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Tanker Market: New Pipeline Could Spell New Trouble for Tanker Owners

The new Dakota Access Pipeline could spell a shift in demand for tankers and ship owners could face new trouble in the North American market, said Gibson in its latest report. In its latest weekly report, Gibson said that “earlier this month the long-awaited and at times controversial, Dakota Access Pipeline (DAPL) came into commercial service. At 1,172 miles in length, crossing four states and with a throughput of 520,000 bpd, the pipeline could have significant implications for crude trade in North America. Primarily transporting crude oil from the Bakken and Three Forks fields in North Dakota, the pipeline provides a crucial link to domestic refiners and also potential export opportunities”.

According to the shipbroker, “once crude arrives in Illinois via the DAPL several options become available. Firstly, barrels can be piped from storage facilities further south into Texas on existing pipelines to the US Gulf for export. Crude exports from the United States have been growing steadily in recent years and the opening of the DAPL will no doubt further boost export opportunities. North Dakota crude is light sweet which has proved popular in the export market, with small batches already being sent to Asia and Europe, according to data from Platts. South Korean and Chinese refiners have imported US grades recently for testing. Several Asian refineries have reported that Bakken origin crude is distillate rich and low sulphur, which could feed comfortably into Asian refineries”.

Gibson added that “the second option available is to feed into the domestic refinery system in the Midwest. With increasing volumes of crude arriving in Illinois, Midwest refineries are pushing for a change in directional flow to the existing Laurel pipeline which could impact on crude and product trade in the Atlantic. The 350-mile Laurel pipeline currently flows from East to West, connecting East Coast refineries and product from New York Harbour to Pittsburgh. Midwest refiners want to change the direction on a section of Laurel Pipeline enabling them with regular access to the Pennsylvanian market to supply with products. East Coast refiners fear that the approval of this could lead to the reversal of the entire pipeline, leaving Midwest refiners to serve the East Coast and even send product into New York harbour, a major product trading hub. This would potentially displace seaborne imports of gasoline into the USAC as Midwest refiners would have access to a cheap domestic crude source and are confident of lowering gasoline prices throughout the region”, Gibson said.

The shipbroker went on to note that “East coast refiners currently provide around one-fifth of gasoline demand on the East, with the rest met by a mixture of pipeline imports from the US Gulf (Colonial pipeline) and imports from Europe and Canada. If Midwest refiners were granted access to the Laurel pipeline and this did presage a full change in directional flow, it could prove disastrous to East Coast refiners. Some state lawmakers and some refiners in Philadelphia have provided vocal opposition to any change in directional flow”.

Gibson concluded that “in terms of impact on the tanker market, a potential reversal on the Laurel pipeline could prove particularly painful. As East Coast refiners import most of their crude from West Africa and South America, these imports could be reduced if Midwest refiners increase throughput and are able to displace product from East Coast refiners into Pennsylvania. Furthermore, if Midwest refiners are able to place product into the US East Coast and New York harbour, this could prove detrimental to TC2 flows from Europe. However, as with any major infrastructure deal, opposition is highly likely. As an example of how difficult it can be, the bumpy road of the DAPL offers ample warning to all concerned”.

Meanwhile, in the tanker market this week, “modest VLCC enquiry as Charterers concentrated upon mopping up their remaining June needs and awaited confirmation of July programmes. Rates drifted sideways with ws 50 to the East effectively the ceiling by the week’s end with mid ws 20’s still the zone for the West. Things should become busier next week, but availability looks easy enough to limit any positive reaction. Suezmaxes also only enjoyed demand merely sufficient to anchor rates at down to ws 67.5 to the East and ws 25 to the West with little sign of any early change. Aframaxes completed the downbeat picture with thin volume allowing for rates to be chipped lower to 80,000 by ws 95 to Singapore and again, no realistic turnaround in near sight”, the shipbroker concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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