The first cargo of Alaska North Slope to be exported from the US in a decade may have a limited impact on the fervent debate in Washington to weaken the current export limits regime, but its influence will be felt far more in crude pricing, which analysts said was the chief motive behind the cargo.
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"Everything has a ripple effect," said Edward Morse, the global head of commodities research at Citigroup. "This is just another piece of a rapidly changing framework."
Morse said that despite the restrictions on US crude exports, with possible growth in Alaska crude exports, shipments to Canada, and exports of processed condensate, the US will soon be exporting over 1 million b/d of crude and condensates, up from "virtually nothing" in early 2013.
Hydrocarbon exports are now leading all US sectors in exporting and boosting national economic interests, bolstering the case for additional crude exports.
"I think you get these things adding up, and I think you'll see [a weakening of crude export restrictions] in increments," Morse said.
ConocoPhillips shipped 800,000 barrels of ANS crude by the Suezmax Polar Discovery last weekend. It is expected to be received by South Korean refiner GS Caltex Corp next week.
The cargo is the first ANS export since 2004, but is not a shift in US policy. President Bill Clinton authorized the export of ANS in 1996 and nearly 95.5 million barrels of Alaskan oil was exported between 1996 and 2004, according to the US Energy Information Administration. These exports, which represented about 2.7% of Alaska's total production during that time, were shipped to South Korea, Japan, China and Taiwan, EIA said.
Michael Cohen, head of energy commodities research at Barclays, said crude exports out of Alaska could "move the dial" on public perception of exports, which is seen as a chief hurdle to a change in current export policy. He said it remains unclear if the ConocoPhillips shipment is the first of many, or "just a flash in the pan."
Still, Kevin Book, managing director of ClearView Energy Partners, said that unlike the recent Commerce Department rulings giving Eagle Ford players legal backing to export processed condensate, the Alaska crude exports did not signal any indication of a policy change.
"Processed condensate exports may not be an explicit change of policy, but they certainly suggest a change in the way existing policy has been interpreted," Book said. "By contrast, Alaska North Slope exports have been in-bounds since 1996, and would appear to derive from more fundamental supply-demand drivers than any policy catalyst."
Cohen said the fate of Alaskan crude on the global market may rest on the arbitrage between ANS and Dubai crude, which was open through late August through the second week of September, potentially compelling ConocoPhillips to export its recent cargo.
Spot ANS averaged at a $1.60/barrel discount to second month Dubai in September, down from a 67 cents/b discount in August, and a $1.47/b premium in July, according to Platts data.
Cohen cautioned that ANS exports may not be entirely price driven though, since the recent cargo may have been pushed by a shutdown of a Flint Hills Resources refinery near Fairbanks, an unexpected uptick in ANS production and shifts in US West Coast demand.
A narrowing Brent/WTI spread would suggest that it has become more profitable to import crude, rather than export. However, a weakening ANS spot price differential to WTI has so far compensated for the narrowing Brent/WTI spread.
ANS was assessed at a 94 cents/b premium to the WTI CMA (calendar month average) Wednesday, down from an average of $3.39/b in September, and $6.19/b August.
And with rail capacity increasing on the US West Coast, bringing more Canadian and US shale crude into the region, downward price pressure should remain on ANS, Morse and other Citi analysts said in a recent report.
"Citi expects these [price] spreads to further incentivize ANS export as PADD V becomes increasingly glutted with crude, pushing ANS export volumes above the 70 k b/d levels last seen in the late 1990s," they said.
Citi is estimating total USWC rail unloading capacity to reach 300,000 b/d in 2014, up from 80,000 b/d in 2013, before climbing to 832,000 b/d in 2015 and 1.132 million b/d in 2016.
For the time being, the weaker ANS price may make the economics work for exporting barrels, but it also improves the refining margin for ANS on the USWC, which may boost USWC refiner demand for ANS.
The USWC ANS cracking margin closed at $16.54/b Wednesday, up from a September average of $11.78/b and an August average of $5.50/b.
Platts margin data reflects the difference between a crude's netback and its spot price. Netbacks are based on crude yields, which are calculated by applying Platts product price assessments to yield formulas designed by Turner, Mason.