Barge shipments of crude oil between the Midwest Petroleum Administration Defense District (PADD) 2 and the Gulf Coast PADD 3 regions reached 126 Mb/d in July 2013 - up 79 percent over the same month last year according to the Energy Information Administration (EIA). The Port of Corpus Christi reported that coastal barge and tanker movements of crude from the Eagle Ford – mostly headed out of Corpus to Houston or St James, LA are up 37 percent so far this year (August) to 387 Mb/d. The crude tank barge trade is booming as producers continue to use waterborne transport to bypass pipeline congestion. Today we look at emerging waterborne crude routes to market.
Last November we posted a two-part blog on the expanding use of US inland and coastwise barges to move crude oil (see Good Year For the Barges – Part 1 and Part 2). Take a look at that earlier series to see route maps for the two main barge markets – inland waterways that support smaller 10 MBbl to 30 MBbl barges – principally along the Mississippi River system and coastwise barges that range in size from 30 MBbl to large 185 MBbl articulated barge vessels that primarily operate along the Gulf Coast Intracoastal Waterway but also move up and down the East and West Coasts. Barges do not move under their own steam – they are towed by tugboats – although cryptically the “towing” is actually pushing. The Maritime Act governs all US inland and coastal barges. That legislation – commonly known as the Jones Act - dates back to the 1920’s and dictates that inland and coastal vessels all have to be owned, manned and built to US specifications, increasing purchase and operating costs and making fleet owners reluctant to build new capacity except to replace retiring craft (see The Sea and Mr Jones). The result is that as demand for barges to move crude oil has grown, so have lease and utilization rates. Tight capacity means most barges are leased under long-term contracts of a year or more.
Although the general rule of thumb in the oil business is that pipelines are the least expensive mode of transport, they only provide transport from any one producing region to a very limited number of market destinations. That’s fine when pipelines have available capacity to reach markets where crude is needed. But when, as we have seen in the Midwest over the past three years, the pipelines get congested as adequate capacity to move growing crude production to market is yet to be constructed, other transport forms come into play. The first such shale era development that we witnessed was the crude by rail boom that blossomed in 2012 starting in the North Dakota Bakken and spreading to producing regions in Texas, Wyoming, the Midcontinent and Canada (see The Year of the Tank Car).
Building rail terminals to load crude onto 100 car unit trains proved to be an economical alternative to congested pipelines as producers sought new routes to get their crude to market. But when it came to building rail terminals to unload crude shipped from producing regions by rail, the destination terminals were frequently located at water’s edge. That is because transferring crude from rail to waterborne barges allows one offload terminal to serve many refineries in a region. Most refineries in the US – particularly the 50 percent of refining capacity in the Gulf Coast region – have waterborne access already in place to receive imported supplies from coastal locations. So instead of building rail terminals to receive crude at every refinery, supplies can be offloaded onto barges for the final leg of the journey to refinery gates.
In addition to the convenience of already having waterborne delivery docks in place at so many refineries; barge movements are typically less expensive than the railroads. Provided you have access to suitable waterways it is cheaper to move crude by barge because even smaller 10 MBbl inland barges carry about 15 times as much crude as a typical 650 Bbl rail tank car. Two 30 MBbl barges can carry as much as one 100 car unit train. So given the choice and a suitable waterborne route, shippers use barges to move crude longer distances as well as just for the final leg from rail destination terminal to refinery. These economies of scale together with the flexibility to deliver to multiple refineries has therefore prompted shippers to use barges for a growing number of longer distance movements across the US as well as up and down the coasts.
To access the remainder of Float, Float On – Crude Oil Barge Volumes Continue to Surge you must be logged as a RBN Backstage Pass™ subscriber.
Full access to the RBN Energy blog archive which includes any posting more than 5 days old is available only to RBN Backstage Pass™ subscribers. In addition to blog archive access, RBN Backstage Pass™ resources include Drill-Down Reports, Spotlight Reports, Spotcheck Indicators, Market Fundamentals Webcasts, Get-Togethers and more. If you have already purchased a subscription, be sure you are logged in For additional help or information, contact us at firstname.lastname@example.org or 888-613-8874.