Ship Size, Port Depth Impacting U.S. Oil Prices

The Energy Information Administration (EIA) recently offered a unique look at a couple of factors impacting the recent surge in U.S. oil prices.

In 2017, U.S. crude oil exports averaged 1.1 million barrels per day (b/d), and they’re up to 1.6 million b/d so far in 2018. These are significant increases from the less than 0.5 million b/d in 2016. This growth in oil exports happened despite the fact that U.S. Gulf Coast ports are unable to load Very Large Crude Carriers (VLCCs). As their extremely original name would suggest, they are the largest and most economical vessels available for crude oil transportation.

However, export growth is actually lower than it could be because smaller, less cost-effective ships have to be used for shipments. Each VLCC is designed to carry approximately two million barrels of crude oil. However, their size requires waterways that are wider and deeper than the current Gulf ports.

The inland harbors that actively work in the petroleum sector on the Gulf Coast connect to the ocean through shipping channels or rivers. And despite efforts to dredge and deepen these channels, they still can’t handle a fully loaded VLCC. This limitation has led to the use of partial loadings and ship-to-ship transfers that add time and cost to the transportation of oil. These costs get passed along to consumers.

Currently, most U.S. Gulf Coast petroleum ports are capable of accepting vessels with capacities of approximately 500,000 barrels. This constraint means that it can take two to four smaller ships to handle the load usually managed by one VLCC.

The Louisiana Offshore Oil Port (LOOP) is the only U.S. facility able to accommodate a fully loaded VLCC. LOOP, which has storage, undersea pipelines, and single-point mooring facilities in deep water, was exclusively used as an import facility until it was modified for exports earlier this year.

Weekly U.S. exports of crude oil have surpassed two million b/d four times in 2018, two of which corresponded with LOOP loadings of a VLCC for export. There are currently no applications pending for new deepwater ports similar to LOOP, although new oil export infrastructure projects have been announced for the port of Corpus Christi in southern Texas. This plan would seem to correspond to increased production from the Permian Basin and Eagle Ford sites.