Bakken arb to Washington will likely erode further

OREANDA-NEWS. October 12, 2015. The Bakken arbitrage to the Pacific Northwest is likely to erode further as December trade for Alaskan North Slope (ANS) and Bakken emerges.

The estimated premium for Bakken crude delivered by rail to the Pacific Northwest to ANS crude delivered to the US west coast has averaged \\$4.66/bl since November Bakken trade began 1 October, the highest monthly premium since at least August 2012. Shipments of crude by rail from the midcontinent to thewest coastremained below 12,000 b/d prior to August 2012, according to Energy Information Administration (EIA) data.

But Bakken differentials are likely to strengthen in December trade, while discounts for ANS crude to CMA Ice Brent are poised to widen.

Demand for Bakken and western Canadian light crude is set to climb once Enbridge begins service to Montreal, Quebec, on its 300,000 b/d Line 9 pipeline.

"The Line 9 reversal has received its leave to open and will commence service later this year serving refineries in Montreal and Quebec City," Enbridge president for liquid pipelines Guy Jarvis told investors this week.

The National Energy Board (NEB) earlier this month approved results from a hydrostatic test that Enbridge conducted on the line. The test was the final regulatory hurdle Enbridge had to clear before bringing Line 9B online.

Line 9B runs from Westover, Ontario, to Montreal and will serve Suncor's 137,000 b/d refinery in Montreal and Valero's 265,000 b/d Jean Gaulin refinery in Quebec City, Quebec.

While both facilities have long had access to Bakken and western Canadian light grades by rail - Suncor can receive 40,000 b/d and Valero can receive 60,000 b/d - Line 9 will give them access to greater volumes. Suncor and Valero together have take-or-pay commitments equal to 90pc of the capacity of the line. These commitments will lower the discount for Bakken and western Canadian light grades to waterborne imports necessary to justify shipments.

Neither Quebec refinery has coking capacity, and Line 9 is expected to ship mostly synthetic grades. A 94-car train that derailed in Ontario en route to Valero's Jean Gaulin refinery in March was carrying synthetic crude.

Suncor this week fixed the 109,919t NS Columbus to ship crude 13 October from the Port of Ceyhan, Turkey, to Portland, Maine, the origin of the Portland-Montreal Pipe Line that supplies its Montreal refinery.

On the west coast, December saw the highest monthly receipts of Alaskan crude in 2013 (19.28mn bl) and 2014 (17.521mn bl).

December also saw the deepest monthly average ANS discount to CMA Ice Brent at \\$3.17/bl in 2013, while the monthly average discount to CMA Ice Brent reached \\$4.68-\\$4.64/bl during the fourth quarter of 2014.

ANS has held an average discount of \\$1.61/bl to CMA Ice Brent during November trade.

An unusually narrow spread between ANS and ESPO Blend during October ANS trade pushed west coast refiners to fix several ESPO Blend cargoes for October loading.

ANS for delivery to the US west coast during October trade (20 August through 17 September) maintained parity with ESPO Blend delivered to Singapore. ANS had held a monthly average discount to ESPO Blend delivered to Singapore since October 2013 ANS trade (14 August through 9 September 2013).

Chevron has fixed a Teekay Aframax tanker to ship ESPO Blend 22 October from the Port of Kozmino, Russia, to the US west coast. It has also fixed the 115,567t Aries Sun to ship ESPO Blend 11 October from Kozmino to the US west coast.

BP has fixed the 105,335t Pamisos to ship ESPO Blend 20 October to the US west coast.

Over the past 12 trade months, the first ANS trade emerged between 42 and 54 days (48 days on average) before the first day of the delivery month, suggesting that December ANS trade will emerge between 8-20 October (14 October).