NEW YORK: A Texas energy company will load the first cargo of U.S. crude oil to be shipped overseas.
Enterprise Products Partners LP said on Wednesday that during the first week of January it will load 600,000 barrels of light, sweet crude pumped in South Texas into a tanker at its oil terminal on the Houston Ship Channel. The announcement comes less than a week after Congress passed new legislation that lifts the 40-year-old ban on exporting U.S. oil.
Vitol Group, a Dutch oil-trading titan, is buying the crude, according to Enterprise. The oil will sail to a Vitol subsidiary’s refinery in Cressier, Switzerland, which supplies diesel and other fuels to Northern Europe, according to a person familiar with the matter. Vitol didn’t immediately respond to requests for comment.
“We are excited to announce our first contract to export U.S. crude oil, which to our knowledge may be the first export cargo of U.S. crude oil from the Gulf Coast in almost 40 years,” said Jim Teague, chief operating officer of Enterprise’s general partner.
Infrastructure companies like Enterprise have been laying the groundwork for oil exports over the past couple of years by investing in dock space at ports and storage terminals that can hold fuel destined for overseas markets.
The Houston company has been expanding its footprint at the Texas Gulf Coast. In the spring of 2014, Enterprise was one of two Texas energy companies given special private rulings from the U.S. Commerce Department that allowed them to reclassify a certain type of ultralight oil as a refined fuel, which is legal to export.
President Barack Obama signed the legislation that lifts the 40-year-old ban on exporting U.S. crude less than a week ago. It was part of a larger omnibus federal spending bill that averted a government shutdown and offered new tax credits for renewable energy, including wind and solar.
The ban on exporting U.S. crude was put into place in 1975 in the wake of the Arab Oil Embargo, which created long lines at gas stations, soaring fuel prices and rationing for American drivers. Some limited oil exports, such as shipments to Canada that require federal permission, have been allowed as an exception to the rule because they are considered in the national interest.
As U.S. crude flows abroad, it could compete against oil pumped in Saudi Arabia, Russia and Iran. Europe’s fuel-makers get a tremendous amount of the crude oil they turn into diesel from Russia, as well as the Middle East and West Africa.
Tom O’Malley, a refining industry veteran who is executive chairman of PBF Energy Inc. and used to run fuel-making plants in Europe, said European refiners will be the first to benefit from lifting the oil-export ban.
Shipping crude from the U.S. Gulf Coast to Antwerp and Rotterdam will usually be cheaper than shipping it to New Jersey and Pennsylvania. That’s because a U.S. law that dates back to 1920 requires all crude oil carried between U.S. ports be transported on expensive U.S.-flagged vessels, which signifies they were built in the U.S. and exclusively employ U.S. crew members.
Refiners in the U.K. and on the continent can move U.S. oil across the Atlantic on cheaper foreign-flagged tankers for just $2 a barrel, or one-third the cost of using U.S.-flagged oil tankers, which often charge $7 a barrel, according to Mr. O’Malley.
Another benefit: Europe’s fleet of cars and trucks run primarily on diesel, so the extra gasoline generated in Europe can be shipped back to the U.S. East Coast for as little as $2.50 per barrel, making multiple ocean crossings worthwhile, he said, adding that increased competition with Europe will be tough on refiners along the Eastern Seaboard.
“That’s probably going to lead to the closedown of one of the East Coast refiners,” Mr. O’Malley said.
But analysts at RBC Capital Markets are predicting that countries in Latin America, including Venezuela and Mexico, will emerge as the biggest destinations for U.S. crude. Europe is already awash in cheap oil from the North Sea and West Africa—two trade routes that require shorter, less expensive trips on ships, the oil investment bank said.
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