Yo Ho Ho And A Cargo of Bunkers – Pirates of the Caribbean Terminals – BORCO

Last Wednesday (October 9, 2013) Buckeye Partners announced an agreement to purchase Hess Oil’s East Coast terminal assets – including a crude and fuel oil terminal on the Island of St Lucia in the Caribbean. Buckeye already own a large oil storage terminal in the Bahamas, known as BORCO so with the new acquisition they will become the largest storage and terminal player in the Caribbean market. The fuel oil trade in the region is a combination of local bunkers supply, fuel oil for power plants and larger scale transshipments of fuel oil for international markets. Today we look at fuel oil terminal facilities in the Caribbean.

This is the fourth installment in our series covering fuel oil infrastructure on the Gulf Coast. In the first episode we provided definitions for some of the many types and grades of fuel oil (see Yo Ho Ho and a Cargo of Bunkers). We discussed the main markets for fuel oil as a feedstock for refineries and as bunker fuel for ships. There is also demand for fuel oil or its derivatives in manufacturing industry and power generation. In episode two we looked at the Houston Fuel Oil Terminal Company (HFOTCO) that has been the dominant player in fuel oil blending, storage and export on the Gulf Coast for thirty years (see The Houston Fuel Oil Terminal). In episode three we covered the brand new kid on the Houston Ship Channel block – Battlefield Oil Storage Company (see The Kinder TransMontaigne BOSTCO Terminal). This time around we start a two part review of fuel terminals in the Caribbean.

One of the constraints implicit in writing about fuel oil markets and trading is that data is hard to come by – especially once you leave US territory. Even within the US (as we discussed in the first episode) there are so many different names and definitions for fuel oil that data is not easy to interpret. But the US markets do at least bask in the luxury of Energy Information Administration reporting requirements that provide an account of imports, exports and movements of fuel oil between regions. Looking at the Caribbean markets creates greater challenges. After all we are venturing offshore - into (once) pirate infested waters. Here regulations and reporting are determined on “island time” and who knows how many cargoes are hidden in Davy Jones’ locker?

We do know that there are plenty of fuel oil and bunker terminals in the Caribbean – at least one per island – supplying fuel for local marine vessels. Then there are larger bunkers suppliers catering to the cruise industry – those wedding cake behemoths we’ve all been on that are busy refueling while we traipse off on the scuba diving day trip. St. Martin has the biggest bunker port for cruise ships in the Caribbean. Many islands also rely on fuel oil supplies for their electricity generation.

The Caribbean Advantage

But just like in the US, the big kahunas in the fuel oil trade are the large terminals used for storage, blending and transshipment (more about that term in a minute) of crude, fuel oil and other refined products. Before we get to the terminals (including the one Buckeye just acquired from Hess), we will run through some of the advantages that Caribbean terminals enjoy in the fuel oil game.

One of these advantages is that Caribbean harbors are deep water compared to most US Gulf ports (except the offshore LOOP facility in Louisiana – see Thrown for a Loop). Deep-water terminals facilitate transshipment  - literally moving product or crude from ship to ship. This process can usually be accomplished more easily at a terminal with storage and pump equipment than it can on the open water. Deeper harbors in Caribbean ports mean that bigger vessels carrying more oil can be accommodated. Since the cheapest way to ship oil across oceans is in larger vessels like 1 MMBbl very large crude carriers (VLCCs) and since these vessels are too large to dock at most Gulf Coast ports, transshipment is used to break down cargoes on large vessels to smaller chunks on smaller vessels that can be handled at US ports. Conversely larger vessels can be loaded for transoceanic export from smaller cargoes brought to the islands from the Gulf Coast. That means for example shippers can bring fuel oil to a Caribbean terminal from Gulf Coast refineries, store and blend it as needed, and then load it onto larger vessels for onward shipment to Asia or Europe at a lower freight rate on a VLCC.