Record US crude oil exports, rising shale production boosts oil flow to Houston Ship’s crew

HOUSTON, May 12 (Reuters) – Oil pipelines from the top US shale field to Houston, which were half-empty, are filling up again as rising production took up most of the space on lines to south Texas’ main export hub in Corpus Christi has.

U.S. crude oil exports surged to a record high of about 4.5 million barrels per day (bpd) in March, buoyed by recovering Chinese demand and competitive U.S. oil prices. European Union and UK sanctions against Russian crude oil purchases have also boosted demand.

Pipelines carrying oil from the Permian Basin in west Texas to Corpus Christi are at more than 90% capacity as buyers buy the light, sweet oil, encouraging shippers to seek alternative routes, analysts said.

Houston, previously the top US export center before capacity expansion made Corpus Christi the top export center, has ample space. Pipeline utilization averaged 57% in 2022, up from 49% last year, according to researcher East Daley Capital.

This paves the way for new production from the Permian Basin to Houston.

“We don’t anticipate these barrels showing up at Corpus Christi,” said AJ O’Donnell, director at energy pipeline researcher East Daley Capital.

EXPORT TERMINALS

Crude oil export volumes from Corpus Christi accounted for about 60% of all U.S. oil exports in 2022, up from 28% four years earlier, according to RBN Energy’s weekly Crude Voyager report. Houston’s share fell from 33% to 22% over the same period.

“Houston becomes the next logical market for these kegs,” said Aaron Milford, CEO of Magellan Midstream Partners, which operates a pipeline from West Texas to Houston.

According to the US Energy Information Administration, Permian production is expected to hit a record 5.7 million bpd this month, surpassing Canada’s average daily crude oil production last year. Total U.S. oil production is expected to hit an all-time high of 12.53 million bpd this year due to rising demand and rising prices.

Plans to widen the Houston ship channel to reduce congestion and a 250,000 bpd capacity expansion at Exxon’s Beaumont refinery will help boost inflows into Houston, analysts said.

They added that planned oil export terminals around Houston will contribute to future flows.

Of the four proposed crude oil export terminals planned for the US Gulf Coast this decade, two are off Freeport, about 60 miles (96.56 km) south of Houston, and a third is east of Houston.

DIFFERENTIALS TO EXPAND

“We expect utilization of the Perm-Houston pipeline to show relatively strong growth this year and next, partially closing the recent utilization gap between the Houston and Corpus Christi corridors,” said John Trischan, research manager at consulting firm Wood Mackenzie.

The increased inflows into Houston will widen the price differential for light, sweet West Texas Intermediate (WTI) crude at the East Houston delivery point compared to the Midland price in the Permian as shippers are willing to pay more to get barrels from the region Analysts said it will be taken to the basin and shore for export.

WTI at East Houston WTC-MEH, also known as MEH, is likely to trade about $1 a barrel higher than WTI at Midland by year-end, estimates East Daley’s O’Donnell. The spread was 35 cents on Thursday.

Oil pipeline companies are proposing to expand capacity to Corpus Christi. Enbridge ENB.TO is considering a 200,000 bpd expansion of its 900,000 bpd Gray Oak pipeline and later an expansion to Houston.

(Reporting by Arathy Somasekhar in Houston, editing by Marguerita Choy)

(c) Copyright Thomson Reuters 2023.

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