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China’s success in capitalizing from surging US oil production Alejandro Barbajosa Hangzhou, September 2019
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benchmarks for crude, products, LPG, LNG, petrochemicals, freight, coal, electricity, metals, fertilizers, rare earths and more
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• Abu Dhabi grades (Murban & others)• Iraqi grades (Basrah Light & Heavy)Mideast Gulf
• ESPO Blend fob Kozmino, RussiaRussia/Asia-
Pacific
• Delivered ex-ship (des) Shandong (Lula)• Delivered Singapore (WTI & others)
Delivered Asia-Pacific
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Argus crude coverage in the Middle East & Asia-Pacific
Asia-Pacific refining capacity: 33mn b/d, 34% of global
Copyright © 2019 Argus Media group. All rights reserved.
Eight countries with more than 1mn b/d capacity in 2017:
Asian refiners must import more Atlantic basin crude
Copyright © 2019 Argus Media group. All rights reserved.
US displaces OPEC as top source of oil output growth
Copyright © 2019 Argus Media group. All rights reserved.
Source: BP statistical review
Permian continues to lead growth in US crude output
Copyright © 2019 Argus Media group. All rights reserved.
Source: EIA Drilling Productivity Report
Copyright © 2019 Argus Media group. All rights reserved.
Asia-Pacific takes about half of total US crude exports
Permian tight on pipeline space through late 2019
Copyright © 2018 Argus Media group. All rights reserved.
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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
Copyright © 2018 Argus Media group. All rights reserved.
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:
Copyright © 2019 Argus Media group. All rights reserved.
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
Copyright © 2019 Argus Media group. All rights reserved.
Copyright © 2019 Argus Media group. All rights reserved.
Hub-and-spoke crude pricing: futures & physical diffs
Exchanges and price reporting agencies complement each other
Copyright © 2019 Argus Media group. All rights reserved.
WTI Houston (MEH) represents US crude exports price
Copyright © 2018 Argus Media group. All rights reserved.
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
Copyright © 2019 Argus Media group. All rights reserved.
Argus WTI Houston participants multiply & diversify
Copyright © 2019 Argus Media group. All rights reserved.
US markets more liquid & diversified than elsewhere
Copyright © 2019 Argus Media group. All rights reserved.
US crude starting to replace Middle East grades in Asia
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Copyright © 2019 Argus Media group. All rights reserved.
Shandong is first market for delivered crude in Asia
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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
Copyright © 2019 Argus Media group. All rights reserved.
• 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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Alejandro BarbajosaVP, crude & LPG, Middle East & Asia-Pacific
[email protected]+65 8223-6525+81 (0) 70 1585-6525Singapore & Tokyowww.argusmedia.comhttp://blog.argusmedia.com
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