US barge suppliers expand fleets to capture petchems export growth

Rising LNG and petrochemicals exports are spurring investments in new barge fleets and suppliers are building larger vessels despite high construction costs, industry experts said.

Petrochemical operators are looking to optimize transport costs for rising gas and petrochemicals production and this is driving demand in new barge capacity.

U.S. liquefied natural gas (LNG) exports are set to rise sharply in 2017 and 2018, due to new export capacity which will turn the U.S. into a net exporter of gas, EIA said in its latest Short-Term Energy Outlook, published in January.

Cheniere's Sabine Pass facility in Louisiana became the first operating LNG export facility in the Lower 48 states in 2016 and capacity is to be expanded this year. Cheniere is now taking supplies from as far away as the Montney shale play in Canada’s Alberta and British Columbia provinces, the company said last month.

“We’re able to build a portfolio of supply from domestic gas producers and take full advantage of the cost-competitive basins across the U.S.,” Cheniere CEO Anatol Feygin said in an earnings call. “In fact, it doesn’t stop at the U.S., as we recently entered into our first supply deal to receive Montney gas.”

In addition, Dominion's 0.82 Bcf/d Cove point liquefaction plant in Maryland is due online in December 2017 while Sempra Energy's 2.1 Bcf/d Cameron LNG and Freeport LNG's 1.8 Bcf/d Gulf of Mexico plants are scheduled to start up in the second half of 2018.

                   US natural gas trade forecast

Source: EIAs ‘Short Term Energy Outlook’ (January 2017).

Rising demand from growing sectors such as petrochemicals is fueling investment in the US barge industry, which serves inland waterways, coastal ports, as well as Alaska and Hawaii.

The U.S. barge transportation market in the US is forecast to grow at a compound annual growth rate of 1.4% during the period 2017-2021, according to analysis published by Research and Markets in February.

President Trump's recent pledges to support industrial projects and reduce regulation are also supporting barge investments, Allen Barrett of Informa Economics, told Petrochemical Update.

“Currently, the U.S. has $160 billion in new manufacturing [projects] scheduled to be or being built...a push to reduce regulations and promote “dirty” industries is very welcome by the barge industry,” Barrett said.

While barge transportation is typically slower than rail networks, barge transport costs can represent half the cost of rail transit and individual barges can transport much larger volumes.

The cargo capacity of an average inland tank barge is equivalent to more than 40 railroad tank cars or 140 tractor-trailer tank trucks.

The inland tank barge market has grown by 1.4% over the last 20 years and 3.0% over the last 10 years, according to Informa Economics’ Barge Fleet Profile 2016 report.

The inland barge fleet is comprised of approximately 18,000 dry cargo barges and 3,850 liquid tank barges.

The coastal market, including Alaska and Hawaii, encompasses approximately 295 tank barges that are 195,000 barrels or smaller.

Source: Kirby Corp

Larger barges

Much of the recent investments in the U.S. barge industry have been in larger capacity vessels, driven by rising oil demand, Barrett said.

Petrochemical shippers primarily use barges of capacity 10,000 to 20,000 barrels and going forward the supply of these smaller barges will be tighter than that of larger vessels, Barrett said.

                                  US domestic liquid barge transport

Source: U.S. Army Corps of Engineers

Texas and Louisiana produce around 80% of U.S. petrochemical output and much of the region's farm industry also uses the inland waterway system to transport farm products.

In 2016, barge supplier Kirby funded capital expenditures of $231.1 million, mostly to support business along the U.S. Gulf Coast.

In late 2016, Kirby took delivery of a new 155,000-barrel articulated tank barge and tugboat unit (“ATB”). The ATB transported ethanol from the Great Lakes to the Northeast on its maiden voyage in late November.

Petrochemicals and chemicals transport provides 49% of Kirby’s revenues, followed by black oil at 25%.

Kirby's current barge construction projects include a 155,000 barrel ATB expected to be delivered in mid-2017, as well as two 4900 horsepower tugboats with delivery expected in 2017 and six 5000 horsepower tugboats with deliveries expected between mid-2018 and late-2019.

Strong orders

Barge construction requires significant investment, particularly in the U.S. where federal shipping regulations inflate prices.

According to the long-standing U.S. Federal Merchant Marine Act (a.k.a. the Jones Act), U.S. domestic cargo transport must use vessels that are built in the U.S. and crewed by U.S. staff.

This means domestic barge suppliers do not compete against international companies, elevating vessel construction and maintenance costs.

“The purchase price for the U.S.-built barges is about four times the price of foreign-built barges,” Research and Markets said in its February report.

Barge suppliers will continue to look for demand from industrial sectors such as petrochemicals to support the high investment costs, Barrett said.

“With all the new manufacturing coming online, the outlook for petrochemical shipments in the barge industry is very good,” he said. “The barge industry is ahead of the industry and is waiting for the supply to come on-line."

By Heather Doyle