Oil flows in Texas are shifting, with Houston set to attract increasing volumes of both US and Canadian crude over the near and medium term.
Several factors are likely to incentivize shipments to Houston going forward. The near-term shift is a function of logistics and existing pipeline capacity constraints. But underpinning the move are more structural dynamics such as the US’ transformation into a major exporter of crude oil and developments in relatively new pricing assessments.
Market players are already taking notice, with some firms actively looking to expand and extend existing infrastructure to nip an emerging bottleneck in the bud. Enbridge, for example, plans to expand its Grey Oak pipeline by some 200,000 barrels per day and extend it to Houston. EPIC has also floated the notion of expanding capacity, while Magellan Midstream has noted a significant uptick in booked space on its Longhorn system.
Market players and watchers say that exports are driving flows of US oil to the Gulf Coast. The bulk of incremental crude is a qualitative mismatch for the domestic downstream, which has also undergone a significant rationalization. Meanwhile, demand growth is occurring overseas.
“Clearly North American supply will play a big role” in meeting that demand, said Colin Gruending, president for liquids pipelines of Canadian midstream giant Enbridge. He added that geopolitics and environmental concerns bolster appetite for North American oil as well.
“North American basins are comparatively geopolitically secure and [barrels there] are ethically produced,” he said.
Currently, the port of choice for would-be exporters is Corpus Christi, Texas. That’s in part because the port’s infrastructure can accommodate larger tankers, as well as recently constructed pipelines terminating in Corpus Christi that carry unblended West Texas Intermediate (WTI) crude directly from producing fields.
But flows there are hitting a ceiling. According to analysts with East Daley, “utilization on [Permian Basin] to Corpus [Christi] pipelines hit 90% in December 2022, leaving only 250,000 b/d of unused pipe capacity before shippers max out current infrastructure.”
Crude oil traders along the US Gulf Coast confirmed that Corpus Christi-bound pipeline space has tightened since then.
Meanwhile, production in the Permian continues to grow, albeit at a slower pace. The US Energy Information Administration (EIA) see domestic crude output growing by 500,000 b/d this year and 200,000 b/d in 2024, driven largely by Permian growth.
“With the space going [to Corpus Christi] limited, more barrels are going to have to go to Houston,” one source told Energy Intelligence.
Developments in Houston will attract more barrels there as well. Exxon Mobil’s 250,000 b/d expansion to its nearby Beaumont, Texas facility is designed to process light crude such as that produced in the Permian and is currently ramping up.
RBN Energy’s Housley Carr noted that an extension of the Wink-to-Webster pipeline to Beaumont comes into service later this year, a development that “will further support volumes moving from the Permian to Houston.”
In addition, midstream firms are investing heavily in regional infrastructure to support not only exports but also trading and pricing operations.
Enterprise Product Partners is planning to build the Seaport Oil Terminal (SPOT) offshore Houston. The terminal would allow for very large crude carriers (VLCCs) to load to their 2 million barrel capacity in about one day.
Energy Intelligence analysis shows that SPOT would constitute surplus export capacity — existing infrastructure is sufficient to accommodate anticipated growth in exports. However, SPOT would provide both optionality and efficiency. Enterprise personnel noted that SPOT diminishes reliance on lightering, saving costs as well as cutting down on greenhouse gas emissions.
SPOT’s capacity would account for “33% more than the entire production growth projected for the Permian over the next five years,” said Carr. “Obviously, that would create a giant sucking sound going to SPOT.”
Meanwhile, Enbridge is building its own facility near Houston for heavy crude coming from Canada. The Enbridge Houston Oil Terminal (EHOT) will “[create] a heavy Canadian crude hub and pricing point on the Gulf Coast,” according to Gruending.
Flows of Canadian crude to the US Gulf Coast have been steadily rising and averaged some 516,000 b/d last year.
On the financial front, Houston is the pricing point for the Intercontinental Exchange (ICE)’s Permian West Texas Intermediate (WTI) contract, traded under the HOU ticker. Sources familiar with the matter say that activity on the HOU contract is growing, with virtually all contracts settled physically — actual oil delivered to the ECHO and MEH terminals in Houston.
In addition, starting in June, WTI will be deliverable into the Brent contract. This development is likely to draw more US crude to export terminals, including those in Houston, experts say.