Commodities
As shale oil gains slow, deepwater port struggles for customers
By Arathy Somasekhar
HOUSTON (Reuters) – As U.S. shale oil boomed last decade, an oil pipeline company pitched an ambitious multi-billion-dollar export port off the Texas coast to ship domestic crude to buyers in Europe and Asia.
In April, Enterprise Products Partners (NYSE:)’ SPOT became the first project to receive a license from the U.S. maritime regulator for a deepwater port that could load two supertankers, each of which can carry up to 2 million barrels of oil at a time.
But multi-year regulatory delays, a loss of commercial backers and slowing U.S. shale production has left SPOT, or Sea Port Oil Terminal, and its three rival projects without any secured customers, energy industry executives say.
“There are a lot of gray areas right now with export projects,” said Zack Van Everen, an oil analyst at energy investment banker Tudor Pickering Holt & Co.
Enterprise declined to make an executive available for an interview, but said it continues to develop the project.
Shale producers and traders rely on ports to get their oil to market and are balking at the higher-than-expected loading fees for new projects even if they are able to fully load supertankers, executives said.
HIGHER COSTS
SPOT, proposed for a point 30 miles off the Gulf coast in 2019, is the only Texas deepwater project with its government approvals. But its cost has soared to about $3 billion, two industry experts said, from an original estimate of $1.85 billion for Enterprise.
It has no long-term customer contracts, or joint venture partners, stalling a financial green light from the company, sources said. The project, if approved, is currently expected to start up in 2027.
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A customer willing to commit the largest volume is being offered a $1 per barrel rate by Enterprise to load at SPOT oil transferred from its Houston storage terminal, three people familiar the terms said. Clients with smaller loads have been offered an about $1.20 a barrel fee.
That compares with the all-in cost of about 75 cents per barrel to load in Corpus Christi, Texas, the top U.S. oil export port, a source familiar with export operations said.
To sweeten the deal, Enterprise is offering preferential terms for loading schedules, and may bundle some of its other services to make the price more competitive, two of the people said.
Enterprise disputed the fees, but declined to provide the project’s cost and the per barrel terms.
A deepwater port allows customers to load oil directly onto a supertanker, eliminating the additional cost of loading the oil on smaller ships at shallower ports and then transferring the crude from the smaller vessels to larger ones.
But it has lost Chevron (NYSE:) as an early backer because of the regulatory delays to secure a license, and Canadian oil pipeline operator Enbridge (NYSE:) has released its option to take a stake in SPOT, Enterprise said.
Chevron declined to comment on commercial matters.
An Enbridge spokesperson said it views SPOT “as a valuable option for our Canadian heavy crude customers to be able to access the project,” but declined further comment.
LESS NEED FOR DEEPWATER PORTS
U.S. exports of crude rose to a peak of 5.6 million bpd in February 2023, and existing facilities can handle as much as another 1.5 million barrels, though port congestion could limit that number, according to RBN Energy. Russia’s invasion of Ukraine also has shifted global flows with more U.S. vessels going to Europe instead of Asia, which were primarily geared to using supertankers.
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“The short-term dynamic is less need for big ship capacity, which actually fits the current U.S. export capacity a lot better,” Colin Parfitt, Chevron’s vice president of midstream, said in an interview in March.
Changing flows and slowing shale output gains have created uncertainty for shippers. “That’s changed the dynamic a little about how people want these (deepwater ports),” Parfitt said. “If you get one built, it is going to crowd out the others.”
Currently, there is one U.S. offshore port – called the Louisiana Offshore Oil Port – that can fully load supertankers. However it primarily handles oil produced in the Gulf of Mexico and has few pipes that link to the top U.S. shale field, the Permian, in West Texas.
SPOT’s largest target would be moving shale oil, and those output gains have slowed dramatically. U.S production is expected to rise 280,000 barrels per day to 13.21 million bpd this year, according to the U.S. Energy Information Administration. That compared with a one-year gain of 1.6 million bpd in 2018.
Enterprise said this month that it projects growth in and around the Permian basin past 2030.
Consolidation among top shale players, like Exxon Mobil (NYSE:)’s recent purchase of Pioneer Natural Resources (NYSE:), also took away customers for Enterprise and other players, with some of the largest shale drillers already holding long-term contracts with existing export facilities.
Of the three other deepwater port projects along the Texas coast, private-equity backed Sentinel Midstream, oil refiner Phillips 66 (NYSE:) and pipeline operator Energy Transfer (NYSE:) each have sought U.S. approvals for offshore ports. So far, none have received licenses.
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“Between the current dock capacity along the U.S. Gulf Coast, and the most aggressive production projections, it appears that one, at most two,” could proceed, said oil export consultant Brett Hunter of Energy Hunter LLC.
By Shariq Khan
NEW YORK (Reuters) – Oil prices rose in Asian trading hours on Friday, with global benchmark Brent set for its first weekly increase in three weeks on signs of improving global demand and slowing inflation in top oil consumer the United States.
prices rose 21 cents, or 0.3%, to $83.48 a barrel by 0018 GMT. U.S. West Texas Intermediate (WTI) crude futures rose 18 cents, or 0.2%, to $79.41 a barrel.
Brent futures are set to rise about 1% on a weekly basis, and WTI futures are set to gain 1.4%.
Recent declines in oil and refined products inventories at major global trading hubs have created optimism over oil demand growth, reversing a trend of rising stockpiles that had weighed heavily on prices in prior weeks. Through Thursday, Brent crude futures were down around 10% from this year’s peak of $92.18 a barrel on April 12.
U.S. oil and fuel inventories fell last week, while Singapore’s middle distillate fuel stocks dropped to a near three-month low this week. In Europe’s Amsterdam-Rotterdam-Antwerp trading hub, gasoline stocks were down 7.5% in the week to Thursday, data from consultancy Insights Global showed.
Recent economic indicators from the United States have fed into the optimism over global demand. U.S. consumer prices rose less than expected in April, data showed on Wednesday, boosting expectations of lower interest rates in the country.
Those expectations were further bolstered by data on Thursday that showed a stabilizing U.S. job market.
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Lower interest rates could help soften the U.S. dollar, which would make oil cheaper for investors holding other currencies and drive demand.
“Financial markets now have placed the most bets on a September interest rate cut by the Federal Reserve, which would continue to temper the dollar strength and shift that strength over to commodities and equities,” StoneX oil analyst Alex Hodes said on Thursday.
Over the past three weeks, US prices have surged 30% to above $2.50 per million British thermal units (mm/BTU), fueled by production declines and increased feedgas demand for liquified natural gas (LNG) exports.
Moreover, recent producer cuts, maintenance events, and Freeport LNG’s normalization of gas demand post-outage have contributed to this rise. Cheniere’s announcement of no heavy maintenance for its liquefaction trains this year also supports higher prices.
In a Thursday note, Goldman Sachs strategists said the return of gas prices above $2/mmBtu aligns with their expectations, as production curtailments “would ultimately lead to lower storage congestion risks for this summer.”
“That said, we see only limited further upside from current levels, with stronger gas prices risking a return of congestion concerns,” they added.
Goldman notes that prices above $2/mmBtu reduce gas competitiveness compared to coal, with a $0.50/mmBtu increase potentially cutting gas demand by 1 billion cubic feet per day (Bcf/d), especially in shoulder months.
Moreover, higher prices may prompt the restart of previously shut-in wells. EQT (ST:), the largest producer in the Appalachia region, indicated it would resume production if prices sustainably exceed $1.50/mmBtu. And while Appalachia prices haven’t risen as much as NYMEX, the local hub has averaged $1.44/mmBtu month-to-date, up 10¢ from last month, strategists highlighted.
Elsewhere, European gas prices have also risen this summer, though less sharply than in the US.
Title Transfer Facility (TTF) prices increased 18% over the past three months to around 30 euros per megawatt-hour (MWh), holding steady in May.
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However, unlike the US market, this rally lacks fundamental support, with Northwest (NW) European gas storage at record-high levels, Goldman strategists pointed out.
“To be sure, NW European LNG imports have remained weak relative to last year – and are likely to get weaker in the coming weeks owing to a seasonal decline in global LNG production, exacerbated by outages at Australia’s Gorgon export project,” they said.
“Going forward, we expect healthy non-European demand for LNG to continue to incentivize a decline in European LNG imports vs last year,” they continued.
Investing.com– Gold prices fell slightly on Friday, trimming some of their gains for the week as comments from a slew of Federal Reserve officials offered a more sobering outlook on interest rate cuts.
The yellow metal had risen to nearly $2,400 an ounce this week in the immediate aftermath of some soft U.S. economic readings. But it pulled back from these levels on Thursday and Friday.
steadied at $2,377.40 an ounce, while expiring in June fell slightly to $2,381.10 an ounce by 00:19 ET (04:19 GMT).
Gold retreats as Fed officials downplay rate cuts, but weekly gains due
The yellow metal fell on Thursday after a string of Fed officials cautioned against bets on immediate reductions in interest rates.
Several members of the central bank’s rate setting committee said the central bank will need much more convincing that inflation was coming down beyond a marginally soft inflation reading for April.
This saw traders begin pricing out some expectations for a rate cut in September. The and also rebounded from earlier losses this week.
Still, some softer-than-expected readings put gold on course for a 0.7% weekly gain.
The yellow metal was also in sight of a record high of above $2,430 an ounce, although it appeared unlikely the level would be met in the near-term.
Other precious metals retreated on Friday, but were set for bumper weekly gains. fell 0.2% but were trading up 6.2% for the week, while fell 0.4% but were up 4.5% this week.
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Copper mixed amid middling China cues
Among industrial metals, one-month copper futures tumbled from two-year highs tracking middling economic data. But three-month copper futures pushed higher and were set for a stellar week as markets bet on tighter supplies and an eventual demand recovery in the coming months.
on the London Metal Exchange rose 0.6% to $10,445.0 a ton, while rose 0.3% to $4.8935 a pound.
Data from China on Friday painted a mixed picture of the economy. While grew more than expected, growth slowed and shrank at an accelerated pace. Growth in Chinese also slowed.
The readings presented a muddled outlook for the world’s biggest copper importer, as it rolled out more stimulus measures to shore up growth.
Three-month copper futures gained on the prospect of a demand recovery, and were up nearly 4% this week. They were also at two-year highs.
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