American Oil and Gas Reporter - February 2021 - 29

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Platts AGS Aims To Bring
Clarity Amid Crisis
To U.S. Crude Values
By Matthew Eversman
HOUSTON-With the anniversary of
the April 20 collapse of the WTI crude
futures contract approaching, the market
continues to consider U.S. Gulf Coastbased benchmark alternatives, with Platts
American GulfCoast Select (AGS) gaining
traction. It is all the more important,
given the focus on U.S. oil exports and
the role U.S. shale is playing in the global
arena.
Although the crude industry is yet to
coalesce around a new pricing mechanism,
market participants have reached consensus
that a new pricing reference is crucial to
mitigating the divergence between pricing
linked to the Cushing, Ok., futures contract
and Gulf Coast pricing that was-in an
extreme example-displayed on April 20,
2020 (Figure 1).
As evidenced in the April 20 plummet
and 2020 volatility more broadly, Platts'
waterborne U.S. export price assessments
provide a clear assessment of value at
the intersection of the domestic and global

market, free of any distortion from landlocked pipeline logistics. Drawing on the
principles that have led the Dated Brent
and Dubai/Oman benchmarks to success,
AGS serves as a pricing reference for the
export market and inland market alike.
While AGS provides a waterborne
free-on-board (FOB) value, its potential
use extends all the way back to the wellhead. AGS is not exposed to the pricing
volatility common with pipeline and terminal values that may be impacted by
severe swings in short-term supply or
demand. This waterborne assessment
needs only to be combined with the appropriate fixed differential to provide an
inland value (Figure 2).
As part of its methodology, S&P Global
Platts stipulates clearly-defined quality
and trade parameters, while reflecting a
wide geographic area that includes the
United States' key export centers of Houston and Corpus Christi, Tx.
Export fundamentals
While the U.S. crude export outlook

took a step back with the impact of the
Coronavirus pandemic, the resilience of
U.S. producers means shipments abroad
from the Gulf Coast will trough at levels
that will continue to support a robust assessment.
U.S. production is still feeling the impact of capital expenditure decisions made
during the peak of global crude oil demand
destruction. After reaching an all-time
high of 12.9 million barrels a day in November 2019, U.S. crude production
plummeted to 10 MMbbl/d by May 2020
as many producers shuttered wells operating at a loss.
Many of those wells came back on
line, but with the pace of new drilling
screeching to a halt, production remains
well below pre-pandemic levels. Production will not climb above 11 MMbbl/d
until 2022, according to S&P Global
Platts Analytics (Figure 3).
Even amid depressed production levels,
U.S. crude exports should remain above
2 MMbbl/d through this cyclical trough,
reaching a low point 2.1 MMbbl/d in

Given the focus on U.S. crude oil exports and the role U.S. shale
production is playing in the global arena, a new pricing reference
is crucial to mitigating the divergence between pricing linked to
the Cushing futures contract and Gulf Coast pricing. Platts
American GulfCoast Select (AGS) is gaining traction as a pricing
reference for the export market and inland market alike.
FEBRUARY 2021 29



American Oil and Gas Reporter - February 2021

Table of Contents for the Digital Edition of American Oil and Gas Reporter - February 2021

Contents
American Oil and Gas Reporter - February 2021 - 1
American Oil and Gas Reporter - February 2021 - Cover1
American Oil and Gas Reporter - February 2021 - Cover2
American Oil and Gas Reporter - February 2021 - Contents
American Oil and Gas Reporter - February 2021 - 4
American Oil and Gas Reporter - February 2021 - 5
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American Oil and Gas Reporter - February 2021 - Cover3
American Oil and Gas Reporter - February 2021 - Cover4
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