The vessel “Shaden” is expected to disembark from the Louisiana Offshore Oil Port (LOOP) sometime early next week, based on a 300,000 bpd fill rate. This marks a milestone in the already-burgeoning U.S. crude export industry, as it will become the first Very Large Crude Carrier (VLCC) to fully load at a port in the Lower 48 states. The Saudi Arabian-flagged Shaden arrived at the LOOP offshore terminal on February 12 after departing the Galveston, TX, Lightering Area, two days before, and following its maiden voyage from Ras Tanura, Saudi Arabia, the loading port for Arabian Extra Light, Light, Medium, and Heavy, on December 23, 2017, according to Genscape Vesseltracker™. The crude loading onto the Shaden made LOOP only the second port in the United States to fully load VLCCs along with Valdez, AK.
The Shell-chartered VLCC, laden with Mars medium sour crude, is taking its cargo to China’s state-owned refiner Sinopec, according to market sources. More than 25 tankers left the U.S. for China in 2017 mostly from Texas ports, according to Genscape. Medium sour shipments from LOOP could begin to challenge Middle Eastern grades that have traditionally fed Chinese refiners appetite. The anticipated opening of the Shanghai crude contract, which will feature medium sour crude, could provide even more demand for these grades exported out of the U.S.
On July 24, 2017, LOOP announced that it was pursuing contracts to export crude from the only deepwater port in the U.S. Doing so would require converting the previously unloading marine terminal by making the connecting pipeline to the onshore terminal in Clovelly, LA, bidirectional. Now the port has the ability to both load and offload, but can only do either one at a time.
The conversion required LOOP to modify a pump station in Clovelly, remove a check valve to allow flow the opposite direction at the booster station in Port Fourchon, LA, and modify piping at the pumping station at the offshore terminal as well as the mooring point for vessels, according to the December 2017 LOOP permit submitted to the U.S. Environmental Protection Agency and the Louisiana Department of Environmental Quality.
LOOP Provides New Outlet for Surging U.S. Exports
The latest development for U.S. exports will only further boost the amount of crude that domestic producers will send to foreign destinations, due to the more favorable economics when shipping on a larger vessel.
After a banner year for U.S. crude exports in 2017, when 916,000 bpd departed Gulf Coast shores overall and averaged 1.39mn bpd post-Hurricane Harvey, September through December, U.S. crude exports have continued to rise. The storm resulted in a wider spread between the NYMEX Light Sweet Crude (WTI) and ICE Brent crude contracts and incentivized increased movements.
Exports from PADD 3 in January kicked off the year on a relatively more muted note at 1.169mn bpd. They ramped back up this month, though, with an average 1.912mn bpd leaving Gulf Coast shores through February 9, which would be the highest monthly average since the crude export ban was lifted in December 2015.
During February the exports have increased as Gulf Coast crude differentials adjusted to the tighter WTI/Brent spread, the relatively low freight rates, and because many of the shipments were booked at a time when the economics were more favorable, sources said.
Milestone Export May Halt Stocking Trend at LOOP Caverns
Inventories at the LOOP Caverns increased more than 13mn bbls between weeks ending January 5 and February 9. Stocks climbed for five consecutive weeks, offsetting a destocking trend that had persisted at the cavern storage hub through the end of 2017, according to Genscape’s Louisiana Gulf Coast Crude report.
The recent builds have been part of a broader trend across PADD 3. Genscape-monitored storage inventories in Texas and Louisiana increased more than 21mn bbls between weeks ending January 5 and February 9. Genscape monitors 76 percent of PADD 3 storage capacity.
The PADD 3 stock builds early in the year have taken place as exports were relatively low in January and pipeline flows from the Mid-Continent have been relatively high. Rebounds in Gulf Coast stocks are also common in January, following year-end ad valorem taxes that lead market participants to store barrels outside of Texas and Louisiana in late December.
However, the first export from LOOP may trigger a trend reversal in cavern storage levels. Loading the VLCC could certainly cause an inventory decrease, as 2mn bbls were drawn from storage. Additionally, supply to the hub was hindered as the bidirectional nature of the pipeline from Clovelly, LA, to LOOP would block incoming imports while the VLCC was loading.
Pipeline Access to LOOP Hindered by Maintenance and Infrastructure Limitations
Energy Transfer Partners (ETP) is in the process of building a segment of their 480,000 bpd Bayou Bridge pipeline from Lake Charles, LA, to St. James, LA. An existing segment of the line from Nederland, TX, to Lake Charles commenced operations in April 2016. The segment to St. James is expected to be complete in the second half of 2018, according to ETP. Completion of the pipeline connection to St. James was delayed following Hurricane Harvey, according to Genscape’s U.S. Gulf Coast Pipeline report. Once it is operational, the line will facilitate the movement of crude barrels from the Texas Gulf Coast to Louisiana markets.
Barrels supplied by Bayou Bridge will likely feed local refineries and waterborne shipments from St. James since there is currently no pipeline connectivity to transport barrels from St. James to LOOP. For the time being, shippers on Bayou Bridge will not be able to take advantage of the VLCC loading capabilities from LOOP without lightering multiple smaller shipments from St. James.
Shippers can access the new export facility via Shell’s 375,000 bpd Zydeco pipeline, which transports crude from Houston to Houma, LA, and then onward to either LOOP or St. James. However, the pipeline was shut in February, according to Genscape. Shell planned to shut the pipeline for maintenance, according to a January 26 Reuters report. The maintenance is expected to last between 30 and 45 days.
The extended shutdown of Zydeco will hamper supply to LOOP for at least a month, further increasing the likelihood of stock draws at the LOOP Caverns in the coming weeks. Anticipation of the pipeline maintenance, as well as the upcoming export capabilities, may have contributed to market participants stockpiling barrels at LOOP since the beginning of the year.
The U.S. Gulf Coast has solidified its role as a critical exporting market in recent months, providing a key connection between growing U.S. crude production and international demand markets. The new VLCC-loading capabilities at LOOP open the door for more substantial and economic shipments from the Gulf Coast, demonstrating companies’ long-term commitment to the restructured U.S. supply chain.
As export volumes from Louisiana inevitably increase, infrastructure in the area may continue to evolve to accommodate flows to the coast. For example, export capabilities at LOOP will likely fuel discussion on the long-awaited reversal of the Marathon-operated 1.2mn bpd St. James-to-Collierville, TN, Capline pipeline. This would subsequently create demand for pipeline connectivity from St. James to LOOP.
A simple infrastructure adjustment allowing barrels to flow from Clovelly to LOOP has shifted dynamics across Louisiana oil markets. The ability to load the largest export shipments in the continental U.S. frames the U.S. Gulf Coast as an epicenter in the global crude distribution network.
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