Working on a Dream - Plans Afoot to Load Crude onto VLCCs at More Gulf Coast Ports

For the first time ever, U.S. crude oil exports have hit the 3 MMb/d mark — a once-unthinkable pace equivalent to sending out 10 fully loaded Very Large Crude Carriers a week. VLCCs, with their 2-MMbbl capacity and rock-bottom per-bbl delivery costs, are the most cost-effective way to transport crude to distant markets like China and India. But there’s still only one terminal on the Gulf Coast that can fill a VLCC to the brim — the Louisiana Offshore Oil Port — and pipeline connections from key Texas and Oklahoma plays to LOOP are limited. Elsewhere along the coast, VLCCs need to be loaded in offshore deep water by reverse lightering from smaller vessels — a slower and more costly loading process. Change is a-comin’, though. Companies are testing the docking and partial loading of VLCCs at terminals along the Texas coast, and plans for a number of greenfield facilities capable of partially — or even fully — loading the gargantuan vessels at the dock are being considered. Today, we review the latest efforts to streamline the loading of VLCCs and what they mean for crude-export economics.

As we said in our last look at VLCCs a few months ago (Rock the Boat), the use of the supertankers during the U.S.’s 40-year ban on most crude exports was largely limited to imports to LOOP, occasional shipments out of the Valdez Marine Terminal in Valdez, AK (the southern terminus of the Trans-Alaska Pipeline System) and into Andeavor’s Berth 121 in Long Beach, CA — the two other U.S. facilities designed to handle VLCCs. Since the export ban was lifted in December 2015, though, crude exports — and interest in using VLCCs for exports out of the Gulf Coast — have been on the upswing. Figure 1 shows that in 2015, the last year the ban was in place, exports (almost all of them to Canada) averaged 465 Mb/d, according to the Energy Information Administration (EIA). Exports rose 27% (to just about 590 Mb/d) in 2016, then almost doubled in 2017 (to more than 1.1 MMb/d).

Export volumes continued rising through the first half of 2018, averaging 1.8 MMb/d so far and hitting an all-time high — an even 3 MMb/d — in the week ended June 22.

VLCCs are the Airbus A380s of the crude-shipping world ­­— highly efficient, long-distance conveyors of valuable cargo (crude and people, respectively). An A380 is a double-decker, wide-body jet airliner that can transport up to 850 (!) passengers in (God forbid) an all-economy configuration (or 525 in a typical first-class/business/economy layout) more than 8,000 miles at a cruising speed of about 560 miles per hour (mph). VLCCs may be much, much slower (traveling at about 14 knots, or 16 mph), but they can move about 2 MMbbl of crude oil, the equivalent of about five hours’ worth of U.S. production. The supertankers have an average length of about 1,100 feet, with an average beam (or width) of nearly 200 feet and an average fully loaded draft of 72 feet.

There are about 800 VLCCs operating in the world today, with an increasing number being filled with U.S. crude along the Gulf Coast and sent to faraway ports in Europe and Asia. The vast majority of the VLCCs being used to export crude from the U.S. are reverse-lightered in designated trans-shipment areas (TSAs) off the Texas and Louisiana coasts. Reverse lightering is a multi-day process that involves anchoring an empty VLCC in a TSA and using Aframax-class tanker (capacity ~750 Mbbl) or other smaller vessels to ferry crude from the terminal to the VLCC. According to our friends at Navigistics, transporting crude from a fully reverse-lightered VLCC from a TSA off Corpus Christi to various Asian destinations (Singapore and Ulsan, South Korea) would cost about $3/bbl less than shipping it the same distance on a smaller tanker. That’s half the transportation cost — quite a savings when you consider the VLCC’s 2-MMbbl capacity.