Next US crude export surge may start at a lonely gulf buoy

Bloomberg

A 1,000-foot ship will likely pull up to a buoy floating in the Gulf of Mexico next year, hook up its hoses and usher the US into a new era as a major oil exporter.
The Louisiana Offshore Oil Port, which already handles imports from similar large ships known as Very Large Crude Carriers, or VLCCs, will likely be the first port to load oil into a supertanker. LOOP has indicated that its pipelines require minor modifications and could operate in both directions in early 2018. “Expanding US ports to accommodate direct loading of VLCCs will logistically help to streamline and expedite exports,” said Michael Tran, a commodities strategist with RBC
Capital Markets LLC in New York.
Loading these mammoth ships without having to use other tankers to ferry the oil from shore could save shippers about a million dollars on each cargo. To a refiner in Europe or Asia, that may mean the difference between using U.S crude instead of oil from the Middle East, North Sea or West Africa. It may broaden the market for shale producers and further boost US exports, which quadrupled in the past year to as high as 2.1 million barrels a day.
A VLCC that gets its entire 2 million-barrel cargo directly from a single terminal spares the exporter the cost of hiring smaller ships to fill it up, Sandy Fielden, director of research and commodities for Morningstar Inc. in Austin, Texas, said in a phone interview. This process, known as reverse lightering, could cost at least 50 cents a barrel, he said.
In addition to the freight cost, shipowners bill charterers if there are delays in lightering, which
are not uncommon. These late fees, or demurrage, can run more
than $35,000 a day for a VLCC, said Stefanos Kazantzis, a senior shipping and finance adviser at ship brokers McQuilling Partners, Inc. in New York. LOOP has a big advantage over Texas ports. Its buoy sits 20 miles (32 kilometers) offshore in 100 feet of water, deep enough to handle the biggest tankers. The ports of Corpus Christi and Houston, which currently handle the most exports, aren’t deep enough to fully load a VLCC with a draft of 70 feet to 74 feet.
Corpus Christi has embarked on a three-to-six year project just to deepen its harbor enough to allow 1 million-barrel ships to come in. Eventually, it wants to dredge further, to be able to receive VLCCs, and will be issuing bonds next year to help pay for that project.
One challenge for LOOP will be getting enough crude. While it’s connected to offshore fields in the Gulf of Mexico, the region’s production is relatively small at 1.65 million barrels a day, according to latest government data. And there’s plenty of demand for the oil from local refiners. No pipelines directly connect North Dakota and West Texas fields to Louisiana. LOOP receives some Texas supply through Royal Dutch Shell Plc’s 350,000-barrel-a-day Zydeco crude pipeline, which runs from Houston to various points in Louisiana.
But the pipeline is well used and there is enough demand from refiners along the route that there will be little left for export markets, said Vikas Dwivedi, senior analyst at Macquarie Capital (USA) Inc. For Zydeco to supply export needs, it would have to be expanded, he said. Shell spokesman Ray Fisher said there are no immediate plans to increase the capacity of this line. A reversal of the Marathon Petroleum Corp.-operated Louisiana-Illinois Capline could enable Midwest supply to reach LOOP. Marathon is gauging interest to ship supplies south, but the pipeline project will only be ready in the second half of 2022, and at an initial capacity of just 300,000 barrels a day.