Infected US Shale Oil is turned away by Asian buyers

(Bloomberg) – The complex website of US pipelines, tanks and export terminals that have helped make the United States the world's best oil producer causes headaches to some buyers.

As various types of raw materials pass through the supply chain from the inland shelf that spans Texas to North Dakota, they risk taking up impurities before reaching Asia ̵[ads1]1; the world's largest oil-consuming region. In particular, refiners are concerned about the presence of problematic metals, as well as a class of chemical compounds known as oxygenates, which can affect the quality and type of fuel they produce.

Two refiners in South Korea – US top-buyer seaborne supply – have declined loads in recent months due to pollution making treatment difficult. Growing North American production from dozens of fields pushes everything from highly volatile oil to sticky residues through split tributaries and trunks. Smaller carriers then take loads from shallow ports to giant supertankers in the Gulf of Mexico to transport to long-distance buyers.

Through transit from pipes to tanks and on ships, foreign substances from other fuels or chemicals for cleaning tanks or stabilizing materials can leak into the supply and foul up refining equipment. While crude passes through a similar chain in the Middle East, the risk of impurities is lower because each type of oil typically has its own designated infrastructure.

In the case of US condensates, a type of ultra light oil is pumped into slate fields, loads can get pollutants such as "oxygen, metals and cleaners," said Sebastien Bariller, senior vice president of South Korea's Hanwha Total Petrochemical Co. It causes uncertainty about US oil quality, as opposed to purchases from the Middle East, where quality is stable, he said.

The two South Korean refineries – SK Innovation Co. and Hyundai Oilbank Co. – dismissed their purchased shipments of Eagle Ford crude oil to arrive in January and February due to quality issues, according to people with knowledge of the matter, who requested not to be identified because the information is private.

The cargo was sold by oil giant BP Plc, the people said. At least one of the unwanted cargoes was redirected to China's Qingdao port in a smaller vessel and purchased by Sinochem Hongrun Petrochemical Co., an independent refiner having different quality requirements and plant configurations.

Proponents of SK Innovation and Hyundai refused to comment. BP does not comment on today's delivery and trading business, it said in an email. The company is behind contractual obligations and "if problems arise, BP will work diligently to resolve legitimate concerns."

Although not all oil loads from the massive Eagle Ford field in South Texas are contaminated, SK, Hanwha, Hyundai, and domestic rival officials have GS Caltex Corp. say they will monitor closely for quality issues, including the presence of oxygenates before they are put into use. Shipments of crude oil pumped into the Gulf of Mexico – passing through a much more direct supply chain – have consistent properties, they said.

Oil Transit

Oxygenates are not naturally occurring in crude oil, according to Dennis Sutton, CEO of Crude Oil Quality Association, an American industrial group. They are likely to be introduced in the handling of the oil from wellhead to refinery.

In the United States, infrastructure required to link production fields to deep-water ports is behind exports as a result of exports, as maritime sales had been limited to late-2015. Refining along the Gulf Coast – where most of the US oil was refined before export was allowed – is used to deal with quality problems because their plants are more sophisticated.

U.S. Raw exports have risen from less than 100,000 barrels per day at the end of 2012 to 2.5 million in December. South Korea was the largest consumer of US oil that month, consuming more than 550,000 barrels a day.

Despite the pollution problem, Hanwha Totals Bariller says that South Korea cannot afford to completely turn from the United States as the nation remains an important seller of incremental oil supplies, especially at a time of uncertainty about cargo from Middle Eastern nations such as Iran .

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