Growth in unconventional crude from sources in the Bakken and the Alberta oil sands will see North American become a net exporter of petroleum liquids in the 2020-22 period, the Hart Energy-Canadian Society for Unconventional Resources conference in Calgary was told Feb. 27.
Terry Higgins, director of refining at Hart Energy, predicted shale oil alone will boost output by 2.6 million-2.8 million barrels per day, while the oil sands will add another 2.5 million bpd, along with 800,000 bpd of natural gas liquids, offset by a drop in gasoline demand of 600,000 bpd.
The result will be a need to move the surplus crude, much of it coming from the U.S. mid-continent, to new markets, Higgins said.
He said the pressure is on to consider “sooner than some people realize” the options for exporting crude, although Eastern North America (the U.S. East Coast, Quebec and Atlantic Canada) does represent a potential outlet for unconventional crude if a way can be found to get shipments to that region.
Refinery capacityHiggins said eastern region refineries have current capacity of 1.8 million bpd, with about 62 percent designed to handle light crude similar to the Bakken along with other light unconventional crudes.
Currently, those refineries receive only 30,000 bpd of Bakken crude and 70,000 bpd of Canadian heavy crude, most of it arriving by rail, but rail could carry the bulk of another 220,000 bpd-260,000 bpd in the 2015-18 period, although there is potential for another 800,000 bpd, he said.
Higgins also suggested an influx of North American unconventional crude could see light sweet crudes in the U.S. Gulf Coast lose $1-$2 per barrel from the usual premium for light sweet crude over the 2016-22 timeframe.
He explained that Gulf Coast refineries have been retooled to make them the world’s most sophisticated for running heavy, high-sulfur crudes, with light crude accounting for only 17 percent of the optimum refinery mix.
“If they go on up to 25-26 percent, they are running more light than they want to and their economics would tell them ‘don’t pay a premium for that.’
“Likely what that will do is put pressure on the differential between the light and heavy crudes so you would see a little depression in the premium that light low-sulfur crudes normally get,” Higgins said.
Short-term abundanceOver the short-term he expects there will be a global abundance of light low-sulfur crude, because no one had anticipated the sudden surge in that product, least of all China and India, which have been designing new refineries to run heavier, higher-sulfur crudes, he said.
If light crude volumes continue to increase and the price discounts persist, Gulf refineries might start retooling to handle more light, with the result that medium crudes could be squeezed out of the market as refineries use extremely heavy crudes to balance the light, Higgins speculated.
He said very heavy crudes and Canadian heavy crudes, which can back out Mexican and Venezuela production, comprise about 26 percent of the current Gulf refinery mix.
Greg Haas, director of research for Hart Energy, said that while moving crude by rail is one of the best short-term options for unconventional plays such as the Bakken, rail — using 500 barrel to 700 barrel tankers — is also viable over the longer-term because of the growth rates seen in some plays and the demand-pull from all parts of the continent.
He said Hart’s research suggests that, despite the anticipated rise in unconventional production, both incline and decline should be taken into account as declining production in the Gulf of Mexico may offset the rapid growth in the Bakken.
“Light shale oil cannot simply be a direct substitute for heavy oil,” Haas said. “The refineries are set up completely differently.”