By Patrick C. Miller
An oil trading executive with more than 20 years of international experience believes Bakken oil producers should be looking to global markets for their crude.
Brady Cook, senior vice president of oil trading with Koch Industries Inc., told attendees at the Williston Basin Petroleum Conference last week in Bismarck, North Dakota, that a variety of factors are changing at a “blistering pace,” leading toward exciting opportunities to export Bakken oil to Europe and Asia. “It wasn’t that long ago that the market was talking about peak oil and how the world was going to run out and be unable to sustain economic growth,” Cook said. But then oil prices went up and U.S. entrepreneurs found ways to capitalize on shale oil, he noted.
When the U.S. policy changed in December 2015 lifting the ban on crude exports, Cook said it created another opportunity for tight, light crude from shale. While noting that there are problems and challenges ahead to reach export markets, he believes there are also solutions.
“As the story continues to boom, incremental production will need to find its way to the water where it can be exported to the international markets,” Cook said. “All participants can derive benefits from the economic arbitrage of the Bakken to the rest of the world.”
In the U.S., Cook said refiners won’t be significantly expanding their capacity. In addition, the need for medium and heavy sour crudes means that those grades of oil will continue to be imported by the U.S. However, the same is not true overseas where refinery capacity is expanding and the demand for light, sweet crude is increasing.
“Lighter crude will grow in value versus heavier grades,” Cook explained. “Bakken oil is well positioned for this compared to common water-borne crudes for refiners in Europe and Asia. We’re already exporting a significant amount of oil, but the situation we’re at now means that any incremental amount of oil needs to be exported. To do this, we need to get the oil to the U.S. Gulf Coast and get it on a ship.”
One of the challenges is a lack of infrastructure to move shale oil to Gulf Coast ports, according to Cook. While Permian crude benefits from being closer to ports, it’s also been hurt by lack of pipelines, he noted. Bakken crude has two shipping options, one of which is the Dakota Access Pipeline.
Cook cautioned that refiners want their crude to be of consistent quality, which has been a problem for WTI oil that’s sometimes mixed with lower grade crude in pipelines and storage tanks. He said some refiners will no longer accept WTI oil because of problems with quality. Koch Industries has encountered more resistance from overseas refiners to U.S. crude than expected, he said.
“My advice here to all those that are selling Bakken (oil) would be to know the buyer of your crudes and, as much as possible, selling to a responsible counterpart that protects the quality of Bakken through the export process and doesn’t blend other oil with it,” Cook said. “This will preserve the reputational value to crude in the eye of the refinery and— ultimately—it will mean the Bakken producers achieve a higher netback to the price they receive in the field.”
U.S. oil exports have more than quadrupled since the U.S. ban ended, Cook said. “Bakken exports began to pick up in the fourth quarter of last year; most of it has gone to Asia,” he said, noting that Gulf Coast ports currently have the capacity to significantly grow Bakken exports.