Vessel Forecast Update-Houston-Galveston Vessel Arrivals

Actual vs Forecast – An Interim Update and Current Outlook

Original Forecast

In late 2013, the Captain of the Port (COTP) asked if the maritime community could develop a multi-year projection of vessel arrivals for the four ports in the Houston-Galveston COTP Zone (Freeport, Galveston, Houston, and Texas City). The Port Bureau worked with industry to evaluate and compile a forecast of vessel arrivals for 2014-2020. The forecast was published in the September 2014 edition of the Port Bureau News.

This forecast was created as the weighted average of three scenarios:

  • Base case (30% probability): the continuation of the economic, political, and shipping conditions existing in 2014;
  • Crude oil export case (50% probability): relaxation or repeal of the domestic crude oil export prohibition; and,
  • Quick growth case (20% probability): a quick spurt of economic growth.

The forecast projected vessel arrivals to increase from 11,300 ships in 2013 to about 12,000 at the end of 2017, and to just under 12,500 ships by the end of 2020. Overall, this projected an increase of 1,200 ships per year or about 3 each day.

Comparison of the Forecast to Actual Ship Arrivals
The actual number of ships calling at the COTP Zone from 2014 to 2017 remained relatively constant at 11,000 to 11,300 ships. When compared to the 2014 forecast, actual vessel arrivals each year were consistently below the values established for the weighted average case, ranging from -2% in 2014 and increasing to -9% for 2017.

Over the historical period 2011 to 2017, the COTP Zone averaged 11,233 ships a year with a high to low range of 325 ships. About 75% of the arrivals went to Houston, 10% to Texas City, and the remainder split evenly between Galveston and Freeport.

From 2011 to 2017, the COTP Zone saw a 1% decline in vessel arrivals. While not a significant change in total, the mix of the types of ships

hat called at these local ports is indeed noteworthy. Specifically, the ports experienced a decline in the arrivals of crude oil tankers, general cargo ships, and bulkers. This was less than offset by the increase in the arrivals of gas carriers, chemical ships, and refined products carriers.

Summarizing vessel arrival activity at the four ports from 2011 through 2017:

  • Freeport: Relatively balanced through 2015, then increasing by 157 ships by the end of 2017 driven by LPG carriers, containerships, and roll-on roll-off vessels; all part of the recently expanding business activity at Freeport.
  • Galveston: Slight decline of 54 vessel with fewer arrivals of bulk carriers and general cargo ships.
  • Houston: Initial increase of 340 ships between 2011 and 2012, composed of ATBs, general cargo ships, and LPG carriers, was moderated from 2012 through 2017 by a decline in general cargo ships, containerships, and oil tankers; net total gain of 154 vessel arrivals.
  • Texas City: Decline of 401 ships as the need for foreign crude oil imports delivered aboard oil tankers was replaced by domestic crude oil delivered by pipeline.

Drivers

The oversupply of domestic crude oil and natural gas resulting from successful enhanced recovery techniques has altered the
international logistical landscape forboth oil and natural gas. Today, these commodities are surplus to domestic requirements and are actively seeking international markets.

The U.S. refiners’ appetite for low sulfur-high gravity crude oil, which is less than the total of U.S. crude oil production, is now entirely satisfied by domestic resources, eliminating foreign imports of these crude oils.

In addition, U.S. refiners continue to see an economic advantage in processing foreign-sourced high sulfur-low gravity crude oils, and imports of these grades continue. As a result, the net difference between total U.S. oil production and U.S. refiner demand for high quality crude oils remain surplus to the needs of the domestic market and is seeking outlets overseas. However, with about 45% of U.S. crude oil exports moving overland, the number of ships necessary to meet the waterborne crude oil export demand has been less than the number of ships lost due to reduced foreign crude oil imports by 1:1.8. Thus, the overall number of crude oil tankers arriving at the ports in the COTP Zone has declined accordingly.
With an oversupply of domestic crude oil and natural gas continuing, the pricing advantage for both U.S. refineries and chemical manufacturers that began a decade ago endures, and export activity for both refined products and chemicals are maintaining a constant market advantage. Consequently, vessel arrivals for product carriers and chemical tankers have remained relatively constant over the last seven years.

Increased natural gas production has also significantly increased the availability of NGLs; specifically, ethane and propane, both of which are exported. As a result, vessel arrivals of LPG carriers have more than doubled between 2011 and the end of 2017.

The 50% drop in the price of oil from late 2014 through today has reduced the need for imported steel to support oil industry infrastructure. The economics of oil drilling have been currently altered and the cash flow of oil producers have been significantly reduced, thus limiting capital investment. This resulted in a reduced need for both general cargo ships and bulkers, and the number of vessel arrivals recorded for these two ship types declined, especially since 2014.

Current Outlook

Looking forward, vessel arrivals to the COTP Zone are expected to gradually increase from the current level of around 11,000 ships to 11,400 ships per year (+/- 100) from 2018 through 2020. This equates to about 30 vessels per day currently, increasing to 31 or 32 per day through 2020.

During the next few years, bulkers and general cargo ships could increase slightly as the oil price floats upward and capital spending by the oil companies increases. This will drive steel imports and could rejuvenate project cargoes.

Arrivals of crude oil tankers could range from being either relatively flat or become highly variable, depending on the interaction between the number of ships involved in importing and exporting crude oil. If crude oil tankers arriving laden find re-employment after completing discharge of the inbound cargo by loading domestic crude oil for export, then this activity will be optimized. Consequently, the number of ship arrivals would remain relatively constant as the ship re-loads at the same port prior to departing. On the other hand, to the extent that foreign crude oil imports and the export of domestic crude oil are non-synchronous, imports and exports would require their own vessels with one direction of the voyage in ballast. In that scenario, vessel arrivals, as well as traffic on the ship channel, would increase, perhaps significantly. Reality is somewhere in between.

Refined product tanker arrivals will remain relatively static since the total supply of refined products composed of domestic demand of around 17 MMBD coupled with the current U.S. refined products exports of about 3 MMBD is pushing the limits of existing refining capacity. Limited growth is projected.

Chemical tankers will offer some growth in terms of vessel arrivals as the chemical business continues to grow, but at a somewhat lesser rate.

The number of containerships arriving at both Freeport and Houston could increase, pending construction completion of several new ethane steam crackers and ethylene-to-polyethylene plants throughout the region. Assuming the optimum containership has a capacity of 8,000 TEUs on a draft of 45’ and the seaborne export expectations for polyethylene of 4.6 billion pounds a year is realized, approximately 92,000 containers would be required. This equates to 11.5 containerships arriving each year, split between Houston and Freeport.

With regard to natural gas, the tremendous increase in U.S. natural gas production has resulted in a switch from the U.S. being a net importer to being a net exporter over the last five to eight years for both NGLs and LNG. Houston is the primary port for NGL activity and U.S. propane exports from the area currently enjoy a market share of about 70%. The recent addition of propane export capability at Freeport will add to further support the Texas Gulf Coast as the key hub for LPG activity. In addition, Houston is a key participant in the international ethane market emanating from a recently completed ethane export facility at Morgan’s Point. With U.S. natural gas production forecasted to continue to grow, NGL exports will also rise. To meet this growth, LPG carriers will continue to increase, albeit at a slightly lesser growth rate going forward.

The only facility within the Houston-Galveston COTP Zone handling LNG is Freeport LNG, currently under construction at Freeport. This facility will be composed of 4 LNG trains, with each train having a capacity of 5 million metric tons a year. The first train is expected to be online by late 2018 or early 2019, with the other trains following every 6 to 9 months thereafter through 2021. Once online and running at capacity, each train would be capable of loading about 35 LNG tankers a year, with each ship carrying 175,000 cubic meters on a fully laden draft of 40’. By about 2021, total LNG tankers arriving at Freeport could ultimately reach 140 ships a year, or 12 ships a month.

Vessel arrivals of pure car carriers and roll-on roll-off vessels will continue at a relatively steady level delivering motor vehicles to the ports of Houston, Galveston, and Freeport.

Passenger ships arriving at Galveston will continue to evolve as the cruise lines adjust the capacity of the Galveston roster.

Conclusion

In the near term (through 2018), growth in the aggregate number of ships projected to arrive at the four local ports that comprise the Houston-Galveston COTP Zone is expected to increase slightly. The mix of ships is dependent on relative economic conditions, especially within the oil and gas industry. Growth during the following two years could remain somewhat muted or become volatile with an upward bias depending on the influence of exogenous factors, such as any non-synchronous timing related to crude oil imports and exports, the on-time completion of the ethane steam cracker projects at Houston and Freeport, and the Freeport LNG venture. Adroit flexibility is the new watchword.

Dave Cooley, GHPB

 

  • Date March 19, 2018
  • Tags 2018 March