Back To The Kinder Morgan Ocean-Going Tanker Story

Updates

January 7, 2014: whoopee! Just as I said, regarding the Kinder Morgan Energy/tank company story. Motley Fool has a piece on this same story and comes to same conclusion!  

So while Enterprise and Buckeye stick closer to the mainstream in the midstream sector, Kinder is again cutting a slightly different path. Keep an eye on this transaction and its performance after it's consummated. Kinder might just use its "bird's eye" view of the oil and gas industry to put more money to work in the Jones Act area if the deal works out well. 

Original Post

On Christmas eve I happened to post a story, actually a response to an article in SeekingAlpha. It had to do with Kinder Morgan's purchase of two tanker companies. This was the purchase:

Kinder Morgan Energy will spend $962 million in cash to buy two tanker companies as the transportation and storage company expands its shipping business.

American Petroleum Tankers has a fleet of five tankers that can hold 330,000 barrels of cargo.

State Class Tankers has commissioned the construction of four tankers that hold 330,000 barrels of cargo. They are expected to be completed in 2015 and 2016. 

I made some comments, thinking out loud, behind the strategic thinking on this purchase.

Don sent me an interesting link to a thread over on the Yahoo!Finance MDU board which probably connects the dots better than I did. The link takes you to a Wall Street Journal article: Asian refiners get squeezed by US energy boom. 

Asian oil refiners have become significant players in the global market for liquid fuels, thanks to investments in large, modern facilities. But they are facing growing pressure from a previously unlikely region—the U.S. Refiners in the U.S. have gained access to relatively inexpensive domestic shale oil and Canadian crude, which is giving them a competitive edge in the export market for fuels such as gasoline and diesel.

Rivals in Asia started feeling the pressure when tankers leaving U.S. ports started unloading cargo in Europe and South America. Now the U.S. companies are starting to venture into Asia. BP PLC and Vitol Group SA in recent weeks have sold U.S. jet fuel to Chinese buyers, according to Singapore-based traders, reversing the usual flow and underscoring the impact that unconventional oil is having on the global fuel trade.

Japanese utility Tokyo Electric Power Co. said in February that it would import 200,000 tons of liquefied petroleum gas from U.S.-based Enterprise Products Partners EPD  between 2013 and 2016. The deal makes sense for Tepco, which has had to sharply increase its purchases of hydrocarbons since suspending operations at its nuclear power plants in the wake of the March 2011 earthquake and tsunami.

Recently RBN energy had a piece on global propane prices, and here's another reference:

Propane, for example, costs around $620 a ton in the U.S. compared with more than $1,000 a ton in China. The price difference for butane is even wider, according to DNB Bank.

For more, see this Market Realist story on how soaring US propane exports are affecting prices.

Currently, domestic propane trades at a discount to international propane. This is because domestic propane production has continued to grow and despite a growing amount of propane exports, export capacity has been limited by a lack of infrastructure. However, this price disparity provides an economic incentive to build the necessary infrastructure to export propane. Midstream companies have already announced projects to build or expand propane export terminal facilities, which should result in increased propane exports and support for propane prices.

This year Enterprise Products Partners finished an expansion of an export facility earlier this year and current propane deliveries are over 7.5 million barrels per month. EPD also recently announced an expansion project that will add 1.5 million barrels per month of capacity starting 1Q15. Additionally, the company announced construction of a second export terminal on the Gulf Coast with initial loading capacity of 6-6.5 million barrels per month of propane or butane, expected to be in service 4Q15. In total, the company expects to have loading capacity of 15-16 million barrels per month of low ethane propane and/or butane at its marine terminals.

Interesting, huh? Puts the Kinder Morgan ocean-going tanker story in perspective. I'll leave readers with this:

Until recently, U.S. oil products mainly went to markets that were relatively close to refining centers in and around the Gulf of Mexico, where more than 40% of U.S. refining capacity is located.

Brazil, for example, has been buying more U.S. diesel, displacing at least three shipments a month from Asia, according to oil traders. Traders estimate U.S. diesel deliveries to Europe have doubled to around 1.3 million barrels a day over the past year. Overall, European imports have remained relatively stable at between three million and four million barrels a day.

That has undermined the profitability of fuel sent to Europe from Asia, Russia and the Middle East. The more-recent forays of U.S. shipments to Asia could become more common once an expansion of the Panama Canal is completed in 2016, likely cutting shipping costs and further increasing the price competitiveness of U.S. exports.

Readers should go to the linked article for the full story.