Wednesday, July 15, 2015

Active rigs:

	7/15/2015	07/15/2014	07/15/2013	07/15/2012	07/15/2011
Active Rigs	73	194	186	215	178

RBN Energy: Growing Crude-by-Barge Traffic on the Ohio River.

While Energy Information Administration (EIA) estimates of crude-by-barge traffic between the Midwest and the Gulf Coast have fallen sharply in the past 18 months, shipments down the Ohio River to Texas and Louisiana refineries have increased threefold – peaking at just under 70 Mb/d in May 2015. Growing barge shipments have been accompanied by midstream investment in barge dock facilities – especially in Ohio. Today we discuss increased shipments of ultra light crude condensate to Gulf Coast refineries on the Ohio River.

This series updates previous RBN Energy analysis of crude movements by barge – along the U.S. inland waterway system that includes the Mississippi River system and the Gulf Intracoastal Waterway (GIWW) between Texas and Louisiana. In Episode 1 we first recapped previous RBN coverage of the barge market - describing the 10 - 30 MBbl tank barges that are pushed up and down the river system in unit tows of 2-3 barges by “towboats”. We described how the use of barges to carry crude oil has increased significantly since U.S. crude production from shale took off in 2011. The nations crude pipeline distribution system became congested – particularly in the Midwest where new shale crude from North Dakota competed with oil sands crude from Canada to get to refineries in coastal locations. To bypass this congestion shippers turned to alternatives such as rail and/or inland barges to get their crude to market destinations where prices were higher. In many cases this “workaround” involved loading crude onto rail tank cars and then transshipping it onto barges to make the final leg of the journey to Gulf Coast refineries via the Mississippi River. Crude barge traffic between the Midwest and the Gulf Coast increased 10 fold between 2010 and 2013 – peaking in October 2013 at 158 Mb/d. Since then crude by barge volumes have fallen off just as rapidly – in response to new pipelines coming online to provide a more efficient route to market.

At the same time, crude price differentials that previously justified the higher cost of barge transport (subject to Jones Act regulations that increase shipping costs) narrowed during 2013 and have not recovered since. As a result barge traffic on the Midwest – Gulf Coast route was down to 27 Mb/d - 80% below its peak – by April 2015. In this episode we look at growing barge traffic on the Ohio River carrying lease condensate (categorized by EIA as crude oil) from the Ohio Utica.

The data tells us that total crude/condensate shipments increased steadily on the Ohio River from 3.5 Mb/d in January 2014 to 20 Mb/d in December 2014 – averaging 13 Mb/d during 2014. During the first half of 2015, however, average crude by barge movements increased threefold to 39 Mb/d – peaking at nearly 70 Mb/d in May. You can also see from the chart that the vast majority of these shipments were from West Virginia to Louisiana (light blue) and from Pennsylvania to Louisiana (purple). These two combinations represented 84% of the shipments by volume during 2014 – increasing to 92% in the first half of 2015. And the trend in this data is quite different to what we saw for Midwest (PADD II) to Gulf Coast (PADD III) barge shipments in Episode 1 - where volumes peaked in October 2013 and have been falling ever since as new pipeline capacity came online to compete with more expensive (rail and) barge transportation. Also of note – the peak shipments on the Ohio River this May represent just under half of the peak traffic volume seen between the Midwest and the Gulf Coast (158 Mb/d).