DENVER, Colo., Sep 26, 2012 – EAI, Inc. is releasing its “North American Shale Fairway (NA Shale Fairway) Crude Supply, Logistics, Refining and Pricing Outlook” study providing the most extensive information base, analytics and outlooks across all production areas, refining centers, transportation systems and pricing/distribution hubs that comprise and drive the NA Shale Fairway crude oil business. EAI, Inc.’s NA Shale Fairway is the focus of the new study release and extends from Western Canada southwest through the U.S. Rocky Mountains, U.S. Central Corridor, and Gulf Coast. This area represents approximately 11.8 million BPD (barrels per day) of refining crude runs and crude production totaling 8.4 million BPD in 2012. The NA Shale Fairway is undergoing major changes that have and will continue to create new opportunities and challenges across the crude production, logistics, refining and trading landscape.
Total NA Shale Fairway crude production is forecast to increase by over 50 % from 8.35 million BPD in 2012 to 11.4 and 12.6 million BPD by 2016 and 2020, respectively. This includes over 1.5 million BPD of heavy crude blends in Western Canada, 0.7 million BPD of medium sour from the U. S. GOM and the balance generally light sweet crude and some condensate. The primary contributors to the NA Shale Fairway production gains include heavy and light production from Western Canada and light crude/condensate from the Bakken, Eagle Ford, Permian Basin, Granite Wash, Rocky Mountain Niobrara-DJ, Mississippi Lime and Utica development areas.
Over the next two years, there will be continued transportation challenges to move this growing crude supply to the appropriate markets which EAI, Inc. has defined by production basin, transport corridor and refining market. Additional take-away capacity is needed and/or underway across all of these production areas. Rail will play an increasing role in moving these crudes to higher valued markets with approximately 30 refinery/crude hub locations identified by EAI, Inc. either in operation or being developed. Long haul rail is expected to play a continued role in crude transport as some traditional pipeline corridor markets hit their limits on capability to absorb additional light crude supply.
The light/medium NA Shale Fairway crude network is expected to transition from being logistically constrained to refinery-market constrained over the 2015 to 2017 timeframe as domestic supply displaces most if not all foreign marine supply coming into the Gulf Coast. NA Shale Fairway light incremental crude markets will incur higher transportation costs to expand access to the Eastern Seaboard and West Coast markets, and crude grade substitution discounting in the U.S. Gulf Coast. This North American transition coupled with slowing global demand growth and continued closure of Atlantic Basin refineries will result in a growing light crude bubble on the order of 2-3 million BPD that will impact both global Brent crude pricing as well as the WTI crude price benchmark at Cushing.
Permian Basin crude supply, which includes the benchmark WTI crude stream, is undergoing dramatic shifts as part of these production-logistical dynamics. This will result in major and lasting changes for WTI crude price fundamentals and potentially the focal point for distributing and trading WTI crude. EAI, Inc. is forecasting Permian Basin crude production to increase by over 45 % with some of this incremental crude more aligned with West Texas-New Mexico Super Sweet in quality. EAI, Inc. has projected future Cushing- Gulf Coast pricing differentials as well as price outlooks for other NA Shale Fairway internal and external crude hubs (Guernsey, Clearbrook, Edmonton, Puget Sound, etc.) driven by incremental transportation capacities and costs, increasing light crude penetration into the medium and heavy crude pools, and downward pressure on Brent Crude prices laid into the U.S. Gulf Coast subject to Middle East turmoil and upsets.