Fuel export glut strains ports

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NEW YORK — Record fuel exports are straining the capacity of ports along the Gulf of Mexico, causing congestion at terminals, deepening a glut of gasoline and lowering prices.

But the ballooning supplies haven’t resulted in savings for motorists across the U.S., underscoring the difficulty in transporting products across the country. Pump prices in the region were $3.383 a gallon on Feb. 11, 22.8 cents below the national average, compared with a mean difference of 12.5 cents over the past five years, Energy Department data show.

Distillates leaving the U.S. in the week ended Feb. 1, most of it from the Gulf Coast, climbed 8.7 percent from a year earlier, government data show. Gasoline in the region sank to a record low versus futures in December and the discount yesterday was more than four times wider than the 10-year average, according to data compiled by Bloomberg.

Capacity for sending fuel abroad from ports in Louisiana and Texas is falling short as refiners process more oil than any time since 1990 after the highest U.S. production in two decades swelled crude supplies. Demand from Central and South America will rise three times as fast as in the United States this year, prompting terminal operators such as Kinder Morgan Energy Partners to add docks and storage tanks.

“A lot of extra oil is being refined, especially with demand from Latin America,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Conn. “Gasoline prices are getting hit and that suggests there’s a capacity restraint that’s being imposed. If we see the prices continue to drop, we’ll probably see cutbacks in refinery production.”

The higher output, along with limited refining capacity in Latin America where consumption is booming, is encouraging companies to send more products abroad. That’s increasing demand for dock and storage space, and boosting traffic in areas including the Houston Ship Channel.

Gasoline and diesel output may increase further after a new 325,000-barrel-a-day crude unit at Motiva Resources’ Port Arthur, Texas, refinery started in January and pipelines transport more lower-cost crude from Canada, the U.S. Midwest and Texas.

Latin America fuel demand is projected to increase to 6.76 million barrels per day in the first quarter, up 3.8 percent from 6.51 million barrels from a year earlier, the EIA forecast yesterday.

Money-losing refineries in the U.S. Virgin Islands and Aruba shut down last year, and Petroleos de Venezuela SA’s 645,000-barrel-a-day Amuay plant shut a flexicoker twice in the past month, reducing supply in the region.

“A significant portion of Motiva’s output will go to the export market,” said John Auers, senior vice president of Dallas-based Turner, Mason & Company, a petroleum and refining consulting firm. “Refinery issues in Latin America will grow demand for exports.”

More crude is coming. Enterprise Products Partners and Enbridge’s Seaway pipeline from Cushing, Okla., to the Houston area, along with Enterprise’s Eagle Ford pipeline from South Texas and lines soon to be started by Magellan Midstream Partners and Sunoco Logistics Partners, will increase refiners’ ability to process less expensive oil and swell profit margins.

“The gasoline crack is strong and it’s going to stay strong so they’ll keep producing,” Thomas Finlon, director of Energy Analytics in Jupiter, Fla., said in a phone interview. “The Gulf Coast is the refinery center and they now have pipelines to take more crude.”

Gulf Coast gasoline exports last year through November were 6.2 percent lower than a year earlier, while distillate shipments were up 26 percent, EIA data show.

“We’re seeing a strong export market for distillates from the U.S,” Carl Larry, president of Oil Outlooks & Opinions in Houston, said in a Feb. 5 phone interview. “That market hasn’t wavered. For gasoline, we have higher than normal supplies and we’re not really exporting that much.”

The number of medium-range tankers chartered from the Gulf Coast rose to 131 in January, the highest level on record, according to a report from Charles R. Weber Co., a shipping analyst. The same class of tankers averaged 107 fixtures in the fourth quarter of 2012 and 88 during the third quarter, the report showed.

Terminal operators are planning projects to ease the congestion. Kinder Morgan, the biggest U.S. pipeline operator, plans to add 1.2 million barrels of storage in Houston and a tanker dock, which will be able to handle 12 ships a month, the company said Jan. 14.

“The ports and terminals are congested today, they were congested a year ago and it’s just gradually getting to a point where it’s more and more obvious that this export market is not going away,” Pat Brown, vice president of operations for Kinder Morgan Terminals, said in a phone interview from Houston.

“The docks are clearly the pinch point,” said Brown. “There are only a certain number of docks that exist today and once you use up their capacity and there is still demand coming in, the only way to get out of it is to create new dock space.”

Magellan is also planning to add 600,000 barrels of refined storage space at the Galena Park, Texas, terminal this quarter, said Bruce Heine, a company spokesman. That follows a 1.2 million-barrel project at the site last year.

Oiltanking Partners sees more expansion for gasoline exports this year, said Bo McCall, Houston-based senior vice president of marketing and business development for the company. The Gulf Coast is “oversupplied” and needs “additional infrastructure” to handle export demand, he said.

Refiners are increasing export capacity. Marathon Petroleum completed dock improvements in 2012 at the Garyville, La., refinery that will increase diesel exports by about 50,000 barrels per day. An additional tank for gasoline exports is expected by the end of 2013, spokesman Shane Pochard said in an email. Garyville exported 150,000 barrels a day of distillates in the fourth quarter, compared with 94,000 barrels a day in the year earlier.

Historically, the Gulf Coast imported crude oil and refined products. The resurgence in U.S. oil output to the highest level since 1993 and higher profit margins has allowed refiners to produce more fuel for export.

Now, as outbound ships replace import traffic, more travel by deeper-draft ships and fog that clouds the Houston Ship Channel conspire to slow the export process, according to the Houston Pilots Association and Turner Mason’s Auers.

Gulf Coast imports of crude oil averaged 4.5 million barrels a day in the first 11 months of last year, 8.7 percent lower than the year-earlier period, EIA data show.

“We weren’t set up in the Gulf Coast for all of these exports and that’s caused the slowing of products being sent out,” Auers said. “People see this is a trend that’s going to continue. More money will be allocated to expand terminals and build or reallocate ships but it’s still going to slow the export process for a while.”

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