With crude production from Alaska's Prudhoe Bay field down indefinitely, and tight supplies of short-haul Latin American crudes, typical Alaska North Slope crude buyers may have to seek crudes from as far away as West Africa or Asia to fill the void on the US West Coast, market sources said August 7.
"California may have problems," Standard & Poor's Chief Economist David Wyss said. "The entire West Coast could be in trouble."
There is no pipeline connecting the Gulf Coast's petroleum production or the US Strategic Petroleum Reserve crude stockpiles to West Coast refineries, Wyss explained.
Also, he noted, only smaller tankers can move through the Panama Canal to take crude to the West Coast.
From Latin American, the crude most similar to ANS is Brazilian Roncador, a new grade first marketed in March, market sources said. Brazil's Petrobras produces less than 2 million b/d of Roncador, which is 28 API and 0.58% sulfur. ANS has is 29-29.5 API gravity and 1.1% sulfur.
However, "there is no prompt Roncador available," said a Petrobras source. "It won't help at all." He added that "Petrobras has moved Roncador to the US West Coast in the past."
There will likely be Roncador available loading in September for an October delivery, said the source. Roncador is typically exported to Chile, Europe and Asia.
Other mid-grade Latin crudes that could be alternatives to ANS are Colombian Cano Limon at 29 API and 0.5% sulfur, and Venezuela Mesa at 30 API and 0.9% sulfur. Both grades are sold primarily on term contracts and are not available on the spot market.
From Ecuador, Oriente and Napo crudes are actively traded in the spot market, although both are heavier and more sour than ANS.
Mexico's Isthmus crude, 33.6 API and 1.3% sulfur, is seen as an alternative to ANS, but is sold exclusively on a contract basis. Pemex has been maximizing the Isthmus it consumes at its six refineries in Mexico.
Angolan Hungo could fill the void, market sources said, even though the crude would have to travel across the Atlantic Ocean and through the Panama Canal, which could take 30-45 days. Hungo has an API of 28.5 and 0.75% sulfur.
Castor Petroleum reported it was scheduled to bring in 2 million barrels of Hungo to the US West Coast for delivery in late September. As of August 4, the trader reported selling two-thirds of a 2 million barrel cargo.
Typical competitors of ANS in the Pacific Northwest have long been Canadian crudes. Shell is reported to consume Albian heavy synthetic crude, according to US West Coast crude market sources.
"Shell, ConocoPhillips and BP are most exposed to ANS," said a buyer of ANS on the US West Coast.
In Washington, BP operates a 220,400 b/d refinery at Ferndale, ConocoPhillips a 93,000 b/d refinery at Ferndale, Shell and Tesoro 148,600 b/d and 114,500 b/d refineries, respectivley, at Anacortes, and Astra Petroleum a 35,800 b/d plant at Tacoma.
Although Northwest refiners have increasingly been using Canadian grades to diversify their feedstocks, there are limits as to how much Canadian oil they can bring in. There is only one line on the West Coast that can ship Canadian crudes to the US West Coast, the Trans Mountain pipeline, which runs from Edmonton, Alberta, to Vancouver, British Columbia, and across the US border to the Puget Sound region of Washington State. Trans Mountain also extends to terminals at Westridge, Vancouver, British Columbia, where crude can be shipped on the water to refiners south of Puget Sound.
Trans Mountain has crude capacity of 227,000 b/d, but primarily ships crudes heavier in quality than ANS.
However, Trans Mountain can ship only three cargoes, of 300,000-350,000 barrels each, to Westridge each month because of capacity constraints. This number could decline depending on the density of the crude.
During the June-August period, Trans Mountain has experienced no apportionment, although the line has been close to full, which implies its capacity to take any additional nominations to make up for the ANS shortfall would be limited.
In June and July, rates were estimated at 226,440 b/d, while August is estimated to average 226,000 b/d.
In order to cut transport time, long-haul barrels now on the water could be redirected to the US West Coast. Offers of foreign sour crudes into the US Gulf Coast have either been withdrawn or have risen sharply on news BP was shutting in Prudhoe Bay, market sources said August 7.
At least two offers of Iraqi Basrah crude into the US Gulf Coast seen August 4 have been withdrawn, sources said. A 1 million barrel Basrah cargo was marked for delivery in the first week of September, priced at $8/barrel under October WTI into the Gulf Coast. Another similar cargo was set for arrival in the second week of September, priced at $8.50 under October WTI into the Gulf Coast. Basrah is consumed on the US West Coast, so sellers may be considering moving the supply there instead of the Gulf, traders said.
Russian Urals offers have risen from a roughly $5/barrel discount to October NYMEX delivered into the US Gulf Coast August 4 to a $2.50/barrel discount August 7, sources said.
"But it would be a long way to go," said one source, referring to the journey for Urals to the US West Coast. He noted Urals does not often make it to the West Coast, unlike the US Gulf. This oil would take at least 40 days to journey to the West Coast, meaning Urals loaded in September would reach there not before October.
Another crude that would have to make a similar journey is Azeri Light, produced in the Caspian Sea. A cargo of Azeri Light was said done either late last week or early this week at $2.80 premium to October WTI delivered into the US Gulf Coast, sources said. This oil was either sold in lots of 500,000 or 1 million barrels. Last week, reports surfaced that producers of the oil were increasingly seeking new markets in the US, and this BP outage could help that effort, sources said.
One source said other long-haul grades, such as Oman and Indonesia's Minas, Cinta or Duri crudes, would likely take the place of ANS, since those grades have been relatively soft over the past week. Indonesian grades and Oman do come to the US West Coast, imported by companies such as Tesoro.
"There's about 3 to 4 million barrels of unsold Persian Gulf crude in September; this will help clear it," said one Asian crude trader. He added that "it's in a small number of hands, so will get done quietly." The source noted BP and Shell recently had been buying additional volumes of Persian Gulf crude, possibly in anticipation of a Prudhoe Bay shutdown, which has been experiencing problems for several months.
Meanwhile, although refiners were saying the loss of ANS was not yet impacting operations, spot product prices climbed in the US West Coast August 7 on shortage worries.
In Los Angeles, traders reported deals for August barrels of CARBOB gasoline, a California-specific blend, ranged from the September NYMEX RBOB contract plus 14.50 cents/gal to plus 17 cents/gal, before slipping back to plus 15.50 cents/gal. Late last week, CARBOB was seen at 10 cents/gal over the NYMEX.
Los Angeles jet fuel was sold at NYMEX heating oil plus 24 cents/gal to plus 26.25 cents/gal, compared to 18.75 cents/gal over August 4.
Jet fuel will be shipped from Asia to the US West Coast, if the price is right. Several traders in Asia were focusing on moving cargoes to the US West Coast due to improved arbitrage economics in the past week. The "US West Coast numbers continue to be strong," an Asia-based trader said August 7.
Created: August 7, 2006
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