Release date: May 2, 2018 | Next release date: May 9, 2018
U.S. Gulf Coast port restrictions impose additional costs on U.S. crude oil exports
U.S. crude oil exports averaged 1.1 million barrels per day (b/d) in 2017, an increase of 527,000 b/d from 2016. This acceleration in export growth happened despite the fact that U.S. Gulf Coast ports cannot fully load Very Large Crude Carriers (VLCC), the largest and most economic vessels used for crude oil transportation. Instead, export growth was achieved by using smaller and less cost-effective ships. Although much of the current focus has been on pipeline constraints limiting the amount of crude oil that can reach the U.S. Gulf Coast, potential shipping limitations are also relevant.
Capable of carrying approximately 2 million barrels of crude oil, VLCCs require large ports with sufficient width and depth of waterways for safe navigation. All U.S. ports in the Gulf Coast that actively trade petroleum are located in inland harbors and connected to the open ocean via shipping channels or navigable rivers. Although these channels and rivers are regularly dredged to maintain depth and safe navigation, they are not deep enough for the safe navigation of deep draft vessels, such as fully loaded VLCCs.
To circumvent depth restrictions, VLCCs transporting crude oil to or from the U.S. Gulf Coast have typically used partial loadings and ship-to-ship transfers. The ship-to-ship transfer process known as lightering occurs when a larger vessel partially unloads onto a smaller vessel, while reverse lightering occurs when smaller vessels load onto a larger vessel. These transfers take place in designated lightering zones and points that exist outside many of the largest U.S. petroleum ports (Figure 1).
Data from the United States Maritime Administration (MARAD) for 2015, the latest year for which data are available, indicate that the two largest ports of call for tankers carrying crude oil and petroleum products are lightering zones (Figure 2).
Currently, most U.S. Gulf Coast petroleum ports are capable of accepting vessels with capacities of approximately 500,000 barrels of crude oil (AFRAMAX), while the number of ports that can to accept vessels with capacities of approximately 900,000–1 million barrels (SUEZMAX) are limited. Therefore, four AFRAMAX sized vessels or two SUEZMAX vessels are required to carry the same amount of crude oil as a single VLCC.
The inability to fully load larger and more cost-effective vessels has pricing implications for U.S. crude oil exports. Using a number of smaller ships requires a wider price spread between U.S. crude oil and international crude oil prices to compensate for the lower economies of scale and costs associated with reverse lightering and partial loadings. The costs associated with using a smaller vessel are less of a factor for exports over shorter distances such as within the Atlantic basin than exports over longer distances such as to Asia. As exports to Asia are a growing share of total U.S. crude oil exports, these costs will grow in importance.
By comparison, other nations that export large volumes of crude oil generally have deeper and wider navigable waterways that are not located in inland/onshore harbors. For example, in Yanbu, Saudi Arabia, located along the Red Sea, the crude oil export facility uses a jetty trestle that extends out to berths in water deep enough to fully load VLCCs. In addition, the largest crude oil export facility in Saudi Arabia, located at Ras Tanura, uses a combination of jetty trestles, single point mooring facilities, and other facilities to load multiple sizes of vessels (Figure 3).
The Louisiana Offshore Oil Port (LOOP), located offshore southern Louisiana in the Gulf of Mexico, is currently the only U.S. facility capable of accommodating a fully loaded VLCC. LOOP, which has storage, undersea pipelines, and single point mooring facilities in deep water, was exclusively used as an import facility until it was modified to allow exports.
So far, in 2018, weekly U.S. exports of crude oil surpassed 2 million b/d in the weeks ending February 16, March 30, April 20, and April 27, 2018 (Figure 4). Trade press reports indicate the weeks of February 16, and March 30, 2018, corresponded with weeks in which LOOP loaded a VLCC for export.
However, LOOP lacks access to the areas experiencing growth in crude oil production such as in the Permian Basin of West Texas and Southeastern New Mexico. In addition, LOOP is still used primarily for imports of medium-sour crude oil preferred by refineries in the U.S. Gulf Coast.
MARAD, the agency charged with permitting deepwater offshore ports, currently has no pending applications for new deepwater ports similar to LOOP. Instead, trade press and company announcements have indicated the most likely crude oil export projects with the intention to fully load VLCCs will be located near the port of Corpus Christi in southern Texas. Corpus Christi has access to increased domestic production of light-sweet crude oil from the Permian Basin and Eagle Ford and regularly exports crude oil from the Oxy Ingleside Energy Center and other facilities.
U.S. average regular gasoline and diesel prices increase
The U.S. average regular gasoline retail price increased nearly 5 cents from last week to $2.85 per gallon on April 30, 2018, up 44 cents from the same time last year. Midwest prices increased nearly seven cents to $2.72 per gallon, Gulf Coast and West Coast prices each increased over four cents to $2.59 per gallon and $3.43 per gallon, respectively, East Coast prices increased nearly four cents to $2.79 per gallon, and Rocky Mountain prices increased over three cents to $2.80 per gallon.
The U.S. average diesel fuel price increased over 2 cents to $3.16 per gallon on April 30, 2018, 57 cents higher than a year ago. Midwest prices rose nearly four cents to $3.08 per gallon, Rocky Mountain prices rose over three cents to $3.22 per gallon, West Coast prices rose over two cents to $3.64 per gallon, East Coast prices increased two cents to $3.16 per gallon, and Gulf Coast prices rose one cent to $2.95 per gallon.
Propane/propylene inventories increase
U.S. propane/propylene stocks rose by 0.7 million barrels last week to 36.4 million barrels as of April 27, 2018, 13.1 million barrels (26.5%) lower than the five-year average inventory level for this same time of year. Midwest, Gulf Coast, and East Coast inventories increased by 0.4 million barrels, 0.2 million barrels, and 0.1 million barrels, respectively, while Rocky Mountain/West Coast inventories dipped slightly, remaining virtually unchanged. Propylene non-fuel-use inventories represented 7.6% of total propane/propylene inventories.
For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.
Retail prices (dollars per gallon)
| Retail prices | Change from last | ||
|---|---|---|---|
| 04/30/18 | Week | Year | |
| Gasoline | 2.846 | 0.048 | 0.435 |
| Diesel | 3.157 | 0.024 | 0.574 |
Futures prices (dollars per gallon*)
| Futures prices | Change from last | ||
|---|---|---|---|
| 04/27/18 | Week | Year | |
| Crude oil | 68.10 | -0.28 | 18.77 |
| Gasoline | 2.127 | 0.031 | 0.579 |
| Heating oil | 2.151 | 0.028 | 0.647 |
| *Note: Crude oil price in dollars per barrel. | |||
Stocks (million barrels)
| Stocks | Change from last | ||
|---|---|---|---|
| 04/27/18 | Week | Year | |
| Crude oil | 436.0 | 6.2 | -91.8 |
| Gasoline | 238.0 | 1.2 | -3.3 |
| Distillate | 118.8 | -3.9 | -31.5 |
| Propane | 36.370 | 0.660 | -3.297 |