China’s success in capitalizing from surging US oil …...US light sweet crude • South Korea,...

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China’s success in capitalizing from surging US oil production Alejandro Barbajosa Hangzhou, September 2019

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Pacific

• Delivered ex-ship (des) Shandong (Lula)• Delivered Singapore (WTI & others)

Delivered Asia-Pacific


Argus crude coverage in the Middle East & Asia-Pacific

Asia-Pacific refining capacity: 33mn b/d, 34% of global


Eight countries with more than 1mn b/d capacity in 2017:

Asian refiners must import more Atlantic basin crude


US displaces OPEC as top source of oil output growth


Source: BP statistical review

Permian continues to lead growth in US crude output


Source: EIA Drilling Productivity Report

US crude exports now often exceed 3mn b/d



Asia-Pacific takes about half of total US crude exports

Permian tight on pipeline space through late 2019


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Argus estimates of Permian production vs take away capacity

Permian production *# Total Permian exit pipeline and refinery capacity (b/d)**

Pinch Point


Pipeline capacity set to outpace production by 2020

• Epic 400kbd• Cactus II

670kbd• Gray Oak

900kbd

New Bayou Bridge pipeline planned fromPort Arthur to St James

Plains accelerates start of Sunrise to 4Q18, adds takeawaycapacity to Cushing

Plains accelerates Cactus II start to 3Q19; Gray Oak initial plannedcapacity up from 700kbd to 800kbd

ExxonMobil and Plains sign letter of intent in June 2018 to build 1mn b/d line Permian to Beaumont/Port Arthur

ETP/MPXL/Magellanand Delek plan 1mnb/d line to MEH and Nederland

Almost 2mn b/d of new Permian pipeline capacity by 4Q19:


WTI entering Asia-Pac benchmark space dominated by:• Used by Asian

refiners for imports from Middle East

• Used by Saudi Aramco together with Dubai

• Used by Shell, Unipec and Shandong refiners

• Used for Southeast Asia crude, imports from Atlantic

Dubai (Platts)

Oman (DME)

Shanghai (INE)

Brent (ICE & dated)

Key WTI pricing locations: Midland, Cushing & Houston



Hub-and-spoke crude pricing: futures & physical diffs

Exchanges and price reporting agencies complement each other


WTI Houston (MEH) represents US crude exports price


WTI Houston brings together liquidity and precision

$ 60.67

Argus WTI Houston(Magellan East Houston) diff

[ +$ 4.47 ]

Add precision by reflecting trade on value differential at the coast =

Nymex WTI/CMA(Cushing)[ $ 56.20 ]

Most liquid paper crude contractin the world (BASIS) +

WTI Cushing=56.20

WTI Houston=60.67

WTI Houston differential =$4.47

WTI Houston: highly liquid hedge for US crude exports


Argus WTI Houston participants multiply & diversify


US markets more liquid & diversified than elsewhere


US crude starting to replace Middle East grades in Asia



Shandong is first market for delivered crude in Asia

26

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Jan 17 Jul 17 Jan 18 Jul 18 Jan 19

China: Imported crude API gravity

Shandong China exc Shandong

API°

Des Shandong: Key trade flows

0

500

1,000

Aug 18 Dec 18 Apr 19 Aug 19

Des Shandong: Reported deals (assessed grades only)

Lula Djeno ESPO Oman

'000 b/d

Delivery month


• Japan & Taiwan using Argus WTI Houston to price imports of US light sweet crude

• South Korea, India, Thailand, China using it as reference price

• WTI Houston becomes basis for calculation of delivered price of US crude in Asia-Pacific

• Delivered WTI Houston used for comparison against competing grades from different regions

WTI Houston pricing gains relevance across Asia-Pacific

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Trademark notice ARGUS, the ARGUS logo, Argus publication titles, and Argus index names are trademarks of Argus Media Limited. For additional information, including details of our other trademarks, visit argusmedia.com/trademarks.

Alejandro BarbajosaVP, crude & LPG, Middle East & Asia-Pacific

[email protected]+65 8223-6525+81 (0) 70 1585-6525Singapore & Tokyowww.argusmedia.comhttp://blog.argusmedia.com

China’s success in capitalizing from surging US oil …...US light sweet crude • South Korea,...

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