U.S Freight and Energy Markets, Debunking the Myths and fairy Tales on the Jones Act

What Makes Jones Act Jones Act ?
What Makes Pipeline Pipelines
What Makes Rail Rail ?
What Make FFVs FFVs1 ?
Too often we are presented with simple comparative analysis Foreign Ships  vs Jones Act in $/bbl but never these analysis contrast  in comparison with U.S pipelines and rail transportation costs.

colonial_pipeline


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Transportationcosts.jpg

Figure 1: Gasoline 87

U.S Gulf Coast refiners compete with European refiners to supply the U.S Eastern Seaboard.

The volatile NWE-U.S Atlantic Coast Clean products waterborne freight,albeit depressed lately, is tracking more or less the Houston-Linden NJ pipeline tariff.

On the Colonial Pipeline, energy traders buy and sell rights to ship gasoline and distillates from Houston to the East Coast.

These rights (have tenor or 5yrs, 10 yrs and can be traded at multiples over the U.S FERC shipping tariff between Houston and New York Harbor (Linden, NJ).

Both barge and pipeline shippers must nominate volumes on a monthly schedule.

When pipe shippers nominate more volume than the line can physically carry 2 , the pipeline operator, a common carrier, must allocate the space on the line on a pro-rata basis, apportioning space across all shippers. 

As nominations exceed Colonial’s operational capacity, shipping costs can be seen at $100-115/MT (not quite on the same scale) exceeding two-three times the Jones Act barge Houston-NJ haul) (in blue)

Jones Act barges provide convenience: have small tenor, provide additional product control to shippers and enhance connectivity.

Rail is not an “all-in” fee, has a market element, offer additional connectivity but also come with a lot of hidden costs.  Rail freight Houston-NJ would make it at the equivalent of $75/Mt; again it’s off the chart.

What is cheap and is not ? -it all depends on the trade intended purpose but the U.S coastwise trade has at least one comparative advantage in the transportation markets that makes energy cheaper every day in the United States.

In the real world, the market element and contractual elements are often against the ideological wisdom…

_________________

  1. Foreign flagged vessels
  2. Whether it’s  man-made congestion or … real supply shortage is another question.

 

 

master

The author has many years of experiences in Commodities Transactions, Financial & Risk Analysis bringing together the know-how of the Dry/Wet Cargoes Transportation and the Commodity Trade Administration.

He consults full-time with hedge, traffic and logistics desks in commodity trading and end-user firms.

Contact Simon Jacques 1 226 348 5610

Commodity Merchant Trading Shipping Advisory Services 

CONTACT FORM

Commodity Merchant Trading and Shipping Advisory Services, real pros in the optimal commodity routing decisions dock to dock (marine and rail, wet and dry).

 

© 2016 Navigating the commodity markets with Freight and Spreads

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