Baltic Exchange US representative, Paul Mazzarulli, sits down with MarineTraffic blog to discuss all things oil and gas coming in, and now, going out of the Gulf of Mexico A modern gold rush
Prior to Barack Obama’s Presidency it was unthinkable that the US would have considered exporting oil. It was actually illegal until Obama’s second term for the US to export crude, before eventually it opened the door with a lifting of the export ban of crude condensate, a very light crude oil. Now, the market is in full-blown ‘sell as much as you want’ mode. A modern gold rush From an unthinkable possibility, US crude exports are now a fundamental part of the global energy industry. This switch from imports to exports is due to the shale oil boom in the Permian Basin. The Permian is producing close to 4.4 million barrels of oil per day — more than one-third of US production — making it the most prolific oil field in the world.
According to the International Energy Agency (IEA), the US will lead oil-supply growth over the next six years, thanks to the incredible strength of its shale industry, triggering a rapid transformation of global oil markets. By 2024, the IEA says that the US will export more oil than Russia and will close in on Saudi Arabia, describing this as “a pivotal milestone that will bring greater diversity of supply in markets.”
Major players, such as Occidental, have made exporting US crude a key part of their energy programme, chartering Very Large Crude Carriers (VLCCs). These are vessels capable of holding in excess of 250,000 tonnes of oil, from the US to China, or Singapore, on an increasingly regular basis.
“To see this change in the VLCC pattern is very interesting,” says Paul.
“It had become an almost standard pattern to see VLCCs going from the Arabian Gulf to the US Gulf, then it dropped off. Now, it hardly happens at all. The big demand is VLCCs loading in the US Gulf to go to Asia, which is obviously a tremendous voyage for a shipowner if you can get it!”
For shipowners, larger profits are made in higher tonne-mile voyages.
A modern gold rush
The flow of oil out of the US is now so plentiful, that crude imports have dropped significantly. According to MarineTraffic data, this September 36 VLCC or ULCCs arrived in ballast at Ingleside, LOOP, Galveston Offshore Lightering Area (GOLA) and Texas City. Only 14 arrived laden. According to our data there were 606 VLCC/ULCC arrivals over the past 12 months.
The focus is very much on getting tonnage somewhere where it can be lined up and loaded. This in itself is a challenge.
Paul Mazzarulli says:
“You’re dealing with the economy of scale. Yes, in theory, the bigger the ship the better, but then, given the infrastructure in the Gulf, there is the logistical hassle of trying to get a VLCC fully laden.”
Terminals in the Gulf are currently not deep enough to take the very largest crude oil tankers, so to ship oil in or out, these vessels have to load a few miles offshore at the Louisiana Offshore Oil Port, better known as ‘The LOOP’.
However, the LOOP was created to move oil into the US, but with the changing supply and demand, the process has reversed. Smaller tankers that were taking oil from these ships to the terminals are now moving oil from the terminals to these ships.
This operation takes four smaller tankers, which are able to load in the Gulf, known as Aframaxes, to fill up a VLCC. This is time and resource-heavy and can ultimately result in port congestion.
To meet the demand and increase efficiency, numerous new or expanded oil terminals are being proposed.
“It is like a modern gold rush. Everyone wants to be the one building a terminal and obviously not everybody is going to be able to. There are the issues of permitting and political changes. For instance, under a Republican President building a terminal might be easy, while under a Democratic President, it might be impossible.”
The plan is, however, to build enough capacity for the US to fully take advantage of its export capability. There are just not enough places to get the oil out from.
The bigger ports, such as Galveston and Houston, may well be able to be deepened to allow Suezmaxes to load. However, building terminals for VLCCs is on another level altogether. That said, the likes of Trafigura through the Texas Gulf Terminals Project (TGTP) and Enterprise via its Sea Port Oil Terminal (SPOT) are both working on terminals that will enable VLCC loading. There are currently at least eight terminal projects stretching from Texas to Louisiana which have been proposed.
Building these will be by no means easy. It took over a decade to build the LOOP and this was in a time when regulation and safety measures were less stringent than they are today. This new gold rush though has quickly become a major part of the US economy, helping correct the trade imbalance, which has enabled these large projects to be supported by Washington.
A modern gold rush
But the weather is an uncontrollable factor that Gulf ports will always have to deal with.
“I was in Houston a few weeks ago when Imelda hit, and it came out of nowhere. It was unlike any hurricane: there was almost no notice, it just came in and shut down the city for a week.”
Hurricanes, such as this, are massive potential causes for disruption and, as Paul notes, almost totally random.
Looking forward – LNG
In terms of new trends, Paul notes that the region is seeing a lot more gas exports, specifically Liquefied Natural Gas (LNG).
“For the last 15 years LNG always been two or three years away from being the next big thing, until recently. Now it has become very prominent in terms of the people who are committing to it and getting into it.
“I think that is certainly an upside for a market that has gone from almost 100% contract and long deal focussed to something that is now anything from approximately 10-30% spot orientated. There is more volatility and opportunity.”
However, Paul notes that entering this emerging market is by no means easy.
“When you are talking about LNG you’re talking about another universe in terms of investment. It takes literally hundreds of millions if not billions of dollars for an entry ticket as opposed to any other market where you can get in at a much lower buy in value.”