The ink is barely dry on legislation to lift a 40-year-old ban on exporting U.S. crude and energy companies already are jockeying to ship American oil overseas.
Two tankers filled with freely traded U.S. oil have pulled out of Texas ports in the past two weeks, with more shipments expected. The first American oil sales abroad are flowing to Europe but, in the longer term, Latin America and Asia could become natural markets, according to industry experts.
U.S. oil sales to foreign buyers have been quick to start after President Barack Obama signed the bill that abolished the crude export ban less than a month ago. Big energy infrastructure companies including Plains All American Pipeline LP and Enterprise Product Partners LP have spent the past five years pouring billions of dollars into building new pipelines, oil storage tanks and dock space at ports.
The first freely traded cargo of U.S. oil was shipped from Corpus Christi, Texas, on New Year’s Eve. ConocoPhillips pumped the oil from around Karnes County, Texas, 60 miles south of San Antonio. From there it will travel about 5,000 miles to Bavaria in Germany.
A second cargo of U.S. oil shipped from Enterprise’s Houston terminal at the start of the year is sailing to Marseilles, France. From there it will move by pipeline to a refinery in Switzerland.
During the drilling boom, infrastructure companies reworked the country’s pipeline network so American crude could move from inland shale fields in West Texas and North Dakota to the coasts where most refineries are located. One such hub is Corpus Christi, where pipeline company NuStar Energy Inc. has been quietly building out its oil network with an eye toward exports.
The company loaded the first tanker of freely traded U.S. oil on New Year’s Eve and has said it can load up to 400,000 barrels a day from its existing terminal in Corpus Christi, said Danny Oliver, senior vice president of marketing and business development.
NuStar isn’t done expanding; it is in the process of boosting its oil-loading capacity in Texas by more than 40% to 575,000 barrels a day.
“We could export 100% of the crude oil that comes through our system,” Mr. Oliver said.
In the short term, NuStar is unlikely to export that much on its own because global demand for crude hasn’t kept up with the staggering amount of supply being pumped world-wide. As oil supplies have swelled over the past 20 months, oil prices have dropped by $75 a barrel to almost $30.
Corpus Christi is home to other energy companies that want to export. At its peak in August 2014, the port shipped out more than 750,000 barrels a day, mostly to U.S. or Canadian refineries, according to Housely Carr, an analyst with RBN Energy LLC in Houston.
“That could make Corpus a major center of crude exports going forward,” he said in a recent research note.
The oil being shipped abroad is light, sweet crude, which is pricier than the heavy crude U.S. refiners are equipped to process, noted Skip York, vice president of integrated energy at Wood Mackenzie. “The barrels leaving U.S. are a better fit for other refiners” around the world, he said.
Ryan Lance, chief executive of ConocoPhillips, expects the global oil glut to diminish in the next year or two as low crude prices spur demand for fuel.
As demand rises enough to push crude prices higher, Mr. Lance predicts that foreign buyers may come to rely on the U.S. to export as much as two million barrels of oil every day within the next five years.
Reaching that level of exports—which amounts to more than 20% of current U.S. oil production—would require many more new pipelines and oil terminals. “We’ve got some work to do,” he said.
Canada’s Enbridge Inc. has said it would spend $5 billion to build three oil terminals between Houston and New Orleans to allow U.S. and Canadian crude to flow overseas from the Gulf Coast. Enterprise Products Partners acquired several docks on the Houston Ship Channel when it bought Oiltanking Partners in a $6 billion deal last year and is expanding loading capacity there.
As with most new markets, the flow of American oil abroad is expected to start with a trickle and then steadily rise. The current price of foreign crude isn’t much higher than what a barrel of U.S. oil can fetch, making a tanker ride across an ocean look expensive to many buyers, experts said.
Oil pumped in producing countries from Norway to Nigeria is similar to the crude flowing out of Texas, but those countries are closer to Europe and Asia, making their shipments more attractive to buyers there for now, according to an analysis by RBN. But a massive expansion of the Panama Canal, scheduled to be complete later this decade, will allow much larger ships to pass through. That has the potential to open up new trade routes between the Gulf of Mexico and Asia.
Prospects looks brighter if the price of crude rises to $40 or $50 a barrel, said Ken Medlock, senior director at Rice University’s Center for Energy Studies.
"Longer term, the opportunity for crude exports will depend entirely on price,” he said.