Texas oil replaces Saudi oil in California?
Texas is poised to join Saudi Arabia as a supplier of oil to California as the mounting glut of crude on the U.S. Gulf Coast makes the trade profitable.
Kinder Morgan Energy Partners LP, the pipeline operator that’s buying U.S. oil tankers, said it’s in talks to ship Texas crude to California through the Panama Canal. The 4,500-mile voyage would cost about $10 a barrel, broker Poten & Partners Inc. estimates, making Texas crude competitive with imports traveling 11,400 miles from Saudi Arabia, the West Coast’s largest supplier, data compiled by Bloomberg show.
Until now, a U.S. law that makes domestic shipping more expensive left Californians buying oil from the Middle East instead. If a shortage of qualifying ships can be overcome, Texas crude will become affordable on the West Coast as the highest domestic output in a quarter century creates a surplus of light oil and drives down prices.
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“The West Coast has been short crude over the last couple of decades with Alaska North Slope and California oil production down,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, said by telephone. “Getting more crude from other areas of North America into the West is going to help refiners, and if you have a big glut of light, sweet crude on the Gulf Coast, tankers will load.”
Shipping between U.S. ports costs more than international voyages in part because a 94-year-old law called the Jones Act requires domestic cargoes to travel on U.S.-built, -owned and – crewed vessels. A qualifying tanker commands record rates close to $100,000 a day, according to MJLF & Associates, a broker. That’s about 10 times more than a tanker of the same size that doesn’t meet the requirements, according to data from Clarkson Plc, the world’s largest shipbroker.
Using a Jones Act tanker may still beat the cost of transporting oil by train, said Court Smith, head of research at Poten in New York. Rail costs to Washington State from North Dakota’s Bakken field run at about $9 a barrel, while Alberta, Canada, to California costs $13 to $15,Valero Energy Corp., the world’s largest independent refiner, said in a Nov. 13 presentation. The company said it would consider the trade if it’s economical.
...The Jones Act is a labor protection racket that needs to be revised. With so many excess tankers on the water now, it would make more economic sense to buy a used foreign tanker and use it to ship domestic oil. The Jones Act is a relic that needs to be either rescinded or drastically revised. It is time to let the markets work to deliver the goods to Americans at the best price.