FREQUENTLY ASKED QUESTIONS
Platts Light Houston
Sweet Assessment
WWW.OIL.PLATTS.COM
Platts Light Houston Sweet Assessment: Frequently Asked Questions
WHAT IS LIGHT HOUSTON SWEET?
HOW IS THE ASSESSMENT BEING DERIVED?
The Platts Light Houston Sweet assessment is part of a series of new
assessments launched by Platts in response to the seismic shifts
taking place in the US crude market, where tight oil exploration and
development is reshaping traditional crude flows and refinery demand
patterns. LHS was launched by Platts on July 26, 2013 to reflect
the value of light sweet crude on the US Gulf Coast – specifically,
Houston.
The Platts Light Houston Sweet price assessment employs the
Market-on-Close (MOC) methodology used in physical oil and refined
product markets. The MOC process encapsulates bids, offers and
transaction data to create one value at the end of the trading day.
LHS is assessed daily and reflects Market-on-Close (MOC) values at
3:15 PM Eastern Time (ET) and denominated in US dollars per barrel.
Platts has defined the location for its LHS assessment as Houston
comprised by three terminals - Magellan East Houston Terminal,
Enterprise Houston Crude Oil (ECHO) Terminal and the Oil Tanking
Houston Terminal. Platts will consider other terminals as in the
Houston area as the market continues to develop.
A robust reference price is needed to fully reflect the value of
US Gulf Coast crude, at the intersection of refinery demand and
rising domestic production. After an extended period of industry
engagement and review of infrastructure developments, Platts
determined that the various grades flowing into Houston – WTI from
the Permian Basin, Domestic Sweet Blend, and various Eagle Ford
streams – comprise a growingly robust spot market. LHS reflects the
value of light, sweet crude in Houston, the largest refining center in
the US.
LHS is assessed on a Free-into-Pipe (FIP) basis whereas risk and title
to cargo shall pass from the seller to the buyer as the crude oil passes
the inlet flange of the buyer’s pipeline (as defined by Incoterms). The
timing will follow the US pipeline market schedule. The spot month
for all US domestic pipeline barrels changes on the first business
day after the 25th of the calendar month. The minimum volume
considered by Platts is 25,000 barrels delivered ratably throughout
the delivery month, or 1,000 b/d. Platts will publish LHS as a fixed
outright price. Fixed and floating price information will be considered
in the assessment process.
WHY DID PLATTS CHOOSE HOUSTON AS THE BASIS FOR
LIGHT HOUSTON SWEET?
Houston is the central hub for oil refining and processing in North
America, and is already the location for major benchmarks for
gasoline, distillates, jet fuel, refinery feedstocks and natural gas
liquids. The rebirth of US domestic crude production in the backyard
of the Houston refining center has prompted a massive build-up of
infrastructure to connect crude oil production to potential buyers
along the Texas Gulf Coast. At the heart of this infrastructure wave,
from Corpus Christi north to Beaumont/Port Arthur, is the greater Houston
refining center – where four Houston, one Baytown, and three Texas
City refineries total more than 2.2 million b/d of refining capacity.
WHAT IS THE SPECIFICATION BASIS FOR LIGHT
HOUSTON SWEET?
Following a review of the various crude streams flowing into Houston,
Platts determined that WTI Midland will be the quality basis for its
LHS assessment due to the expected increase in pipeline flows and
the quality consistency relative to Domestic Light Sweet and Eagle
Ford.
Compared with Corpus Christi and Beaumont/Port Arthur, Houston
has more refining capacity, storage, and waterborne loading
infrastructure, which positions Houston to become a key pricing hub
in the Americas. Additional storage is being added and distribution
systems are being expanded to handle the 1.7 million b/d of crude
oil pipeline capacity, completed and proposed, aimed at the greater
Houston/Galveston area. In total, nearly 60 million barrels of crude
storage is either already operational in the Houston area or is being
constructed.
WTI at Midland is sourced from Permian Basin produced streams,
both conventional and unconventional. Field blending is taking place
with conventional WTI streams mixed with lighter, lower sulfur
unconventionally produced Permian barrels, and the result is a
consistent quality without high metals or a “dumb-bell” distillation
curve (abnormally high light ends and high residual fuel oil yields for
a light crude).
Domestic Sweet Blend has had quality inconsistency and distillation
issues that have raised some concerns amongst the refining
community. Domestic Sweet Blend from Cushing is flowing in the
Seaway line with Canadian grade Western Canadian Select (WCS),
and some of this co-mingling has increased the sulfur and metals
content of the grade. But also alters the quality consistency in
Domestic Sweet is the blending practices at the Cushing NYMEX
Crude oil pipelines from Cushing, Oklahoma, the Permian Basin, and
the Eagle Ford shale have started to bring light crude into Houston in
2014 and will continue to deliver more supply as pipeline expansions
and new lines are completed by the first quarter of 2015. The 400,000
b/d Enterprise/Enbridge Seaway pipeline project connecting Cushing
– the NYMEX light sweet crude storage hub – to Houston will expand
to 850,000 b/d once the project’s twin line comes online by the end of
2015. Magellan has two projects bringing Permian Basin crudes WTI
and WTS into Houston -- the 275,000 b/d Longhorn Pipeline and the
300,000 b/d BridgeTex pipeline joint venture with Plains. In addition,
rail cars of crudes from the Permian Basin, Cushing, and other US
domestic production areas could potentially reach the Houston market
and access to water due to the Kinder Morgan/Mercuria 210,000
b/d rail terminal project on the Houston Ship Channel, which was
completed in 2013.
WTI Midland at Houston
API
Sulfur
Micro Carbon Residue
Vanadium
Nickel
Total Acid Number (TAN)
2
42 degrees maximum
0.45% maximum
1.1% wt typical
4ppm typical
2ppm typical
0.1 mg KOH/g typical
Platts Light Houston Sweet Assessment: Frequently Asked Questions
crude hub, where market participants are blending light sweet shale
crude or condensate with WCS, yielding a high metal crude with an
uneven distillation curve.
700,000 b/d Houston Lateral on TransCanada’s Gulf Coast Project
expected to be completed in the first quarter of 2015, liquidity in the
LHS market is only expected to continue to increase.
WTI Midland crude is flowing into Houston on Magellan/Plains’
300,000 b/d BridgeTex pipeline, and Magellan’s Longhorn pipeline,
which has a capacity of 275,000 b/d of which roughly 150,000175,000 b/d is being used for light, sweet crude (WTI).
WHERE CAN I FIND MORE DETAILS?
HOW OFTEN DOES PLATTS RECEIVE INDICATIONS ON
LHS?
WHERE DOES PLATTS PUBLISH THE LIGHT HOUSTON
SWEET ASSESSMENT?
As pipeline projects bringing increasing volumes of crude to the
Houston market have come online since the LHS assessment was first
launched in the summer of 2013, liquidity has consistently risen, as
have market indications. As of November, indications are heard on a
nearly daily basis from brokers, traders, producers, and consumers.
With Seaway’s twin line set to begin operations in December, and
expand the line’s capacity to 850,000 b/d from 400,000, and the
LHS values are published in Platts Global Alert (a real time
oil price and news wire), Crude Oil Marketwire (a daily
newsletter detailing global crude oil prices), North American
Crude and Products Scan (a daily newsletter detailing arbitrage
opportunities), Oilgram Price Report (a daily global overview of
news, price and analysis of the energy market), and as market
data under the symbol AAXEW00.
To read more about the Platts Light Houston Sweet methodology and
specifications, please visit: http://www.platts.com/IM.Platts.Content/
InsightAnalysis/IndustrySolutionPapers/Light-Houston-Sweet-WP.pdf
FOR MORE INFORMATION, PLEASE CONTACT THE PLATTS SALES OFFICE NEAREST YOU:
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