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(Reuters) - Thanks to the U.S. shale energy boom, the once-quiet niche of U.S.-flagged oil tankers is in unprecedented flux.
A half-dozen vessels that typically carried gasoline to Florida are now rushing crude oil along the Texas coast. Major investment at the port of Corpus Christi, which now exports more than half of all Eagle Ford shale oil, suggests more to come even as new pipeline projects promise further market shifts.
The shale oil revolution, now in its third year, has already scrambled the inland U.S. crude market, forcing pipelines to reverse direction and fuelling a revival in railway oil trade.
Since the start of this year, the U.S. oil tanker industry has jumped into the act, with traders including BP (BP.L) and Royal Dutch Shell (RDSa.L) racing to charter a handful of the three-dozen U.S.-flagged tankers permitted, per a century-old law called the Jones Act, to carry oil between U.S. ports.
The trade is helping Gulf Coast refiners such as Valero (VLO.N) cut costs and wean plants off imported sweet crude.
Christos Papanicolaou, director of business development for the Greenwich, Connecticut-based shipbroker Charles R. Weber Co Inc, said it's the first time the Jones Act market has been clearly profitable in the 20 years he has worked in shipping.
"The cost of entry and the duration of contracts were such that any venture was a leap of faith," he said. Investment in the Jones Act trade required hiring expensive unionized crews with no guarantee the ship would find a fixture.
"Nobody wanted to trade in the U.S., because there was no oil here."
Shale oil has changed that abruptly, specifically Eagle Ford in south Texas, where output swelled from near zero to more than 500,000 barrels per day in three years. Unlike the land-locked Bakken of North Dakota, the field is less than 100 miles (160 km) from the Gulf of Mexico and the "refinery row" that lies along the Texas-Louisiana coastline.
While markets have largely adapted to changes in inland trade patterns, the flux in tankers is still evolving. Each new train terminal or pipeline threatens to rewrite the economics of seaborne trade; limited tanker supply and rising rates are squeezing traditional routes like shipping fuel to Florida.
Since February, the number of ships plying the route from crude-loading hubs in Houston and Corpus Christi to eastern Gulf Coast ports such as Beaumont, Texas and the Louisiana Offshore Oil Port (LOOP), has jumped to six from one. Daily rates for those ships have risen 50 percent over the past year to historic highs, boosting profits for operators such as Crowley Maritime Corp and Overseas Shipholding Group OSGIQ.PK.
While the eastern Gulf Coast is a refining hub, pipeline capacity to move oil from west Texas is limited and the region has relied largely on imports. Shipments from the port of Corpus Christi have surged from near zero to more than 340,000 barrels per day, over half of total Eagle Ford output, in the past year. Two-thirds of that oil has remained in the Gulf, with much of the rest heading to Canada, shipping data shows.
The Jones Act requires ships moving between U.S. ports to be U.S.-owned, U.S.-made, and U.S.-crewed, making them three times more expensive than foreign-flagged vessels. The majority of large Jones Act tankers and coastal barges in use take refined products such as gasoline from the Gulf Coast to Florida, which is far from refinery centres and not linked to any pipelines.
Fewer than 40 are oceangoing tankers able to carry 235,000 barrels or more; smaller articulated barges and 11 Alaska-trade tankers make up the rest of the 300-strong coastal fleet.
More Jones Act tankers and barges for the non-Alaska trade are on order, but the new tonnage will not be delivered until 2015. That's partly due to backlogs at the few commercial U.S. shipyards, which include Aker Philadelphia Shipyard AKPS.OL and General Dynamics (GD.N) NASSCO in San Diego.
Limited supplies have traders competing fiercely to charter vessels, and the percentage of ships in long-term charter has gone from around 20 percent to 100 percent over the past year.
Rates for medium-range 330,000-barrel tankers used in the Gulf Coast trade have risen from $45,000 to around $75,000 a day, excluding fuel costs of another $25,000 a day when the ship is in transit, shipbrokers said.
Rates are so high that "the most profitable area right now for a Jones Act tanker owner is to relet it out and ship gasoline to Florida by barge," said Donald Bogden, director of research at Stamford, Connecticut-based shipbroker MJLF.
When a tanker does open up in the spot market or for relet, the day rate can reach $100,000 before fuel, brokers say. ExxonMobil (XOM.N) paid that near-record sum in June when the American Phoenix was relet, shipping brokers said.
"Because of the changing dynamics of the crude oil market in the U.S., most of these vessels that were designed to move petrol products have been trading crude oil," said Basil Karatzas, president of Karatzas Marine Advisors, a shipping finance firm based in New York.
"That's primarily the reason the Jones Act tanker market is so hot right now."
The switch in Jones Act traffic has come on fast, as the profit opportunities from the short-haul Gulf Coast cabotage trade upended expectations late last year that the ships would carry Texas crude to East Coast refiners or gasoline to Florida.
"It suggests that (the western Gulf Coast area) is the most acute bottleneck at the moment," said Julius Walker, global energy markets strategist at UBS in New York.
In the six months through June 6, Jones Act vessels have moved over 22.5 million barrels of oil from ports around Houston and Corpus Christi to nearby Gulf Coast refineries compared with around 4.6 million in the six months prior, according to calculations by Reuters based on historical vessel tracks.
A trip from Corpus Christi, which takes much of the Eagle Ford crude, to Nederland, Texas refineries, takes about a week.
Carrying 340,000 barrels at a time, the Overseas Texas City, a Jones Act vessel chartered by BP, made 18 trips in the 180-day period analyzed by Reuters, delivering more than 6.15 million barrels. When BP relet the tanker in January 2013 from Conoco (COP.N), it had been carrying refined products, or "clean" fuel, to Florida, vessel track data suggests.
Three of the ships plying the inter-Gulf Coast crude oil trade are on charter to Shell, two to BP, and one to Conoco, brokers said. The companies declined to comment.
At a per-day rate of $75,000, it costs around $2 per barrel to ship crude from the western Gulf Coast to oil centres such as Port Arthur and Beaumont in Texas, or LOOP, according to Reuters calculations.
The rapid build-out in infrastructure suggests more changes ahead for Gulf Coast shipping. If more tankers taking fuel to Florida switch to carrying oil, it may have to import gasoline. The state already buys much of its jet fuel, diesel and ethanol from countries like Venezuela, South Korea and the Netherlands.
Corpus Christi port, meanwhile, is in the midst of a multi-year expansion that will add eight docks to its current 27 by June 2014 and 10 million barrels of crude tanker storage, a 33 percent gain, suggesting plans for even greater seaborne trade.
But some refiners currently taking Eagle Ford crude by tanker may soon have cheaper options. By the end of 2013, the reversal of a crude pipeline from Houston to Houma, Louisiana, will pump up to 250,000 bpd to the eastern Gulf of Mexico for rates as low as 59 cents per barrel.
That capacity would ease some of the sea traffic, but with Houston refiners receiving plenty of shale oil from the Midwest, Eagle Ford oil will likely still need a seaborne outlet.
"The growth in crude production has been so far beyond what anyone anticipated that the infrastructure just isn't there to deal with it," said Andrew Weissman, senior energy adviser at law firm Haynes and Boone in Washington, D.C.
Reporting by Anna Louie Sussman; Editing by Jonathan Leff, Matthew Robinson and Dale Hudson