OREANDA-NEWS. December 20, 2016. Light Louisiana Sweet (LLS) may become the pricing standard for what will be an increasingly busy US light crude exports market in the future, thanks to the way quality specifications are enforced on the crude.

In US pipeline markets crude quality is traditionally determined at the final delivery point. This is particularly true for US offshore produced oil, where any one of several types of crude can be sent to market via offshore pipelines. This means a grade's stream quality can vary constantly. Quality can also suffer because of the increase in blending along the Gulf because of the surge in onshore shale crude production and higher Canadian heavy crude imports.

LLS is different, however, in that it is the only US pipeline grade that has strict quality specifications measured at the point of injection into the 1.2mn b/d Capline pipeline in St James, Louisiana. Capline specifications include a limit on metals, microcarbon residue, light ends and total acid number (TAN), which is much stricter than the traditional API degrees and sulfur content specifications used as guidelines for stream quality. This means LLS is the only widely-traded US domestic grade to have an actual set of specifications to which sellers have to consistently blend.

US crude exports have so far varied widely in both quality and destination. But foreign buyers have started to show a preference for consistent quality, moving away from Domestic Sweet (DSW) purchases in favor of West Texas Intermediate (WTI). WTI arrives at the US Gulf coast directly from the production fields in west Texas, segregated from other crudes so as to keep its quality neat. This makes WTI a better quality barrel with more consistent specifications.

DSW is light crude blended at Cushing, Oklahoma, and [one of several grades that can] price the Nymex light sweet crude futures contract. The DSW blend is usually made up of very light crude from shale producing regions and heavy Canadian grades. DSW quality has deteriorated such that many buyers decided to forgo the DSW discount to WTI at the US Gulf coast and instead pay up to purchase better quality WTI.

This preference for stable quality could open the door for LLS, with its stricter quality specifications, to become the light crude export of choice as the US export market becomes more sophisticated.

While LLS is also a blended grade, it benefits not only from agreed upon specifications but also from the years of experience that sellers have blending to that spec. In the past, LLS was a blend of imported grades such as Algerian Saharan Blend or Nigerian light crudes. But for years now, sellers of LLS have been successfully blending US shale oil into LLS. They are able to do so not only in Louisiana, where the grade is priced, but also at export hubs such as the Houston, Texas, area, making LLS a desirable export blend for both foreign buyers and domestic crude sellers.