Build Them And They Will Come?

10 Aug 2018; 

U.S. crude oil exports have been on a tear since the crude oil export ban was lifted at the end of 2015.  Initially, most of the export barrels were sold in Canada and Europe and the vessels of choice were Aframaxes and to a lesser extent Suezmaxes.  The use of VLCCs was rare.  However, since 2017, as U.S. production continued to grow, Asia has developed into an important destination for U.S. crude and VLCCs have become a more significant factor in the transportation mix.  This was out of necessity.  To be competitive in Asia on a landed cost basis, charterers need to use the largest tankers available.  One VLCC can carry two million barrels, twice as much as a Suezmax and more than three times the volume of an Aframax.  In 2018 VLCCs have become the vessel of choice for charterers.  In the first half of this year, VLCCs carried a higher percentage of U.S. Gulf crude oil exports than Aframaxes and Suezmaxes, even though almost all VLCCs in the U.S. Gulf need to be loaded via a process called reverse lightering, where smaller vessels (usually Aframaxes) shuttle the crude from onshore terminals to the VLCC that is waiting in deeper water offshore.   This is a rather time-consuming and inefficient process that will become increasingly cumbersome as U.S. crude oil exports are expected to grow by another 2 – 5 million barrels per day over the next five years and most of these barrels are likely destined for Asia.  It may also become more expensive when the tanker market starts to recover from the depressed rate environment it is currently in.  Market participants have taken notice and several midstream, logistics and trading companies have announced plans for VLCC capable offshore export terminals.  However, the volume of planned export capacity begs the question: how will it impact the tanker market?

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