There are no crude pipelines running from the Gulf Coast refining region to the West Coast. A Kinder Morgan plan to build such a pipeline last year (2013) floundered on lack of shipper interest. Surging crude supplies at the Gulf Coast and downward pressure on prices in the absence of an end to the crude oil export ban raise the tantalizing possibility of moving crude East to West through the Panama Canal (or the Transpanama pipeline). Today we look at the economics of such shipments.
The first episode in this series described the regulations of the Jones Act that restricts marine transport between US inland and coastal ports to US Flag vessels (see The Jones Act Coastal Trade). In Episode Two we began a deep dive look at the Jones Act self-propelled tanker fleet and its ownership covering Crowley Maritime, Seabulk Tankers and the recent Kinder Morgan acquisition - American Petroleum Tankers. In Episode Three we rounded out coverage of the Jones Act tanker fleet owners with a look at Overseas Shipping Group and the ExxonMobil, BP and Conoco Alaska fleets. In Episode Four we described the large Ocean going articulated tank barge (ATB) fleet that also operates in the coastwise trade. Increasing US crude production from shale and onshore pipeline congestion is prompting shippers to consider inland waterways and coastal routes to deliver to refineries on the East, West and Gulf Coasts. The expansion of these shipments is severely constrained by the limited fleet of 42 Jones Act tankers, 49 ATBs and several hundred smaller barges. In this episode we consider the possibility of moving US crude from the Gulf Coast to the West Coast across the Panamanian Isthmus either via the Panama Canal or the Transpanama pipeline (TPP).
We posted an overview of the Panama Canal in a blog back in 2012. The Canal is a 51-mile long passage completed in 1914 that connects the Caribbean Sea to the Pacific Ocean (see Panama Tailored to Fit Larger Vessels). By passing through the Canal, ships reduce voyage distances from the Atlantic to the Pacific (or vice versa) by thousands of miles and journey times by 10 days or more. The Canal is currently constrained by the dimensions of its lock system that limit the size of vessels that can pass through. For crude oil shipments that means a maximum cargo size of about 50 thousand metric tonnes (MMT) – roughly equivalent to 380 MBbl of West Texas Intermediate (WTI) crude. The canal is currently undergoing a lengthy project to expand the size of vessels that can pass through – increasing oil tanker cargo size to 80 MMT – equivalent to 600 MBbl of WTI. The Panama Canal expansion was expected to be completed in 2015 but recent construction disputes between the Government of Panama and the contractors could delay the project.
And we also posted a blog describing the TPP in August 2013 (see The Crude From Transpanama). The TPP currently ships up to 600 Mb/d of crude from the Atlantic coast of Panama to the Pacific. The pipeline was originally built to facilitate Alaskan crude shipments to the US Gulf Coast but was reversed in 2009 to move Atlantic basin crudes to South American and Far East markets without going through the Panama canal. The TPP has deep-water ports at either end that can accommodate very large crude carrier (VLCC) vessels that carry over 1 MMBbl of crude. For movements between US Ports both the Panama Canal and the TPP require Jones Act vessels. But logistically that makes the Canal easier to use than the TPP because an oil shipper using the latter needs to use one vessel to get to the Atlantic side and offload into the pipeline and another vessel to load up for the onward journey on the Pacific side whereas Canal shipments pass through in the same vessel. In the circumstances the Jones Act constraint probably makes the TPP route a stretch for moving US crude from the Gulf Coast to the West Coast.