U.S. Crude Exports Accelerate As Supertanker Heads for China

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Researched by Industrial Info Resources (Sugar Land, Texas)--The flood of U.S. oil exports is accelerating with the first fully laden supertanker setting sail from Louisiana--ushering in a new chapter in America's turnaround from buyer to supplier in the global oil market.

The Louisiana Offshore Oil Port LLC (LOOP) (Covington, Louisiana), owner of the only U.S. crude oil deepwater port, said it had successfully completed the first loading of a very large crude carrier (VLCC) at its U.S. Gulf of Mexico facility after making "minor modifications" to handle bidirectional flows. For more information, see Industrial Info's report on the LOOP's export conversion project.

For more than 30 years, LOOP has been a vital piece of U.S. energy infrastructure, handling oil imports from around the world, as well as gathering crude pumped from deepwater deposits in the Gulf of Mexico. Since it started receiving oil in 1981, the LOOP has offloaded 10,200 tankers. The Shaden, which is owned by the National Shipping Co. of Saudi Arabia and carries the flag of the kingdom, is the first VLCC to load oil at the port rather than discharge it.

"There could not be a better time to offer this service as domestic production surpasses 10 million barrels per day (BBL/d) in the ever-dynamic global crude oil market," LOOP LLC President Tom Shaw said in a statement confirming the vessel's departure.

LOOP officials said the shipper of record was the trading arm of Royal Dutch Shell plc (NYSE:RDS.A) (The Hague, Netherlands), but data compiled by Bloomberg showed the Shaden was booked last month by China's largest oil trader, Unipec, a unit of the country's refining giant, China Petroleum & Chemical Corporation (Beijing).

According to vessel tracking services, the Shaden arrived at LOOP on February 11 after offloading a Middle East crude cargo by lightering vessels in Galveston, Texas, and is now heading to the Chinese port of Rizhao.

Shell, which co-owns the LOOP, along with U.S. independent refiners Marathon Petroleum Corporation (NYSE:MPC) (Findlay, Ohio) and Valero Energy Company (NYSE:VLO) (San Antonio, Texas), is a large producer of Mars stream crude. The Shaden is believed to be carrying 1.5 million barrels of medium sour crude.

LOOP's offshore facility consists of three single-point mooring buoys and marine terminal 18 miles south of Port Fourchon, Louisiana, in 110 feet of water. A 56-inch-diameter pipeline capable of handling 100,000 barrels per hour connects the terminal to an onshore pumping facility, which moves the oil 25 miles inland, where LOOP operates 72 million barrels of storage at the Clovelly Hub in Galliano, Louisiana, as well as eastbound crude on Shell's Zydeco pipeline.

LOOP's onshore facilities include segregated storage for U.S. Gulf offshore sour crudes Mars and Thunder Horse, a comingled cavern for three Middle East sour grades, a comingled light cavern that can include Bakken, Eagle Ford and West Texas Intermediate, as well as the LOOP Sour cavern that comingles Mars, U.S. Gulf sour Poseidon and Mideast sour grades.

Using the LOOP--the only U.S. Gulf facility able to directly offload supertankers--is emblematic of the upended U.S. oil market, where declining domestic production since the 1970s had turned Gulf of Mexico refineries into avid consumers of foreign crude. LOOP officials last summer began seeking shipper interest in loading crude onto such ships amid burgeoning growth in domestic oil production and the legalization of overseas exports in December 2015.

Being able to load VLCCs, which are capable of moving up to 2 million barrels of oil, Is expected to significantly reduce the cost of shipping overseas. The Texas ports of Corpus Christi and Houston currently handle three-quarters of the U.S. crude exports, but the shipping channels are too shallow for supertankers. Aframax and Panamax tankers, which carry 650,000-barrel and 500,000-barrel cargoes, respectively, are needed to ferry the fuel out to 1,000-foot-long VLCCs waiting in deeper waters in the Gulf of Mexico.

The Port of Corpus Christi has begun a $327 million channel-improvement project that will allow it to load VLCCs, and the port may finally receive federal funds to help pay for it.

President Donald Trump's proposed $4.4 trillion budget released last week included $13 million for the project. If approved, the money would add to the more than $32 million the port sent the U.S. Army Corps of Engineers in 2017 to begin work on the project.

"Investing in this infrastructure expansion project is an investment in the U.S. economy and the leadership of American energy," Sean Strawbridge, port chief executive officer, said in a prepared response.

The budgeted amount is significantly less than what was requested in January when a consortium of six energy firms--Buckeye Partners LP (NYSE:BPL) (Houston, Texas), Cheniere Energy Incorporated (NYSE:LNG) (Houston), Howard Energy Partners (NYSE:HMP) (Houston) NuStar Energy LP (NYSE:NS) (San Antonio, Texas), Occidental Petroleum Corporation (NYSE:OXY) (Houston) and Plains All American (NYSE:PAA) (Houston)--asked the Trump administration to fund $60 million of the project in the 2019 federal budget request.

The Port of Corpus Christi has been a major exporter of U.S. crude oil, with port officials estimating that 61% of all U.S. oil exports had left Corpus Christi last December.

Click on the image at right for a chart showing Port of Corpus Christi oil-export volumes from January 2016 to December 2017.

As proposed, the dredging is expected to widen the waterway from 400 to 530 feet and deepen it from 47 to 54 feet. Once complete, the channel improvement project will deepen the 47-foot-deep channel to 54 feet, allowing ships, including oil tankers, to exit the port with more weight and deeper drafts.

With that in mind, one Corpus Christi port tenant, Occidental Petroleum, plans to construct a VLCC loading dock and expand its crude-loading capacity from 300,000 BBL/d to 750,000 BBL/d and its storage capacity from 2.1 million barrels to 7.5 million barrels at its Ingleside, Texas, facility. For more information, see Industrial Info's project report.

U.S. oil exports have been growing since Congress reversed a 40-year-old law prohibiting most exports in 2015. The de facto export ban, which only allowed a few exceptions, was imposed in the aftermath of a 1973 to 1974 oil embargo led by Saudi Arabia. As oil prices improved, domestic oil production has soared--topping 10 million BBL/d recently--the highest since 1970.

Although the U.S. remains a net oil importer, the nation's crude exports have surged to a record high of 2.1 million barrels since the ban was lifted, and China and other Asian nations have become huge buyers. Over the last four weeks, the U.S. exported 1.4 million BBL/d of crude, on average, up from an average 605,000 BBL/d a year ago, data from the U.S. Energy Information Administration shows.

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