Retrofits slow use of expanded canal

The promise that some shipping traders and brokers saw for an expanded Panama Canal to become a new route for large tankers is taking longer to be realized than expected. Many ships must first undergo inconvenient retrofits to transit through the new locks, shipping industry experts said.

The modifications to these bigger oil carriers, which mostly involve fittings such as chocks and bollards that secure the ship’s dock and tow lines, are needed because the new locks that opened in June use tugboats rather than locomotives to pull vessels through.

Although the new standards were pub- lished in advance of the new locks’ opening, the required retrofits come as the shipping industry is already facing financial strain. This adds another wrinkle to an opening already beset by cost overruns and several incidents in which ships scraped the walls of the new canal, raising concerns about its design.

There are more than 900 Aframax tankers in the global fleet and around 500 Suezmax vessels, according to shipping observers. They estimate that between half to more than three-quarters of the vessels, especially those built before 2015, would need retrofits.

Vessels must be dry docked for the refit- tings. While the new parts cost just $1,000 to $3,000 per ship—pocket change in the expensive world of shipping—additional charges associated with the work can tally $100,000 to $150,000, several sources said.

Sandith Thandasherry, chief officer of Navgathi Marine Design and Construction, an India-based vessel servicer, said that so far this year his firm has already completed six retrofits for Aframax tankers with the new Panama route in mind.

Ship servicers must also get approval for their work from the Panama Canal Author- ity and classification societies. Most ship owners are opting to do retrofits during other scheduled dry dock work. The added costs come at a time of rock-bottom ship- ping rates amid global oversupply.

In mid-August, the Greek-flagged Aegean Unity became the first Suezmax tanker to transit the canal. But that ship,

The Obama administration sent Congress a plan to modernize the Strategic Petroleum Reserve (SPR), starting with a sale of about 8 million barrels (MMbbl) from the stash later this year to help pay for the revamp, the U.S. Department of Energy announced.

Under the $1.5 billion to $2 billion revamp plan, three dedicated marine termi- nals would be added to the SPR. Also, aging equipment for oil processing, firefighting and security would be fixed or replaced, all last updated in the late-1990s.

“This equipment today is near, at or beyond the end of its design life,” the DOE said.

Congress created the SPR in 1975, after the Arab oil embargo spiked oil prices, spurred shortage panics and created service-station gas lines. It now holds 695 million barrels (MMbbl) of crude, the amount the country burns in about five weeks. It is the world’s largest government emergency oil reserve.

Besides equipment corrosion from salt air and heavy downpours, the reserve has been impacted by this decade’s U.S. oil boom, which has lessened its ability to speed oil to markets in the event of a disruption. Pro- duction hikes in Texas and the central U.S. have congested pipeline systems, making it difficult for the SPR to release crude without shutting in domestic output.

CONSTRUCTION

TransCanada plans $800 million JV in Mexico

TransCanada Corp. will hold a 50% inter- est in an $800 million marine terminal and oil pipeline project that it plans to build in central Mexico with partners Sierra Oil & Gas and Grupo TMM SAB.

The project includes a marine terminal, a 165-mile refined products pipeline and an inland storage and distribution hub. Sierra Oil & Gas will hold a 40% interest in the project with Grupo TMM holding 10%.

TransCanada said it would build and oper- ate a $2.1 billion natural gas pipeline in Mexico through a joint venture with a unit of Sempra Energy. The Canadian company’s Keystone XL oil pipeline expansion was rejected by President Barack Obama late last year, and the company is struggling with opposition to its Energy East project in Canada.

Magellan’s Houston terminal to handle Panamax vessels

Magellan Midstream Partners LP’s $335 million, 1 MMbbl terminal for refined petroleum products will occupy about 200 acres along the Houston Ship Channel in Pasadena, Texas.

Products handled will include various grades of gasoline, diesel fuel and renew- able fuels.

Magellan initially plans to build a termi- nal with capacity for refined products and ethanol storage, and a new marine dock capable of handling Panamax-sized ships or barges with up to a 40-foot draft. The facility could be expanded to include up to 10 MMbbl of storage and up to five docks, including the potential for Aframax-sized vessels with a draft of 45 feet. Subject to permit and regulatory approvals, the termi- nal will likely become operational in early 2019, the company said.

Magellan is also constructing a 36-inch pipeline between its existing Galena Park, Texas, terminal and the new terminal. The company said it is connecting its existing 18-inch pipeline that runs from Texas City, Texas, to Pasadena to the new facility, and is developing opportunities for additional con- nections to third-party refineries, pipelines and terminals within the Gulf Coast region.