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Listen: US Gulf Coast crude exports -- a sea change to dirty tanker markets

The US Gulf Coast has become the new crude export hub in the Americas. Brazil and USGC crude exports combined have transformed the VLCC runs from the Americas to the Asia-Pacific region into a front-haul market, attracting ballasters from as far away as Singapore.

In recent weeks shipping cost on the Americas-Asia voyages added on close to $2 million for the 2 million-barrel lots. Since VLCC loads largely depend on reverse lightering on the USGC, this has also boosted Aframax freight.

S&P Global Platts shipping editors Catherine Wood and Barbara Troner talk about recent sea changes to the Americas dirty tanker markets.

Transcript

BARBARA TRONER: Welcome to the Commodities Spotlight Podcast from S&P Global Platts. I'm Barbara Troner and manage the Americas tanker market team. With me is Catherine Wood, who covers the dirty tanker markets for us.

Catherine, dirty tanker freight rates have been shooting through the roof lately. Looking at our data for US Gulf Coast loading tankers, VLCCs have been leading the pack. For voyages across the Pacific freight gained an average of 50%. That's comparing October to the September average. Aframax freight looks like it's been up 30% for export cargoes to Europe. Our colleagues at Platts Analytics say that the arbitrage to Asia is still open for both WTI and Eagle Ford crudes on Aframax tankers into Europe. The arb is also open for VLCC loads of WTI and Mars into China.

What is your take on the situation?

CATHERINE WOOD: Right, Barbara. The arb is still open, making exports out of the USGC particularly favorable right now. This flow of exports has been a major factor in pushing shipping costs really high for the past month. For 2 million barrels of your typical crude export cargo of say WTI freight now stands at a lump sum of $8.2 million to China and at $7.2 million to Singapore. Freight rates to China ended the month of October a massive $1.8 million higher since the beginning of October. The main reason for this has been this influx of export demand, especially from buyers of crude in South Korea and Japan, as well as a the potential reentry of China's Unipec back into the US crude buying sphere following the uncertainty around the US-China trade conflict.

Now there is lightering cost on the USGC to load a VLCC, unless loading at LOOP. Although technically LOOP can load 1 VLCC per week, we've only seen loading one a month so far

BT: What kind of story do the Platts fixture logs tell?

CW: We have seen14 fixtures for VLCCs reported out of the USGC in October, up slightly from the 12 in September and 11 in August. These numbers, however, are significantly higher than historical levels. In 2017, there was an average of almost 4 VLCCs loading on the USGC per month and so far for 2018, the average has been around 11 VLCCS per month. A strong global VLCC market helped pump the market higher, as shipowners were less likely to ballast down to keep up with global demand. Analysts are making noise about VLCC fixtures for USGC loads evaporating on the high shipping cost, but we will see what happens there.

BT: So, on a cost basis, would you say that VLCCs loading on the USGC are competitive with Venezuelan loaders? I am just wondering because Venezuela crude production has come off 700,000 b/d this year to around 1.2 million b/d. Naturally that has severely cut into export volumes. Crude exports from the US Gulf ramped up to an average of 1.8 million b/d for the period from January to August, which is almost double the 960,000 b/d the US Census Bureau recorded during the same period last year.

CW: That's right. Atlantic Basin VLCC demand is on the rise. Both USGC and also Brazil loading vessels have more than compensated for lower Venezuelan loadings.

High port dues of roughly $200,000 at Venezuelan port dues make USGC loadings competitive even with reverse lightering.

Lightering costs have climbed over the past two weeks or so, with several sources citing lightering costs as high as $70k/day. Reverse lightering lump sum costs on the USGC are at around $450,000, moving higher with recent severe weather delays and a tight Aframax market. In September we were seeing reverse lightering rates in the mid to high $200ks. In fact, the Aframax market is so tight that we are now seeing 80,000-120,000 dwt clean LR2 tankers entering the dirty market to cash in on the wide spread between the two.

BT: Would you say that the US Gulf Coast has compensated for the slack in Venezuelan loaders?

CW: Absolutely, Barbara! Actually because of rising USGC exports, the routes from the Americas to Asia have developed into a front-haul market. The Gulf Coast has gradually attracted an increasing amount of ballasters from both Europe and Asia. Shippers are now comparing their options on whether they should ballast to the Arab Gulf or straight back to the American side of the Atlantic Basin.

BT: How does the spot freight market reflect that?

CW: Spot VLCC fixtures have shifted from the traditional loading areas in the Caribbean and on the East Coast of Mexico to the US Gulf Coast and Brazil. USGC VLCC fixtures alone have grown from a 2017 average of 9 to an average 29 during the first three quarters in 2018. Just to compare the number of spot Caribbean/East Coast Mexico loaders have shrunk from 34 to 21. This is based shipping analyst data from Charles R. Weber.

BT: Do you think the crude export terminal structure can keep up with these rapidly increasing USGC crude loadings?

CW: So apart from LOOP, there are a couple of VLCC export terminals on the horizon by the end of 2020.

Just before Halloween Port Corpus Christi and global asset manager Carlyle Group announced that they are looking to commission an onshore terminal on Harbor Island at the end of 2020. That terminal is supposed to be able to handle 20 VLCCs per month at two docks.

Trafigura's plans for an offshore terminal 15 miles from Corpus Christi are supposed to have a 2019-2020 construction period and will have the capacity to handle 8 VLCCs per month.

So right there we are talking about additional loading capacity of almost 1 VLCC per day.

And let's not forget the offshore VLCC project terminal plans from Oiltanking 30 miles off the coast of Freeport and Jupiter's plan for a terminal six miles off the shore of Brownsville.

And then Enterprise Products said it was pursuing plans to build a VLCC loading terminal off the Houston Ship Channel.

BT: Sounds like Gulf coast crude exports are indeed on the go-go and export forecasts of 3.2 million b/d for 2020 appear to well in the pipeline – no pun intended. Thanks, Catherine, for your insight, and thank you for listening! You can find more news, analysis and freight assessments in the Dirty and Clean Tankerwires, and of course on platts.com.