This article was originally published on RBN Energy by Sandy Fielden
At the end of last year (2013) Kinder Morgan invested nearly $1 Billion to buy five existing Jones Act tankers and four new builds on the way. Two other companies, Crowley Maritime and Seabulk tankers (part of Seacor Holdings) placed orders in 2013 to build six more tankers in the next two years. In all there are twelve new build orders on the books and options for even more threaten to rock the boat for current record high charter rates (over $100,000/day) being enjoyed by the 42 vessel Jones Act fleet. Today we detail the tankers owned by Kinder Morgan, Crowley and Seabulk.
In the first episode in this series we described provisions of the Jones Act that restrict marine transport between US inland and coastal ports to US Flag vessels (see The Jones Act Coastal Trade). Just 42 self-propelled tanker vessels – the majority of which carry about 300 MBbl of refined products or crude oil ply US coastal waters. In this episode we begin a deep dive look at the Jones Act tanker fleet and its owners.
But before we get to the tanker owners, the map below provides a useful bird’s eye view of the routes that Jones Act coastal tankers follow. The blue dotted lines show the actual and potential routes followed by Jones Act tankers. As we learned in the first episode, these routes cover the Alaska trade – down the West Coast from Valdez, AK to refineries in Puget Sound, San Francisco Bay and Los Angeles. From the Gulf Coast Jones Act Tankers deliver crude from Corpus Christi, TX to Houston area refineries and to the Louisiana Offshore Oil Port (LOOP).
Source: RBN Energy (Click to Enlarge)
Tankers also travel further up the East Coast to refineries in the Philadelphia, PA region as well as the Bayway refinery in Linden, NJ. The map also shows the Westbound Panama Canal route from Corpus – a route that has been used recently to ship Eagle Ford crude to the West Coast. In addition the map shows coastal and inland barge routes (red dotted lines) that we cover later in the series and the routes that Non-US Flag vessels can take from Corpus to the East Coast of Canada (green dotted lines).
Crowley Maritime Corp
Crowley is one of the largest independent operators of petroleum barges and tankers in the United States. In August 2012 the company purchased two new “Veteran” class tankers - Pennsylvania (pictured below) and Florida, delivered in September 2012 and March 2013 from Aker Philadelphia Shipyard Inc (APSI), that each have 330 MBbl capacity to carry crude oil, refined products or chemicals. Crowley also operates five more 331 MBbl “State” class MR tankers – the Empire State, Golden State, Pelican State, Sunshine State and Evergreen State on behalf of American Petroleum Tankers (APT – more about them below). In addition to petroleum tankers, Crowley has a fleet of 17 smaller Articulated Tank Barges (ATB’s - more about them later in the series).
Source: Crowley Maritime Website (Click to Enlarge)
In August of 2013, Crowley announced a construction contract with the APSI Philadelphia shipyard to build four additional 330 MBbl tankers for delivery between 2015 and 2016 with an option to build four more by 2017 – making a total fleet of 10 MR Jones Act tankers. Under a joint agreement between Crowley and APSI the latter will invest in the partnership for the first four vessels. Crowley will own and operate the vessels and APSI get a share of chartering revenues.
Seabulk Tankers – Seacor Holdings
Seabulk Tankers, a wholly owned subsidiary of Seacor Holdings, operates and leases a fleet of US flag crude oil, refined petroleum products and specialty chemical vessels. They own seven MR Jones Act tankers. The company operates three of the tankers, the Seabulk Arctic (342 MBbl), Seabulk Challenge (294 MBbl) and Seabulk Trader (294 MBbl). The other four tankers the Florida Voyager (342 MBbl), Mississippi Voyager (342 MBbl), California Voyager (340 MBbl) and Oregon Voyager (340 MBbl) are under long term charter to Chevron. Chevron uses their four tankers to move refined products between ports on the West Coast.
In September 2013, Seabulk signed a contract with General Dynamics NASSCO to design and construct two new 330 MBbl tankers. These tankers will be liquefied natural gas (LNG) conversion-ready, meaning that their engines can switch to natural gas if desired. Upcoming fuel oil sulfur regulations in 2015 will potentially make marine fuel oil more expensive and the flexibility to switch to LNG more desirable (see Yo Ho Ho and a Cargo of Bunkers). Construction of the first tanker is scheduled to begin in late 2014, with deliveries scheduled for the second quarter of 2016 and first quarter of 2017. The tankers will be constructed at the NASSCO shipyard in San Diego.
American Petroleum Tankers - Kinder Morgan Energy Partners
In late December 2013, US Midstream and pipeline giant Kinder Morgan Energy Partners (KMP) announced they will spend nearly $1 billion to move into the tanker business - buying American Petroleum Tankers (APT) and State Class Tankers from affiliates of private equity firms The Blackstone Group and Cerberus Capital Management for $962 million in cash. APT was formed out of the bankruptcy of US Shipping Partners in 2009 and financed by Blackstone Group. The company owns five 330 MBbl Jones Act MR tankers built between 2007 and 2010 that, as we mentioned earlier are operated by Crowley Maritime. State Class Tankers does not currently own any tankers but has four new 330 MBbl MR Jones Act tankers on order from the General Dynamics NASSCO shipyard. Construction of the first tanker is scheduled to begin in the third quarter of 2014, with deliveries scheduled in the fourth quarter of 2015 and 2016. KMP will invest an additional $214 million to complete construction of the new vessels. State Class Tankers have an option with NASSCO to build an additional four tankers.
KMP will not be able to use the existing five APT tankers to move crude oil for its own customers. In fact this is more like a hands-off infrastructure investment with the tankers continuing under Crowley Maritime management. Two of the vessels, the Empire State (pictured below) and the Evergreen State are under long-term evergreen (rolling) contract to the Military Sealift Command (MSC) of the US Navy. As we described in our first blog on the Jones Act in October 2012 (seeThe Sea and Mr. Jones) the Department of Defense can charter Jones Act vessels under the 1996 Maritime Security Program for a fixed retainer whenever they are needed for national security. The MSC currently charters three Jones Act tankers including these two – using them for worldwide navy service.
Source: Crowley Maritime Website (Click to Enlarge)
The three APT tankers not chartered to the MSC are under long-term charter to oil companies. Golden State, delivered in January 2009, is on time charter with BP, trading on the U.S. Gulf Coast; Pelican State, delivered in June 2009, is on time charter with Shell, trading on the U.S. Gulf Coast; and Sunshine State, delivered in December 2009, is on time charter with Chevron, trading on the U.S. Gulf Coast. Although the details are not known, Reuters reported that both Shell and BP are using Jones Act tankers to ship Eagle Ford crude from Corpus Christi to Texas and Louisiana Gulf Coast ports.
If at least two of the APT tankers are engaged in moving Eagle Ford crude along the Gulf Coast, then they are effectively competing with the KMP Crude and Condensate pipeline that also moves Eagle Ford crude to the Houston market (see It’s a Kinder Magic). However KMP investors need not worry themselves too greatly because (according to company filings) the existing five APT vessels generate about $55 MM/yr before interest, taxes, depreciation and amortization and that number will rise to $140 MM/yr when the new builds come online. From that perspective KMP’s move into the tanker business simply expands the number of crude barrels that they are shipping to market.
Next up in this series we will look at Overseas Shipping Group – the largest Jones Act tanker owner as well as the 11 tankers in the Alaska fleet.