So much crude oil is being produced in Texas and North Dakota that within the next couple of years, refineries on the Gulf Coast may no longer need to import any light crude. In fact, according to industry researchers, there may be so much light crude that the Gulf Coast could start experiencing the same bottleneck dilemma as the oil storage hub in Cushing, Oklahoma.
“We’re dubbing this region the ‘Cushing Coast’. We see a region in super-abundance of crude oil but with a real lack of pipeline capacity out and beyond the region,” says Greg Haas, research manager at Hart Energy, an oil industry publisher in Houston.
“We have this regional glut of crude cascading from Cushing, the inland areas, all hitting the shore,” says Haas.
But wait, there’s more. Not only is production increasing from wells on land, more is also expected from wells offshore in the Gulf of Mexico.
“So when those two combine, we’re going to have a real glut of Gulf Coast crude.”
Haas will present Hart Energy’s study “Refining Unconventional Oil” at a conference the company will host later this month in San Antonio.
More Domestic Crude Could Mean Lower Prices
Similar trends are predicted by researchers at Tudor Pickering Holt & Co. In a report it released in July, the Houston-based energy investment bank said the shift in supply and demand has now reduced total crude imports to the United States by 20% since peaking in June 2005. The report said “imports of light oil, in particular, have declined significantly” leading to a 49% drop in imports of light crude from May 2007 to April 2012.
Bottom line: domestic crude will cost less.
“Expect U.S. Gulf Coast crude grades to become relatively cheaper,” said the report because even more Texas light crude will be making its way to Gulf Coast refineries, replacing more expensive light crude from places like Nigeria.
“We believe that the pace of import reduction will accelerate over the next two years as pipelines….are planned to move crude oil from West Texas to the Gulf Coast, equal in size to 54% of total current Texas oil and condensate production…,” said the report.
The Flip-Side: Imports of Heavy Crude Rise
There’s a catch though in what otherwise seems to be a hopeful trend towards U.S. energy independence: many Gulf Coast refineries are designed for processing heavy crude like from the Canadian tar sands. In a delicate balancing act, those refineries cannot simply start processing lots more of the now plentiful and cheaper domestic light crude.
The result, as detailed a couple weeks ago by the U.S. Energy Information Administration (EIA), is that while imported heavy crude volumes have fallen, they have increased as a percentage of the total crude imported to Gulf Coast refineries.
“Since 2007, as domestic production of light sweet crude has increased, overall crude imports have fallen and become, on average, heavier,” said the EIA.
That need to balance the grades of crude is a limiting factor when it comes to just how much of the domestic light crude the Gulf Coast refineries can process, a factor that could further depress the price of domestic light crude said the EIA.