Robust Global Crude Demand, WTI Discount Driving US NGL Conversion Project

Strong demand for cheaper, US-produced crude oil is fuelling a pipeline conversion project, following suit from several other projects that are sending US crude oil to global markets.

PipelineOn Wednesday, US midstream major Enterprise Products Partners announced that it will convert one of its natural gas liquids (NGL) pipelines from the Permian Basin to the Texas Gulf Coast to crude oil service. The project is expected to be completed in the second half of 2020.

“We have had strong demand for crude oil transportation, storage and marine terminal services for crude oil production from the Permian Basin,” Enterprise CEO Jim Teague said.

A glut of domestic crude supply leading to a long-standing discounted price of US benchmark West Texas Intermediate (WTI) crude oil to other crude prices, such as Brent and Light Louisiana Sweet (LLS), is a primary driver of this and other related projects, according to market observers.

“[US producers and operators] are looking for ways to get [crude oil] out of the country easier, because our refiners don’t want it” or have only so much capacity for it, according to Price Futures analyst Phil Flynn.

WTI is essentially landlocked and unable to easily reach markets, and the WTI/Brent spread has widened out to around $5/bbl, thus making WTI attractive but only if it can be accessed.

“[The Brent/WTI] spread will probably stay elevated for sometime, and the Europe market will be better [for US-produced crude oil],” Flynn added.

Export and conversion projects are not new.

Several years ago, Enterprise and co-operator ConocoPhillips changed the direction of the Seaway pipeline, sending crude oil barrels to the Texas Gulf Coast rather than importing from the coast.

Louisiana Offshore Oil Port (LOOP) officials said in July the crude terminal will undergo minor modifications to export crude oil from the facility. That service could start as soon as early 2018, sending up to 2m bbl in a single shipment on a Very Large Crude Carrier (VLCC).

Chemical market participants said current economics are well positioned to keep the US at a global advantage.

“If crude stays at $60/bbl and above, we will get more oil production from the Permian,” a feedstock buyer said.