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NEW YORK In 2012, it was the oil tanker-truck trade. This year, the oil-by-rail boom inundated the U.S. East and Gulf coasts. In 2014, the shale revolution hits the water, says U.S. commodity merchant Freepoint Commodities.
A dramatic slump in U.S. cash crude prices in recent weeks has vividly shown that the unrelenting rise in shale oil production from North Dakota and Texas is rapidly nearing the point of saturation for Gulf Coast refiners, likely forcing more and more cargoes up the East Coast on tankers.
The swell of crude emerging from the Bakken in North Dakota, plus the Eagle Ford and Permian basins in Texas, has created rippling shockwaves for oil traders, with logistical bottlenecks emerging with each expanding wave, Brison Bickerton, head of strategy for Stamford, Connecticut-based Freepoint, told the Reuters Commodity Summit this week.
First came the need for oil tank trucks to ferry crude from small shale wells to larger gathering stations, tanks or terminals. As more and more oil-by-rail terminals came online and pipelines were built, that crude flowed swiftly and easily to refiners across most of the United States.
"When you look forward, really now only three months forward, it looks like you've essentially debottlenecked the interior of the country to the water, with the exception of the West Coast," said Bickerton, a former Department of Energy staffer whose first job in the oil industry was helping clean up the Exxon Valdez oil spill in his native Alaska.
"So now essentially the bottleneck becomes the United States of America."
As a result, the trade for next year will be pushing more crude up to the East Coast of Canada and the United States, a trend that has gradually emerged this year but may yet require more investment in port infrastructure as volumes grow.
"We think commodity merchants will increasingly need to look towards logistical solutions on the water in the Gulf of Mexico in 2014 to help move continued growth in U.S. shale oil."
Freepoint has built up a growing operation along the Gulf Coast, including an active inland barge operation, crude oil tank leases in the Houston Shipping Channel and logistics operations around Corpus Christi, a port near Eagle Ford.
"We're looking for more opportunities to get involved."
Bickerton said that while crude oil spreads are unlikely to remain unusually wide for prolonged periods, as they have in recent years, there are still short-term bottlenecks emerging around pipeline disruptions or refinery maintenance.
"It's going to create a lot of interesting volatility."
THE REVOLUTION UNDERESTIMATED
The unyielding pace of the U.S. shale oil revolution has routinely surprised analysts and flummoxed doubters, and Bickerton says many people may still be underestimating the scale of the production growth - just as some did several years ago after the emergence of shale natural gas.
"At Sempra we did a pretty good job of getting the shale gas story early, and trading it well early. After a few years, we said 'Whew - it's been so big, gone on long, surely at some point it has to take a pause,'" he said.
But taking a rest from being "uber-optimistic" about shale gas volume was "wrong," he said, as new projects kept coming.
"Oil right now feels like year two or three of what we thought in shale gas, where every quarter the story seems to get better and better. I'm getting more excited about it, it seems even bigger than I thought it was three months ago."
With emerging signs that the oil supply growth may continue through 2014, traders will soon be forced to grapple with potentially the last bottleneck, which is legal rather than logistical - a U.S. law that generally prevents the export of U.S. crude to most countries apart from Canada.
"People in the merchant business dealing with oil haven't even really begun to address how we deal with the bottlenecks in 2015 when there's probably so much light, sweet crude that we may need to face some form of export outside of the U.S. and Canada. No one really knows what the answer to that is."
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(Reporting by Jeanine Prezioso; editing by Jonathan Leff and Phil Berlowitz)