Heading towards the end of the week and news is turning positive. MLPs are gaining traction and oil prices are heading higher. In advance of the weekly post, I wanted to share a paper we recently published that discusses U.S. oil exports, particularly exploring the market potential for U.S. oil exports and the impact of oil exports on midstream MLPs in the event of a full lifting of the ban.
Discussion of the potential lifting of the oil export ban is increasing in Washington. A number of incremental steps appear to be moving the U.S. towards allowing more exports, including:
- Approval of exports of processed condensate last year, although the limited global market for condensate makes it hard for this to have much impact on the U.S. oil supply picture
- Reported approval of applications for oil swaps with Mexico (click here to read more on that)
- The nuclear agreement with Iran that would see Iran oil sanctions lifted puts additional pressure to lift the self-imposed sanctions of the U.S. (its only fair, right?)
We expect to see incremental progress towards exports over time, beginning with swaps with Mexico, then exports to select countries with existing positive U.S. trade relations, and potentially wider exports thereafter.
In terms of infrastructure impact, it is challenging to think about what infrastructure might get built as a direct result of oil exports. There will be some need for additional storage along the gulf coast and additional dock capacity. There will be a need for more tankers to make the long trips overseas. The tricky part is estimating the impact of oil exports on pipeline and gathering & processing development to support production growth. There would probably be a pulling forward of pipeline and gathering infrastructure projects (expansions and newbuilds). In other words, pipelines would likely need to get built sooner in a full export scenario vs. the current regulatory environment, but it’s hard to quantify how much of that would be the direct result of oil exports.
We took a stab at it, and see it as a positive to infrastructure development backlog, but not as impactful as the LNG export opportunity or the re-plumbing of natural gas pipelines that has been resulting from the excess of Northeast gas supply in recent years.
Click here to read the paper, and I look forward to receiving any feedback on it via email.