Trans Mountain Pipeline Aframax Lightering Analysis
May 3, 2024
Earlier this week, Reliance Industries purchased 2 million barrels of Canadian crude from Shell for July delivery. This marks the Indian refiner’s first oil purchase from the Trans Mountain pipeline. Shell will perform ship-to-ship (STS) transfers to move approximately four 500,000-barrel cargoes of Access Western Blend (AWB) onto a VLCC for final discharge to the Sikka port, where Reliance operates the world’s largest refining complex. The 2-million-barrel stem is reported to be $6/bbl less than ICE Brent for September. Therefore, we estimate the crude is sold at ~$80/bbl on the delivered basis as ICE Brent for Sep currently at US $85.73/bbl.
Given the STS lightering operation for 2 million barrels, assumed to be carried out at the Pacific Area Lightering (PAL) zone, we investigated the potential freight structure given today’s environment. Total VLCC freight from PAL>India is estimated to be approximately $5.0 million, or $2.5/bbl. We then add the cost for 4 Aframax lighterings, estimated to be $4.05 million, or $2.0/bbl. The Aframax lightering cost calculation includes the chartering hire rate for the Aframax (currently assessed at $65k/day), MGO bunker costs, Vancouver port costs, and cost to hire a lightering support vessel (LSV). Therefore, total freight cost is approximately $9.05 million, or $4.53/bbl. After considering all these factors, we determine the FOB price at the port of Vancouver to be approximately $75.47/bbl. If we assume TMX pipeline charges of approximately $11/bbl, then the selling price at Alberta is likely to be around $64.47/bbl.
We note this is under the assumption that there won't be any delays at Vancouver or for STS operation. If we assume each Aframax will be delayed by 1 day, it triggers an additional cost estimated to be around US $730,500, or $0.37/bbl.
Importantly, we note that if we assume the max cargo quantity for VLCC carrying this heavy crude grade will be ~280kMT, the barrel calculation will be ~1.85 million instead of 2 million due to the heavy nature of the crude. This will revise our view on whether it's cost-effective to do 4 Aframax lightering versus opting for 3 Aframax lighterings and then leaving dead freight on the VLCC tanker. According to the calculation below, it appears that on the $/bbl basis, using 4 Aframaxes to fill 1 VLCC tanker at 1.85 million barrels will cost $4.89/bbl, while using 3 Afras to fill 1.65 million barrels will have a similar cost at $4.87/bbl.
Table 1 & 2: Aframax Lightering Scenarios
Source: McQuilling Services
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