U.S. oil sector limited by port infrastructure

June 18 (UPI) — Without improvements to port facilities, the U.S. crude oil market could find itself increasingly landlocked, a market analyst said.

The Organization of Petroleum Exporting Countries in their monthly market report, published last week, said non-OPEC supply in the second half of the year is expected to increase by 2 million barrels per day over last year. Of that, the United States is the main contributor to growth, with an estimated 1.4 million barrels per day.

The United States is now an oil exporter, though infrastructure necessary to move the oil to the market can’t keep up with production trends. A report from consultant group IHS Markit found it was the lack of infrastructure, not the lack of spending on exploration and production, that presented a growth challenge for the U.S. energy sector.

Last week, officials at the Port of Corpus Christi said they secured nearly $23 million from the U.S. Army Corps of Engineers to help deepen and widen the waterway. More funding is expected for a project slated for completion by the early part of the next decade.

Sandy Fielden, the director for oil and products research at Morningstar, told UPI that new pipelines from inland shale basins will increase the flow of crude oil to the port by more than 1.5 million bpd by the second half of next year.

“Without the channel improvements the Port of Corpus Christi seeks, the next congestion point will invariably be export docks at Corpus,” he said during the weekend.

A report from the U.S. Energy Information Administration found export levels are increasing even though terminals on the southern U.S. coast can’t load the largest types of carriers. Those vessels, dubbed Very Large Crude Carriers, are the most economic for crude oil transportation.

“The inability to fully load larger and more cost-effective vessels has pricing implications for U.S. crude oil exports,” the EIA’s report read. “Using a number of smaller ships requires a wider price spread between U.S. crude oil and international crude oil prices to compensate for the lower economies of scale.”

The spread is the difference in price between West Texas Intermediate, the U.S. benchmark, and Brent, the global benchmark. The spread as of Monday morning was $9.48 per barrel with the premium for Brent.

Most ports on the Gulf of Mexico can only accommodate vessels with a capacity of 500,000 barrels. Larger classes can carry twice that amount.