“I Can See Clearly Now”- WTI Quality Characteristics Now Available!

The following Turning Point blog is provided by Dennis Sutton.  Following a 40-year career with Marathon Petroleum, Dennis is now a Principal in the consulting firm, PetroQual, and serves as the Executive Director of the Crude Oil Quality Association (COQA).

Johnny Nash’s 1972 megahit, “I Can See Clearly Now” is a song of hope for those who have experienced adversity and overcome it.  For many refiners and feedstock acquisition personnel, the feelings may be similar as they have tried to understand the quality of West Texas Intermediate (WTI) crude oil, in order to make wise crude purchase and processing decisions, and now are being offered hope in this effort.

Refiners are tasked with transforming crude oil into on-spec finished products and doing it with the highest level of safety and environmental stewardship.  It goes without saying, this must be done cost effectively and the biggest driver affecting this is the value of the crude oil being processed compared to its cost.  To determine the best crude choices for each refinery, comprehensive crude oil assays are utilized, with this data feeding sophisticated linear programs that also consider crude prices, logistics, and refinery configurations.  Without accurate knowledge of the crude quality parameters and their variability, optimal crude acquisition decisions are impossible.

WTI presents significant quality challenges as it is a very high volume grade; it is a blended stream, with significant variability; and there are currently minimal specifications.  The quality concerns of WTI have been an on-going issue and were previously detailed in the April 18, 2016 Turning Point blog titled, “I Can’t Get No Satisfaction” – WTI Refiners Air Concerns”. http://www.turnermason.com/index.php/i-cant-get-no-satisfaction-wti-refiners-air-concerns/

“Gone are the dark clouds that had me blind” – A little background

Historically, West Texas Intermediate (WTI), also sometimes called Domestic Sweet (DSW), has been a mixture/blend of domestic, sweet crude produced in western Texas and surrounding areas.  In recent years, crudes from Colorado, North Dakota, and Canada may find their way into the WTI pool, leading to greater variability.  The CME Group/NYMEX defines quality specifications in Chapter 200 of their light, sweet crude oil futures contract.  The current specs include viscosity, Reid Vapor Pressure (RVP), Basic Sediment & Water (BS&W), pour point, API gravity and sulfur.  Of these, the two most important parameters and the only two that practically constrain the blend are gravity and sulfur.  While gravity and sulfur are important to refiners, they are inadequate in comprehensively defining the characteristics of a crude oil.

In the early 2000s, refiners began clamoring for specs similar to Light Louisiana Sweet (LLS) to be implemented for WTI at Cushing.  Three areas of concern which were also discussed were (1) the blending of high TAN foreign crudes, (2) metals content in this historically very low metals crude, and (3) yield distribution.  As a result, the COQA conducted testing, evaluated laboratory capabilities, and recommended specifications to better characterize WTI.

The COQA recommended specs were chosen and the values set to be:

  • Meaningful to refiners;
  • Practical to implement;
  • Routinely achievable; and
  • No hindrance to the market liquidity of the stream.Slide1

In recent times, with increased light tight oil production, the challenges have shifted to concerns about light ends content, vapor pressure, boiling range distribution, and crude compatibility.

While data provided by the COQA (http://www.coqa-inc.org/meeting-archives) shows that in general, the more comprehensive specs are being met, they have never been formally adopted by NYMEX.  Thus, some blenders may choose to blend to only gravity and sulfur, resulting in “dumbbell” WTI that contains very high amounts of light condensate and high amounts of heavy residuum material.

With increased exports of U.S. crude oil, particularly from the U.S. Gulf Coast, WTI is one of the grades of particular interest by foreign parties; however, foreign parties have even less historical familiarity with this grade than U.S. refiners, thus greater concerns about the quality, and therefore more reluctance to purchase and process it.  While the COQA project currently only addresses quality at Cushing, this information combined with data from mid-stream companies, such as Enterprise, provides a much more complete picture for foreign interests.

With this uncertainty about the quality of WTI, what avenues are available for refiners to be more confident of the WTI they are receiving, value it properly, and be able to optimally process the crude?  The first hurdle to solving the problems is to obtain accurate, meaningful, quality information.  This data is of tremendous value to those processing the crude but also has value to the producers and sellers as it provides confidence and clarity in their product.

With the support of a number of companies, this is the path currently underway under the direction of the COQA.

“Here is that rainbow I’ve been praying for”

In 2015, the COQA’s Domestic Sweet Monitoring Program Subcommittee began in earnest to develop a path toward obtaining dependable, timely data on actual batches of DSW leaving Cushing, OK.  With a number of companies agreeing to sponsor the program, and the support of CME/NYMEX, the effort was initiated.  Crude Quality Inc.  (CQI) was chosen as the primary contractor for the project, based on their expertise and experience.   The steering committee chose the test slate (API Gravity, Sulfur, and all of the COQA recommended parameters) and selected the commercial laboratory to conduct the testing.

For more than ten years, current, dependable quality data on western Canadian crudes has been available through www.crudemonitor.ca, a site many are familiar with.  Bill Lywood, President of Crude Quality Inc. and the creator of the monitoring program commented, “The crudemonitor.ca system has been in place in Canada for over a decade. While its original design was driven by straight forward marketing and value retention objectives, crudemonitor.ca has evolved and improved its marketing emphasis, and is now cited in reports by governments, government agencies, environmental studies, college and university engineering classes, transportation, facilities engineering, and a host of other applications as a credible, reliable source of information on crude petroleum properties.”

When considering commonly traded world crude grades, most producers publish assays of their crudes to help market the material to buyers who may be unfamiliar with the grades, their characteristics, and their value.  For example, BP (http://www.bp.com/en/global/trading/crude-oil-and-refined-products/crudes.html), Chevron (http://crudemarketing.chevron.com/), Statoil https://www.statoil.com/en/what-we-do/crude-oil-and-condensate-assays.html and many others have publicly available, extensive crude assays for use by potential buyers and traders.

However, in contrast to these foreign grades, assays for WTI/DSW are virtually nonexistent in the public domain.  Thus, most purchasers of WTI/DSW will obtain samples and have comprehensive assays performed for their own use.  But, with assays taking weeks to complete, costs on the order of $20,000 for a full assay and knowing that the exact characteristics are variable, crude acquisition decisions are fraught with uncertainty.

Obtaining a comprehensive assay AND having on-going batch data for the grade create a more complete picture of the quality characteristics, facilitating much better decisions. “There is no question that large commodity streams must be blends and aggregates of smaller streams, and there is no question that the infrastructure, technology and expertise exists to do commingling on a consistent, reliable, and rateable basis.  A crude quality monitoring program ensures that value is recognized and achieved simultaneously by the producer and the refiner — the producer gets paid a fair rate for the demonstrated quality of its production, and the refiner pays a fair rate for the demonstrated quality of its crude purchases.  Crude quality monitoring programs provide information and transparency critical to the simultaneous value recognition”, said Mr. Lywood.

 “It’s gonna be a bright (bright) sunshiny day”

Starting in January of 2017, samples are collected from the various terminals at Cushing, carefully labelled, and sent to the lab for testing.  Results are blinded as to the terminal identification, and sent to CQI for data review and publication.  A new web site has been created for use with the U.S. crudes (www.crudemonitor.us).  In addition to the current samples, archived data has been obtained and added for historical comparisons.Slide2

One of the strengths of this program is the ability to not only view average data, but to see the variability from batch to batch.

While recognizing the limitation of averaged data, it is informative to compare the averages  to the CME specifications and the COQA recommended specs.  The table below summarizes the data to date.Slide3

The data shows that the API gravity and sulfur content are near the top end of the specified range.  This is very understandable considering the growing volume of light, tight shale crude contributing to the DSW pool.  While there are some excursions, it is encouraging to see that on average all of the COQA specs are being met on out-going batches of DSW.  The data from the program has “transparently validated the COQA recommendations”, noted Bill Lywood.

In conclusion, the development of the WTI/DSW quality monitoring program has provided tremendous clarity and communication of the quality characteristics of this important crude grade.  At the Domestic Sweet Subcommittee Meeting on June 7, 2017, Aaron Dillard, (P66), Chairman of the Subcommittee, indicated a new set of specifications for Domestic Sweet crude would be presented to the CME by October 31, 2017.

We would like to thank Dennis for today’s blog and support the work COQA is doing in coordinating efforts in the crude oil quality arena.  In the course of our business, Turner, Mason & Company has been involved in a variety of studies and engagements where crude quality issues have been of primary or secondary interest.  These issues are only becoming more vital to refiners due to the light tight oil boom, other developments in the upstream, and an environment where product specifications are becoming ever more stringent and wide ranging.  We have assisted all segments of the oil industry in responding to these and other developments which impact petroleum markets and also provide in-depth analysis of the impacts in our subscription products.  Please contact us through our website, by calling 214-754-0898, or by emailing me directly at jauers@turnermason.com if we can be of assistance or answer any questions.

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