Panama may be cheaper option to ship TMX crude to Asia

Market: Crude oil, Freight
29/08/23

Very large crude carriers (VLCCs) off the Pacific coast of Panama could offer the cheapest option to ship Canadian crude to Asia-Pacific destinations when the Trans Mountain Expansion (TMX) project comes on line next year.

The cost of shipping crude from the Aframax-restricted Westridge Marine Terminal near Vancouver, British Columbia, to be reverse-lightered onto a VLCC in Panama and sent to China was about $6.70/bl for heavy sour Cold Lake on 28 August, compared with $7.14/bl to ship Cold Lake from Vancouver to China on an Aframax, according to Argus estimates. Between the two routes, the VLCC option has been an average of 39¢/bl cheaper than the Aframax option since 5 July.

Shipping economics would improve even more if the reverse lighterings were to occur off the coast of Vancouver or the US west coast, but this would not be possible due to environmental concerns, shipbroker BRS said in July. The cost to ship Cold Lake via Aframax from Vancouver to be reversed-lightered onto a VLCC in the Pacific Area Lightering zone off the coast of southern California then sent to China was about $5.99/bl on 28 August, according to Argus estimates.

VLCCs have hauled about 135,000 b/d of mostly Latin American crude from Panama's west coast to the Asia-Pacific region, according to data from analytics firm Vortexa. Crude from western Canada can be co-loaded with Latin American crudes for delivery in Asia.

The TMX project will boost pipeline capacity from Alberta to Vancouver by 590,000 b/d to 890,000 b/d, and will increase the number of Aframax berths at the Westridge Marine Terminal from one to three. Work on those berths was about 94pc complete as of August 9.

The project likely will start commercial service in the first quarter of 2024, but a specific in-service date appears premature for the massive project.

The original intent of the expansion was to better target refiners in Asia-Pacific, but some incremental crude may be coaxed to the US west coast or elsewhere in North America initially. About 23,000 b/d, or 93pc, of crude exported from Vancouver has gone to the US west coast this year, compared with about 2,000 b/d to China, according to Vortexa.

By Tray Swanson

Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

News

26/12/24

Viewpoint: US tariffs may push more Canadian crude east

Singapore, 26 December (Argus) — Canada may divert crude supplies from the US to Asia-Pacific via the Trans Mountain Expansion (TMX) pipeline in 2025, should president-elect Donald Trump impose tariffs on Canadian imports. Trump has declared that he will implement a 25pc tax on all imports originating from Canada after he is sworn into office on 20 January. This will effectively add around $16/bl to the cost of sending Canadian crude to the US, based on current prices, and impel US refiners to cut their purchases. The US imported 4.57mn b/d of Canadian crude in September, according to data from the EIA. Canadian crude producers are expected to turn to Asian refiners in their search for new export outlets. This is especially after Asian refiners gained easier access to such cargoes following the start-up of the 590,000 b/d TMX pipeline in May. The new route significantly shortens the journey to ship crude from Canada to Asia. It takes about 17 days for a voyage from Vancouver to China, compared with 54 days from the US Gulf coast to the same destination. China has become the main outlet for Asia-bound shipments from Vancouver, accounting for about 87pc of the 200,000 b/d exported over June-November, according to data from oil analytics firms Vortexa and Kpler (see chart). But even if the full capacity of the TMX pipeline is utilised to export crude to Asia from Vancouver, it will still only represent a fraction of current Canadian crude exports to the US. Vancouver sent just 154,000 b/d via the TMX pipeline to US west coast refiners over June-November, Vortexa and Kpler data show. Meanwhile, latest EIA figures show more than 2.63mn b/d of Canadian crude was piped into the US midcontinent in September, while US Gulf coast refiners imported 469,000 b/d. This means Canadian crude prices will likely come under downward pressure from higher costs for its key US market, should Trump's proposed tariffs come to pass. This will further incentivise additional buying from Chinese customers, as well as other refiners based elsewhere in Asia-Pacific. India, South Korea, Japan, and Brunei have already imported small volumes of Canadian TMX crude in 2024. A question of acidity But other Asian refiners have so far been reluctant to step up their heavy sour TMX crude imports because of concerns over the high acidity content. China has been mainly taking Access Western Blend (AWB), which has a total acid number (TAN) as high as 1.6mg KOH/g. Acid from high-TAN crude collects in the residue at the bottom of refinery distillation columns where it can corrode units, which deters many refineries from processing such grades. But Chinese refiners have been able to dilute the acidity level by blending their AWB cargoes with light sweet Russian ESPO Blend, allowing them to save costs compared to buying medium sour crude from the Mideast Gulf. Cold Lake, the other grade coming out of the TMX pipeline, has a lower TAN and is currently popular with refiners on the US west coast. But higher costs from potential tariffs could prompt Cold Lake exports to be redirected from the US to buyers in South Korea, Japan, and Brunei — which had all bought the grade previously. Canadian crude appears to have so far displaced medium sour grades in Asia-Pacific, and this trend is expected to continue should TMX crude flows to the region climb higher in 2025. More Canadian crude heading to Asia may displace and free up more Mideast Gulf medium sour supplies to buyers in other regions, including US refiners looking for replacements to their Canadian crude imports. This will also limit the flows of other arbitrage grades like US medium sour Mars crude to Asia-Pacific, which has already seen exports to Asia dwindle in 2024. Opec+ is also due to begin unwinding voluntary production cuts in April 2025, which means Canadian producers will likely have to lower prices sufficiently to attract buyers from further afield. By Fabian Ng TMX exports from Vancouver (b/d) Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Find out more

News

Crude production resumes at Karoon’s Brazil Bauna field

24/12/24

News

24/12/24

Crude production resumes at Karoon’s Brazil Bauna field

Sydney, 24 December (Argus) — Australia-listed oil producer Karoon Energy has restarted its Bauna project offshore Brazil, the firm said today. Output resumed late on 22 December local time, Karoon said. This followed the repair of one of two mooring chains tethering its floating production, storage and offloading (FPSO) vessel, which failed on 11 December , leading the company to cut its 2024 guidance to 27,600-28,100 b/d of oil equivalent (boe/d), down from an earlier 28,700-29,500 boe/d. The second mooring chain is expected to be repaired by mid-January, Karoon said. An investigation into the failure will be jointly undertaken with FPSO owner and operator Ocyan, and its joint-venture partner Altera Infrastructure. Bauna production was about 24,500 b/d before the shutdown, with Karoon expecting to reach this level again in the coming days. By Tom Major Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Viewpoint: US LPG cargo premiums poised to fall

23/12/24

News

23/12/24

Viewpoint: US LPG cargo premiums poised to fall

Houston, 23 December (Argus) — The booming US LPG export market has fueled record spot fees this year for terminal operators that send those cargoes abroad, but those fees are poised to fall next year as additional export capacity comes online. US propane exports surged over the past two years, hitting an all-time high of 1.85mn b/d in the first quarter of this year, according to data from the US Energy Information Administration (EIA). Terminal fees for spot propane cargoes out of the US Gulf coast hit an all-time high of Mont Belvieu +32.5¢/USG (+$169.325/t) in mid-September. US propane production is expected to grow by another 80,000 b/d in 2025 to 2.22mn b/d while the outlook for domestic consumption is fairly steady, at 820,000 b/d next year — meaning even more propane will be pushed into the waterborne market. But that is dependent on US infrastructure keeping up with the pace of production. US export terminals in Houston, Nederland and Freeport, Texas, have run at or above capacity for the last two years given the thirst for cheaper US feedstock, largely from propane dehydrogenation (PDH) plant operators in China. This demand has created bottlenecks at US docks, and midstream operators like Enterprise, Energy Transfer, and Targa have rushed to ramp up spending on both pipelines and additional refrigeration to stay ahead of the wave of additional production. US gas output spurs LPG exports As upstream producers have ramped up natural gas production ahead of new LNG projects, most producers are counting on LPG demand from international outlets in Asia to offload the ethane and propane the US cannot consume. For the past four years, Asian buyers have been more than happy to oblige. US propane exports to China rose from zero in 2019, when China imposed tariffs on US imports, to an average of 1.36mn metric tonnes (t) per month in January-November 2024, according to data from analytics firm Kpler, making China the largest offtaker of US shipments. US exports to Japan averaged 480,000t per month throughout most of 2024, and exports to Korea averaged 460,000t per month in the first 11 months of 2024. China, Korea, and Japan received 52pc of US propane exports in 2024, up from 49pc in 2020, according to data from Vortexa. Strong demand in Asia has kept delivered prices in Japan high enough to sustain an open arbitrage between the US and the Argus Far East Index (AFEI). Forward-month in-well propane prices at Mont Belvieu, Texas, have remained well below delivered propane on the AFEI. In 2020, Mont Belvieu Enterprise (EPC) propane averaged a $143/t discount to delivered AFEI — a spread that has only widened as additional PDH units in Asia have come online. During the first 11 months of 2024, the Mont Belvieu to AFEI spread averaged a hefty $219/t, leaving plenty of room for wider netbacks in the form of higher terminal fees for US sellers, especially as a wave of new VLGCs entering the global market has left shipowners with less leverage to take advantage of the wider arbitrage. The resulting wider arbitrage to Asia has kept US export terminals running full for the last two years. So when a series of weather-related events and maintenance in May-September limited the number of spot cargoes operators could sell and delayed scheduled shipments, term buyers willing to resell any of their loadings could effectively name their price. This spurred the record-high premiums for spot propane cargoes in September. New projects may narrow premium An increase in US midstream firm investments in additional dock capacity and added refrigeration in the years ahead could narrow those terminal fees, however. Announced projects from Enterprise and Energy Transfer, in particular, will add a combined 550,000 b/d of LPG export capacity out of Houston and Nederland, Texas by the end of 2026. Enterprise's new Neches River terminal project near Beaumont, Texas, will add another 360,000 b/d of either ethane or propane export capacity in the same timeframe. These additions are poised to limit premiums for spot cargoes by the end of 2025. Already, it appears the spike in spot cargo premiums to Mont Belvieu has abated for the rest of 2024. Spot terminal fees for propane sank to Mont Belvieu +14¢/USG by the end of November. The lower premiums come not only as terminals resume a more normal loading schedule, but at the same time a surplus of tons into Asia ahead of winter heating demand has narrowed the arbitrage. The spread between in-well EPC propane at Mont Belvieu fell from $214.66/t to $194.45/t during November. A backwardated market for AFEI paper into the second quarter of 2025 means US prices are poised to fall more in order to keep the spread from narrowing further. By Amy Strahan Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Viewpoint: Brazil may face road bottleneck in 1Q

23/12/24

News

23/12/24

Viewpoint: Brazil may face road bottleneck in 1Q

Sao Paulo, 23 December (Argus) — The Brazilian soybean harvest and fertilizer deliveries for the country's 2024-25 second corn crop will likely drive first-quarter grain and fertilizer road freight rates higher. Grain freight rates have been unusually low in 2024 because lower international soybean prices discouraged producers from doing business in most months. But market participants expect greater demand for transportation services in export corridors in 2025, as an expected record 2024-25 harvest combines with a US dollar that has strengthening against the Brazilian real, driving export demand. Brazil will produce 166.2mn metric tonnes (t) of soybeans in the 2024-25 cycle, an increase of almost 13pc from the previous season, according to national supply company Conab's third official estimate for the cycle. The 2024-25 soybean harvest in Mato Grosso state — Brazil's largest producer — will total 44mn t, also 13pc above 2023-24 production, according to the state's institute of agricultural economics Imea. Mato Grosso's soybean planting pace for 2024-25 has fluctuated significantly over the growing season, initially advancing slowly because of dry weather, and then speeding up once rains returned. Planting was complete on only 25pc of the almost 12.7mn hectares (ha) expected for the cycle by 18 October, less than the 60pc reached at the same time in 2023 for the 2023-24 cycle. But planting increased by 68.6 percentage points in the following three weeks, totaling 93.7pc by 8 November. As a result, more than half of the soybean planted area in Mato Grosso was carried out in the same three week period. That raises concerns among market participants about high competition for export transportation and available vehicles when all those crops become ready for harvest at the same time, resulting in a logistical bottleneck. Market participants expect lower freight rates for exports during the 2024-25 second corn harvest, set to take place in the second half of 2025. Demand from the Brazilian domestic market will remain at a consistently high level, especially from ethanol units, whose demand for corn was high in 2024, as prices carried a premium to the export market, and also contributed to lower export volumes. This should lead to lower grain freight rates during the second half of 2025, with a significant portion of grain destined to meet the Brazilian industry's needs. Corn ethanol production in Brazil is expected to total 7.2bn liters (124,865 b/d) in the 2024-25 cycle, a 22pc increase from 5.9bn l in the previous cycle, according to Conab. The company projects that 1t of corn can produce around 400l of ethanol, which means that approximately 18mn t of corn will be consumed by the ethanol industry. Brazil is expected to produce around 86.2mn t of animal feed in 2024, 2.3pc more than it did in 2023, according to the sector's national union Sindiracoes. This should stimulate demand for about 55mn t of corn for all animal feed production expected this year. Animal feed production is expected to grow further in 2025 to 87.8mn t. Ferts freight rates may also increase Fertilizer transportation may face logistical bottlenecks to move inputs from ports to crops in early 2025 because of the slow pace of fertilizer purchases, especially nitrogen, for the 2024-25 second corn harvest. With the purchase window coming to a close by the end of December, market participants estimate that these nutrients have to arrive at Brazilian ports by early January, so that they can be transported in time for application during the grain harvest. That may also increase competition for vehicles in the first quarter of 2025, especially in January, when the supply of trucks is reduced following end-of-year festivities. Under these circumstances, higher fertilizer freight rates and higher costs for road logistics are expected. By João Petrini Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Viewpoint: Europe’s refiners eye support from closures

23/12/24

News

23/12/24

Viewpoint: Europe’s refiners eye support from closures

London, 23 December (Argus) — Another tranche of European refining capacity will close for good next year, but the reprieve for margins in the region may only be temporary. Nearly 400,000 b/d of capacity, around 3pc of Europe's total, is scheduled for permanent closure in 2025, comprising Petroineos' 150,000 b/d Grangemouth refinery in Scotland, Shell's 147,000 b/d Wesseling refinery in Germany and a third of the capacity at BP's nearby 257,000 b/d Gelsenkirchen refinery . Around 30 refineries have closed in Europe since 2000. Among the most recent was Italian firm Eni's 84,000 b/d Livorno refinery in northern Italy earlier this year. And only this month, trading firm Gunvor announced it is mothballing its small upgrading refinery in Rotterdam . The Rotterdam facility had already stopped processing crude in 2020, leaving it peculiarly exposed to the margins between intermediate feedstocks and finished fuels. The refinery has been hit by a 25pc increase in operating costs in the last four years and a squeeze on margins, the latter the result of competition from new refineries outside the region, Gunvor said. Outside Europe, the world has added more than 2.5mn b/d of crude distillation capacity in the last three years. Three brand new refineries have come on stream in the Middle East in that time — Saudi Arabia's 400,000 b/d Jizan, Kuwait's 615,000 b/d Al-Zour with Oman's 230,000 b/d Duqm refineries. More recently, Nigeria's 650,000 b/d Dangote refinery, Mexico's 340,000 b/d Olmeca refinery and Yulong Petrochemical's 400,000 b/d refinery in China's Shandong province started up, all of which are likely to ramp up throughput in 2025. Refinery closures tend to support margins for those that remain. But European refiners' costs continue to rise while demand for their products falls, which means next year's closures are unlikely to be the last. Simpler and smaller refineries are prime candidates for closure as they usually achieve weaker margins. Europe also has plenty of refineries built before 1950 that are still running. These older plants can be more at risk of accidents and breakdowns. And repairs can sometimes cost so much that they tip a refinery into the red. An ongoing concern for European refiners is the trend towards lighter and sweeter crude slates , driven by supply-side dynamics, which is resulting in higher naphtha yields at a time when demand for naphtha from Europe's petrochemical sector is under pressure from a contraction in cracking capacity. But many in the market expect the greatest pressure in 2025 will fall on those coastal refineries in Europe that were built to maximise gasoline output. If, as expected, Dangote continues to shrink Nigeria's demand for gasoline imports , these refineries will be hit hardest. Any refinery that cannot desulphurise all of its gasoline output to the 10ppm required for UK or EU usage will be under intense pressure, as west Africa is presently among the only outlets for European high-sulphur gasoline. Strike support One of the strongest supports for European refining margins in 2025 could come in the form of industrial action if new capacity cuts or closures were to be announced. Refinery workers in the region have shown willing and able in the past to organise large-scale strikes, most emphatically in France. The highest diesel refining margins Argus has ever recorded came in October 2022, when the entire French refining system was shut down by strikes. Another trend to watch out for next year is the continuing shift in the ownership structure of Europe's refining sector. The large integrated oil companies that have dominated the industry for so long have been steadily selling European refining assets to independents and trading firms. The latter are nimbler and able to cut costs more ruthlessly. And with many of them not publicly listed, they are less susceptible to pressure regarding their environmental footprints. There could be more instalments in this story in 2025. Sweden's Preem started accepting bids for its Swedish refining assets in the summer of 2024 and Russia's Lukoil is considering bids for its Burgas refinery in Bulgaria. By Benedict George Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Business intelligence reports

Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.

Learn more