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Attached is the report adapted from Lloyd's List 2019, 'US Gulf-Asia VLCCs drive global tanker patterns', accessed 9 April 2019...
Attached is the report adapted from Lloyd's List 2019, 'US Gulf-Asia VLCCs drive global tanker patterns', accessed 9 April 2019 <https://lloydslist.maritimeintelligence. informa.com/LL1126329/US-GulfAsia-VLCCs-drive-global-tanker-patterns>.
a) Explain how the increase in shale oil exports from US Gulf likely affects the freight rate and output of the tanker market. Use a demand-supply graph to illustrate your answer.
b) Given your answer to part a), discuss the implications for tanker owners' investment.
US Gulf-Asia VLCCs drive global tanker patterns
The US Gulf is exporting record crude volumes as shale oil find new markets in Asia and Europe. Traders, refiners and oil companies are digesting the likely fallout of Venezuela sanctions short-term but also looking further forward, with plans under way to build terminals that can accommodate VLCCs.
• 26 Feb 2019
• ANALYSIS • Lloyd's List
Some 89 tankers called in January 2019, more than double the 40 tankers that called back in the corresponding month three years ago, according to Lloyd's List Intelligence data
GROWING US Gulf-Asia crude exports are helping reshape the global market for very large crude carriers.
If VLCC shipments from the US Gulf aren't sustained at current high volumes, it's unlikely average global earnings in 2019 can stay healthy for owners and operators. So far, the escalating US-China trade war has failed to curb numbers of VLCCs sailing east.
Refiners in South Korea, Japan, India, Singapore and Taiwan are now buying US Gulf volumes previously sold to Chinese importers. US Gulf coast crude exports showed all the signs of hitting fresh records this year until Venezuela became the latest geopolitical oil headline. November and October US Gulf export volumes, both equal to 2.1m bpd, were at the highest ever, according to the EIA. When world oil prices gain, shale producers in the Permian lift output and enjoy profits. When oil prices fall, Asian buyers seeking cheap crude can turn to US Gulf-loaded cargoes, especially if the difference in price over global benchmark indices favours the lighter, sweet blends.
Refiners in Asia have stepped up imports in the past three months, a new trend that begun as direct US Gulf-China flows suddenly declined.
The long-haul crude market to Asia has unexpectedly doubled in volume in less than 18 months.
The number of ships calling in the US Gulf each month to load crude for export is much greater than three years ago. Some 89 tankers called in January 2019, according to Lloyd's List Intelligence data. That's more than double the 40 tankers that called back in January 2016.
US crude oil production is estimated by the EIA to reach a record 13.2 million bpd in 2019, as domestic diesel and gasoline demand steadies.
Most crude exports originate at the US Gulf. While pipeline constraints set a natural limit to export volumes coming down from the coast from the Permian basin, trucks are also taking significant volumes as long as freight costs can still make it work.
Within the first six months of 2018 China had usurped Canada as the world's biggest buyer of US crude, according to Customs data.
As trade hostilities between the US and China remain unresolved, VLCCs laden with light, sweet crude blends from the gulf have not been calling so regularly and China's significance as an importer has been lowered.
VLCC demand in the Middle East Gulf over the first quarter may not grow by as much as expected as a result, leaving VLCC markets more reliant on US Gulf and South American cargoes as a result.
US Gulf leads refined products shift Next year the US is forecast to become a net energy exporter, with the epicentre of this shift at US Gulf ports, both onshore and offshore. This is where the next chapter of the shale oil story is playing out for product tanker markets. Last year, the US Gulf solidified its position as the world's largest exporter of refined products. Middle distillate exports alone exceeded 1.2m bpd. Brazil, Mexico and other South American countries were importing more diesel, gasoil, jet fuel and gasoline from refiners in the US Gulf, even as transatlantic diesel flows to northwest Europe and the Mediterranean shrunk.
The reason for increased flows from the US Gulf coast to Latin American countries was attributed to domestic refinery outages or refinery under-utilisation rather than actual demand growth. Still, these purchases have been an important outlet for US Gulf refiners optimising cheaper, domestic blends to boost production and grow exports. US Gulf refiners mostly supplied Brazil's sudden demand jump for imported gasoil/diesel.
Mexico also increased middle distillate and gasoline imports from the US Gulf alongside Brazil. At the same time diesel exports to the 28 members of the European Union continue to fall, even as the region's diesel deficit widens. The US Gulf has lost market share in Europe to the Middle East Gulf, especially Saudi-based refineries shipping diesel to France and the UK.
Billions at stake as US Gulf goes 'loopy' After 36 years as a deepwater import port, the Louisiana Offshore Oil Port (known as LOOP) is now capable of loading multiple VLCCs with crude for export. The first cargo on VLCC Shaden sailed in early 2018, to China, with a further eight since loading and sailing from there. LOOP is the only Gulf port (so far) that can fully load or discharge 2m-barrel cargoes.
The US Gulf market for VLCCs is evolving so quickly that several projects to expand coastal infrastructure are being touted. This underpinned LOOP's drive to offer export as well as import capabilities, and why there are a handful of proposals to build onshore and offshore marine terminals at US Gulf ports as an outlet for forecast record-breaking crude exports. Seaway's Texas City terminal partially loaded VLCC Gener8 Perseus with 1m barrels of oil in early December 2018, the third VLCC tested there since June last year. Until recently options for VLCCs were limited to offshore areas outside US Gulf ports, via STS transfers. The Port of Corpus Christi and Carlyle Group are creating the "first onshore location in the US Gulf capable of servicing fully-laden VLCCs" according to the Carlyle Group.
Such a terminal would produce "up to a $50bn annual reduction to the national trade deficit", the release said, without providing any timeframe or details. Corpus Christi-based Lone Star Ports, a joint venture between the Carlyle Group and the Berry Group, will lead terminal development, Carlyle added. Trafigura, one of the biggest traders in the US Gulf crude exporting market, is also seeking to build an offshore VLCC-loading terminal via logistics company Texas Gulf Terminals.
The project proposes onshore crude storage, 12 miles of pipelines and nearly 15 miles of offshore pipeline to a "single mooring facility" that connects VLCCs, according to the company.
Construction will take 18 months over five stages once the Maritime Administration awards a permit. An application was submitted in July 2018. Tallgrass Energy has a Permian basin-to-Gulf pipeline that includes a loading and storage terminal at the port of St James, Louisiana, on the Mississippi River. VLCCs are linked to this supply by an offshore terminal. These plans come as Asia imports greater volumes of oil from the US Gulf, as well as Brazil and Venezuela. Increasingly, from this month, there will be more Venezuelan cargoes sailing east as well, with sanctions a fresh wild card for the US Gulf region to digest, alongside a refining economy in flux over volatile crude prices. Further evidence that traders believe in the VLCC export market are efforts at price discovery. Two competing energy exchanges have listed new futures contracts for the price of WTI or Permian-based crude delivered at export ports. Volumes traded on futures contracts that underpin the physical market are well worth watching.