Congestion in the Gulf of Mexico

Concerns are now growing that coastal infrastructure bottlenecks will limit waterborne crude exports.

Congestion in the Gulf of Mexico

Katherine Spector at the Columbia Center on Global Energy Policy attempts to quantify short-term and longer-term Gulf of Mexico waterborne crude export capacity. The piece also raises questions about whether sharp growth in non-energy waterborne trade via the Gulf will have a positive or negative effect on decongestion of the energy trade, and whether the type of companies involved in developing new export infrastructure matters for the development of this market.

Introduction

> The Permian Basin is one of the great US shale oil success stories. Located in West Texas and New Mexico, the basin has seen one of the biggest increases in output of any oil shale region, but it has stumbled on insufficient infrastructure to move new production barrels to market and faced severe price discounts as a result. In response, significant investments are being made to gradually resolve that ex-Permian bottleneck and bring those barrels to the Gulf Coast refining center.

> However, the US refining network alone cannot fully absorb additional volumes of Permian crude. As a result, US oil exports from the Gulf of Mexico have already increased sharply and will continue to grow to accommodate Permian and other US crude production growth. Concerns are now growing that coastal infrastructure bottlenecks will limit waterborne crude exports. Until Gulf Coast export bottlenecks are also resolved, Permian producers will likely continue to face severe price discounts that could impact profitability and ultimately constrain incremental increases in oil production.

> In the space of little more than a decade, US natural gas production has increased by 50 percent, and crude oil production has doubled — to volumes that are quite literally more than the US market knows what to do with. The United States has already become an energy exporting superpower since energy exports were fully legalized just a few years ago.  Gross movements of waterborne oil liquids in the US Gulf of Mexico (GOM) are at record highs — in the context of strong waterborne energy and non-energy shipments overall — and just this year crude oil exports have become a meaningful part of that total volume.

> In order to keep GOM exports growing, investments are being made to increase the capacity to send oil from the Gulf of Mexico via a class of tanker known as Very Large Crude Carriers (VLCC). Increased outbound VLCC capacity will not only allow for increased overall export volumes at cheaper per barrel transport costs in general but will also specifically exploit the economies of scale that make long-haul exports to the coveted Asian market most viable. While the prospects for additional VLCC loading capacity improve in a time frame of five or more years — particularly if multiple of the discussed offshore crude export terminal projects become firm — expected Permian growth between now and then could make for a very rocky path to debottlenecking. This commentary is an attempt to quantify short-term and longer-term GOM waterborne crude export capacity. It also raises questions about whether sharp growth in non-energy waterborne trade via the Gulf will have a positive or negative effect on decongestion of the energy trade, and whether the type of companies involved in developing new export infrastructure matters for the development of this market.

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