How Will an Easing-Off of the Crude Export Ban Affect Tanker and ATB Markets?

Recently, members of the Obama Administration, most notably U.S. Energy Secretary Ernest Moniz, have acknowledged that the United States might not possess the refining capacity necessary to handle the stream of shale oil from formations in North Dakota and Texas.

Said Moniz at a press conference following the Clean Energy Ministerial Conference in South Korea, “The nature of the oil we’re producing may not be well matched to our current refinery capacity.”

Some observers of statements like the one from Moriz, believe that the White House might be shifting gears, getting closer to relaxing the ban on crude oil exports, which could greatly impact the crude and products tanker markets both domestically and abroad.

President of Greek tanker operator, Navios Maritime Acquisition Corp, Ted Petrone, mentioned the export ban during an owner’s first-quarter conference call, stating, “Since US crude oil exports are prohibited by law, the US has increased its total products exports by over 300% to about four million bpd since 2004. US exports have exceeded imports consistently since 2011.”

Petrone went on to state that “U.S. Gulf refineries, which benefit from inexpensive domestic crude and natural-gas supplies, are finding a natural export market to neighboring Mexico and Latin America, as well as Africa. U.S. product imports have declined over the past couple of years but continue to come from further away, adding to products tanker tonne-miles. The fundamentals of the product tanker trading patterns continue to adjust in relation to all these changes.”

Though the surge in U.S. crude production has caused a spike in the demand for Jones Act tankers, barges, and tugs, many brokerages claim that the effect of an easement on the ban would be minimal, at best. According to one researcher with MJLF & Associates, though some domestic operators predict a “nightmare scenario” wherein freight rates are cut in half, he doesn’t feel that the outcome will be so severe.

Said the researcher, “If the ban were lifted or even just eased, which is probably more likely in the immediate term, yes, some US crude would be exported to markets in Asia and Europe but it’s important to remember that crude typically moves to the closest refining regions. So if the ban were lifted, I think you would still see crude moving from the U.S. Gulf to places like the U.S. Atlantic Coast on Jones Act vessels. There would definitely be some upward pressure taken off the current rate structure but I don’t think rates would crash entirely.”

The increased demand for Jones Act tonnage has led to a surge in tanker and articulated tug-barge orders, vessels that must be built by U.S. shipyards, be crewed by U.S. citizens, carry a U.S. flag, and be owned by a U.S. company, if they want to participate in transporting crude and refined products domestically. There are currently 11 product tankers under construction at Aker Philadelphia and General Dynamics Nassco.These vessels have a combined capacity of over 3.5 million barrels, which will increase the capacity of U.S.-flagged tankers by nearly 33 percent in the next few years.

Commentator Tim Colten asserts, “Two years ago, the Oil Pollution Act of 1990-driven renewal of the Jones Act fleet of tank vessels was essentially complete. Since there had been almost no growth in Jones Act tank vessel trading for decades, it was reasonable to expect that it would be a while before there was another surge in new construction but now we have upheaval.”

With many calling the Jones Act into question and threatening Jones Act protections recently, it is vital that we remember why the law was enacted in the first place, and that we pay attention to the benefits the United States gains from this law.