Last week, Poten & Partners looked at this emerging VLCC trade and explored its long term viability.
US crude oil is attractive to European refiners, as it is a good quality crude oil, relatively close in specifications to North Sea crude or West African grades.
In recent years, WTI, the main pricing benchmark for US crudes, has traded at a discount to Brent (used to price North Sea and West African crudes), which made US grades more competitive relative to alternative crudes.
According to tanker trade statistics from Lloyd’s List Intelligence, last year, 131 mill barrels of crude oil and condensates were shipped from the US to NW Europe.
Aframaxes were used to load 66% of these volumes and Suezmaxes carried 32%. In December, 2018 the first VLCC cargo was loaded in the US Gulf destined for NW Europe.
Since then, four more VLCCs have discharged US Gulf crude in the UK/Continent region and several more were fixed. Most of these cargoes are loaded at Corpus Christi, where VLCCs can lift a partial cargo at Moda’s Ingleside terminal and finish loading using reverse lightering off the coast.
Almost all ports in the US Gulf area have draft restrictions (typically 40-45 ft), which makes it impossible to fully load large tankers. The exception is LOOP, which is located offshore Louisiana and accommodate fully laden VLCCs.
LOOP was built as a discharge port, but VLCCs started to load cargoes at the facility in 2018. The use of LOOP to load has thus far been limited to offshore crudes (like Mars) as it is not well connected to the tight oil resources in the Permian.
As a result, almost all larger tankers are reverse lightered (smaller tankers shuttle cargo to the ship) or use only a part of their carrying capacity.
Poten estimated that the current freight costs of using an Aframax for a USG to UK/Cont voyage amounts to about $20.32 per tonne, while the same voyage using a light-loaded Suezmax costs around $17.68 per tonne.
For a VLCC, the transportation cost would be about $16.47per tonne, plus about $1.30per tonne for lightering, basis the Corpus Christi scenario. Thus, using VLCCs for Transatlantic voyages rarely makes sense, due to lightering costs.
The fact that the Ingleside terminal can accommodate VLCCs to part load a cargo and just requires one additional Aframax cargo to be loaded off the coast of Corpus Christi makes this port more competitive for such voyages than most other load ports.
We expect that Aframaxes will continue to be the main vessel class for Transatlantic voyages, as they are flexible and can be used reasonably efficiently in the draft restricted US Gulf ports.
Suezmaxes will be used as an alternative when insufficient Aframaxes are available for Transatlantic business or when Suezmax tanker freight rates are competitive.
Once the maximum draft in Corpus Christi is increased (current estimate is 2022), Suezmaxes could become more competitive and take market share from Aframaxes and VLCCs.
VLCCs will likely play a minor role in Transatlantic exports until additional VLCC export capacity becomes available. There are several projects under consideration but it is impossible to predict if and when these will be operational and what their cost advantage will be versus alternatives, Poten said.