US Crude Exports: VLCC Loadings to Asia and Europe Rise
Vortexa Market Research Team
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Waterborne crude exports from the US Gulf Coast reached a record high of 2.5mn b/d in Q1 2019, according to Vortexa’s cargo-tracking data. Higher exports have been supported by robust Permian production growth, the expansion of key pipeline and port infrastructure facilities and wide WTI discounts against Brent.
USGC boosts VLCC loading facilities
From three key USGC terminals alone—Louisiana Offshore Oil Port (LOOP), Enterprise Terminal in Texas City and Oxy Ingleside Corpus Christi—some 23 VLCCs loaded in the first quarter. This is more than double the same period last year.
The LOOP facility began to load VLCCs in February last year, and is currently the only terminal that is capable of full VLCC loading without requiring ship-to-ship operations. In the past three months, at a rate of one per month, three VLCCs—Amad, New Caesar and Dilam, fully loaded at the terminal and headed to Asia-Pacific. The first two delivered to Yeosu, South Korea while Dilam is currently sailing eastwards.
Enterprise Terminal, which commenced partial VLCC loading at its Texas City facility mid last year, has seen seven VLCC loadings in the first three months of this year, surpassing the total count last year.
And Ingleside Terminal in Corpus Christi port joined the race in December last year, loading the first VLCC of US crude to Europe aboard the tanker Nasiriyah. Prior to this, US crude exports to Europe were shipped on Aframax and Suezmax freight.
Houston Enterprise terminal takes top export spot
On an aggregated level, Houston Enterprise Terminal has the highest loading rate of total US crude exports, averaging over 500,000 b/d in Q1 2019, which is double the volume in the same period last year.
The Sunoco Logistics Nederland and Phillips 66 Beaumont terminals took second and third positions in the first quarter, at 315,000 b/d and 275,000 b/d, respectively. These terminals load Aframax or Suezmax tankers which either transport crude directly within the Atlantic Basin. Or, they reverse lighter onto VLCCs at the lightering area off the Gulf of Mexico, with these cargoes mainly bound for Asia-Pacific.
Brent-WTI differentials averaged around $8.50/bl in the first three months of the year, according to market participants, compared to $6.20/bl in 2018. For European refiners, the wide WTI discounts have made US light crude more attractive than North Sea, Med or African crudes of similar quality which previously formed their staple crude slate.
For Asian refiners, the narrowing of Dubai differentials against Brent in recent months has reduced their margins in processing Middle East light-sour crudes and made US crude more attractive. But Dubai discounts have started to widen in April with Asian refiners cutting back on their crude buying entering into peak maintenance season.
Dirty freight rates for USGC to Europe on Aframax or Suezmax tankers have remained relatively soft since the start of the year. USGC to Asia VLCC rates have firmed on higher demand, especially in March, but still kept the arbitrage wide enough for cargo flows to the East.
Growing appetite in Europe and Asia
US crude exports to the wider European region have almost doubled year-on-year, reaching 920,000 b/d in Q1 2019, heading to a wide range of buyers. To Asia, exports have surged by nearly 75% to 955,000 b/d in the same period.
Besides attractive WTI discounts, demand from refiners have also been spurred by rising crude runs and the need to fill the gap from lower Iranian condensate and light crude exports due to US sanctions.
Since the US-China trade war last year, South Korea has overtaken China as the largest importer of US crudes. US light sweet crude has been favoured by refiners with large integrated petrochemical sites due to their naphtha-rich content. These refiners have also been searching for replacements of Iranian South Pars condensate as a result of sanctions and higher Iranian domestic consumption.
Elsewhere in Asia, Indian refiners have also expressed growing interest in US light crude. In February, Indian Oil Corporation (IOC) signed a term deal to purchase US crude, joining private refiners Reliance and Nayara Energy in their bid to diversify crude supplies.
With lingering uncertainties on the US-China trade war, Chinese refiners have remained cautious on buying US crude. In January-March this year, only 1.8mn bl of US crude was imported into China, significantly lower than the 23mn bl observed imported in Q1 2018.
Most recently, three more laden VLCCs—Alsace,Maran Artemis, Noble—set off en-route to China, based on latest declarations, for delivery during April-May.