American Oil and Gas Reporter - April 2018 - 71

EMPOWERING THE FUTURE
well performance. This is suggesting that even with drilling
outside the core, operators are mitigating diminished well performance the best they can through technological innovation
and enhanced completion technology. I think we have a ways to
go before we get to the point of seeing a decrease in well output
due to drilling the less valuable acreage as technological
advances continue.

U.S. oil exports have reached more that 1 MMbbl/d
by the end of 2017, according to EIA. What trend
lines do you project for exports of domestic crude oil
going forward? How much oil will be leaving the United
States by both pipeline and tanker each day on average
by the end of 2020? How about the daily volumes of refined oil products? Will increasing exports impact
traditional oil storage patterns and pipeline flows across
the country?

Q:

QUINNELL: U.S. exports remained well above 1 million
bbl/d for a record 18 straight weeks (as of mid-March) and
counting, which is becoming the new normal. According to
EIA, exports averaged 1.36 MMbbl/d in January, 1.52 MMbbl/d
in February, and were averaging 1.49 MMbbl/d through the
first two weeks of March. The WTI/Brent spread has decreased
slightly to average $4-$5/bbl in March, which was down from
the $6-$8/bbl spread since Hurricane Harvey, but is still
supportive of U.S. crude exports to Europe and Asia.
With U.S. production growth, imports need to come off
heavily or exports need to continue their growth trend, which
seems more likely, in order to avoid noncyclical builds in
inventory. Given the expected rise in U.S. production, it should
keep pressure on the Brent-WTI spread and incentivize exports
throughout 2018 and likely through 2020. Genscape expects
that exports will reach nearly 2 million bbl/d by the end of this
year, nearly a 500,000 bbl/d increase over current levels, and
climb to 2.5 MMbbl/d by year's end 2019.
The U.S. Gulf Coast has solidified its role as a critical exporting market in recent months, providing a key connection
between growing U.S. crude production and international
demand markets. The new very large crude carrier (VLCC)
loading capabilities at Louisiana Offshore Port LLC's Port
Fourchon, La., deepwater facility open the door for more
substantial and economic shipments from the Gulf Coast,
demonstrating companies' long-term commitment to the restructured U.S. supply chain (the first VLCC loaded at the
LOOP facility was the Saudi Arabian-flagged Shaden, which
departed in mid-February to deliver its 2 MMbbl cargo to
China).
As export volumes from Louisiana inevitably increase, infrastructure in the area may continue to evolve to accommodate
flows to the coast. For example, export capabilities at LOOP
likely will fuel discussion on the long-awaited reversal of the
Marathon-operated 1.2 MMbbl/d St. James-to-Collierville, Tn.,
Capline pipeline. This subsequently would create demand for

pipeline connectivity from St. James to LOOP. A simple infrastructure adjustment allowing barrels to flow from Clovelly to
LOOP has shifted dynamics across Louisiana oil markets. The
ability to load the largest export shipments in the continental
United States frames the Gulf Coast as an epicenter in the
global crude distribution network.

Speaking of storage, the surplus that had charQ: acterized
U.S. and OECD inventories for the
better part of three years has been reduced dramatically,
to the point where it is now within historically average
ranges. What do you project for U.S. and global oil
stocks over the next few years? Given that the United
States is producing twice as much oil as it was six
years ago, are the five- or 10-year averages the proper
metrics by which to measure crude oil stocks? What
should constitute a normal U.S. storage volume and
how should it be defined?

QUINNELL: Genscape is expecting inventories to be down
year-over-year in the United States in 2018, but we are projecting
builds again in late 2018 as U.S production surges and Canadian
transportation bottlenecks impact total inventories.
U.S. storage inventories have been in a building pattern
since the beginning of the year after inventories fell into a five
year historical range at the end of 2017. Seasonal slowdown in
refinery runs with spring turnarounds will keep inventories
building through April, after which we should again see storage
draws as summer demand picks up. However, toward the end of
2018, as production remains robust, we expect inventories to
build, which will lead to an anticipated higher level of stocks
year-over-year in 2019.
OPEC-led production cuts should continue to help draw
off global inventories and help rebalance the market as we
move through 2018. However, it is likely that as excess
supply is worked off globally, OPEC will exit from production
cuts. At that point, it will again be the balance between
growth in U.S. domestic supply and how global demand responds to it.
I think since both demand and domestic production have
grown substantially over the past several years, the typical
five- or 10-year inventory averages as a measure of normal
inventory levels is becoming outmoded. With higher global
demand levels, more storage is need to facilitate movements
to the end markets and to meet the higher consumption levels.
At the same time, U.S. production is much higher, so in turn
normal inventories should be grossed up to the higher
production levels. Therefore, more appropriate measures for
typical inventory levels might be days-of-demand or days-ofproduction. Both of which would show that US inventory
levels are below normal ranges for each of those measurements,
which has been important in the physical market and given
strength to prices.
APRIL 2018 71



American Oil and Gas Reporter - April 2018

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