By Ben DuBose
Digital Editor
GALVESTON, Texas -- While US refineries are still competitive globally, new US crude exports will likely prevent large discounts on domestic oil in the future and could make heavy Canadian crudes more attractive, according to the senior analyst of
refining and oil markets at consultancy Wood Mackenzie.
Speaking Tuesday at the second annual
Energy Construction Forum, Afolabi Ogunnaike outlined the factors pointing to a reduced discount on US crude for the foreseeable future.
"Improving pipeline infrastructure and declining US oil supply have reduced the discount on US crude," he said. "We're unlikely to see large discounts on US oil again, as exports now provide a relief valve."
In fact, Ogunnaike expects a slight premium for US-based West Texas Intermediate (WTI) crude, relative to the global Brent benchmark, by the third quarter of 2016. By 2017, WTI and Brent will be largely in sync, he predicts.
In 2013, Ogunnaike estimated the value of discounted North American crude to US refineries at $32 billion, with close to 60% from US light crude supplies derived from the shale boom. However, new pipeline
projects and the ability to export that oil are expected to significantly cut into the availability of that light oil for the US
refining industry in the years ahead.
That does not apply, however, to heavy Canadian oil -- which is still discounted. Though the overall value of discounted North American crude will shrink to $6 billion in 2017, Ogunnaike forecasts, the proportion of heavy Canadian crude in that discount will rise from about 40% in 2013 to near 70% in 2017.
Because of that, the vast majority of US refining investments between 2015 and 2019 will come within crude
distillation units (CDU), Ogunnaike predicts. That runs in contrast to investments between 2010 and 2014, when desulfurization and cracking
projects led the way.
In fact, the Wood Mackenzie analysts believe some
project cancellations are possible within cracking investments, as the industry shifts its focus to CDUs.
In closing, Ogunnaike noted that the recent boom in
refining margins was because oil supply growth outpaced logistics. However, in recent times, improved logistics systems have caught up to the supply and are now reducing many of those discounts.
As a result, an emphasis on CDUs and handling "opportunity crudes" is likely the best path forward.