WTI crude to be stored on Jones Act tanker

The following is the text of a news release from Argus Media:

(NEW YORK) — The U.S.-flagged Seakay Spirit will be used for 30-day floating storage of West Texas Intermediate (WTI)-grade crude in the U.S. Gulf, shipping sources said.

Seakay Spirit, one of only two U.S.-flagged Aframax-sized vessels operating in the U.S. Gulf that can carry roughly 800,000 barrels, berthed in Houston on March 1 and departed March 2, according to vessel tracking data.

Occidental Petroleum reportedly has Seakay Spirit under a long-term charter at a rate around $120,000 per day. Occidental declined to comment.

Foreign-flagged freight costs are lower than those of U.S.-flagged, or Jones Act, vessels, but regulatory restrictions preclude charterers from booking cheaper foreign tonnage for storage in the U.S. Gulf in most cases. A foreign-flagged vessel that has loaded in the U.S. must either discharge its cargo at the exact same terminal from which it loaded, or export it. A Jones Act vessel, such as Seakay Spirit, may discharge anywhere in the U.S.

The rate for a foreign-flagged Aframax to store crude in the Caribbean is roughly $35,000 per day, almost a quarter of what Occidental Petroleum is reportedly paying to charter Seakay Spirit. Jones Act vessels must be U.S.-crewed and U.S.-built, contributing to the cost disparity.

But since Occidental, which is a major WTI producer, has the vessel on a long-term contract, the company would not be spending significant additional money to use Seakay Spirit for floating storage.

Vessel tracking data shows Seakay Spirit making primarily Houston to Baton Rouge runs in the last five months, but changing price differentials in U.S. crude grades may have made the run less viable.

In March trade, WTI Houston averaged just 38 cents a barrel under Light Louisiana Sweet (LLS), lessening the incentive to ship crude from Texas to Louisiana to be part of the LLS blend. Crude movements out of Corpus Christi in January dropped to their lowest level since March 2014, port data showed, highlighting the decline in waterborne crude movements within the U.S. Gulf.

By Professional Mariner Staff