: Gulf Coast Dock Flows
Source: EIA
17
Storage at Terminals
Source: Company Reports, Morningstar
g 85 mmbbl added 2011 to 2017 in Gulf Coast region – helps staging for exports
g56 mmbbl more to come
18
gHouston – Galveston Dominates 2014-2015
gCorpus Christi hidden
g Louisiana and Port Arthur Growing in 2017
Gulf Coast Exports – Loading Region
Source: U.S. Customs, Morningstar
0
100
200
300
400
500
600
700
800
900
Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 Jul-16 Dec-16 May-17
Houston-Galveston Lousiana Port Arthur Mobile, AL
19
Marine Dock Terminals
Source: Company Reports, Morningstar
gCorpus linked to Permian and Eagle Ford – Occidental Ingleside 300 mb/d
gVessel size is a constraint
g LOOP reversal key (Capline Announcement)
20
Permian Takeaway Balance – Constraints and Pricing
Source: Company Filings, Morningstar
0
1000
2000
3000
4000
5000
6000
Mb/
d
Rail
Cactus 2
Basin Expansion
Sunrise Expansion
EPIC
South Texas Gateway
Midland Sealy
PELA
Cactus
Bridgetex
Permian Express II & III
Existing Pipelines
Refinery Consumption
Production Forecast
gEarlier Constraint in 2014 – production exceeds takeaway in Q3 2014
21
-25.00
-20.00
-15.00
-10.00
-5.00
0.00
5.00
10.00
Jan-14 Apr-14 Jul-14 Oct-14
$/ba
rrel
Midland WTI Discount
WTI Cushing
Midland Takeaway Constraint
Source: CME Group, Morningstar
g “Normal” Midland discount = $0.80/barrel – pipeline tariff to Cushing
g In August 2014 Midland price drops $20/barrel below Cushing as producers discount to find pipeline space
gBy November the constraint is over due to new pipe capacity -shippers bid $5/barrel premiums
22
Permian Takeaway Balance – Constraints and Pricing
Source: Company Filings, Morningstar
0
1000
2000
3000
4000
5000
6000
Mb/
d
Rail
Cactus 2
Basin Expansion
Sunrise Expansion
EPIC
South Texas Gateway
Midland Sealy
PELA
Cactus
Bridgetex
Permian Express II & III
Existing Pipelines
Refinery Consumption
Production Forecast
gSimilar constraints lie ahead as production exceeds capacity next year (2018)
g Further constraint in 2020
gProduction/drilling could slow if prices drop too low
How the Permian Spigot Works
23
gBreakeven is the low price
g Increased demand in international market will drive Brent premium and exports
gA wide premium and price above $50/barrel encourages Permian growth
gWTI Houston is the clearing price for exports
gDock infrastructure constraints will limit exports
g Takeaway constraints limit production
gCould see consistent 2 mmb/d exports and term contracts
g If prices and production decline then low sporadic exports
gU.S. Gulf Coast has become the swing market for crude exports and Permian is the spigot
gResearch Focus: North America
/U.S. and Canadian crude production, takeaway infrastructure and pricing
/Refining and processing
/Trading, storage, blending, arbitrage
/Export markets and opportunities
/Downstream petrochemical impacts
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