Higher Crude price depending on its temperature at receiving terminal

[mrspcs]

Would certainly appreciate comments/opinions on this.

Here is the case:
A premium (higher price) is paid at receiving terminals for Crude from upgrading processes (e.g. delayed coking) depending on its temperature when it reaches destination. The particular case I know of refers to terminals in the Gulf of Mexico. From origin to destination the crude takes about 1 week and arrives still quite hot (of course that depends on how quickly it is loaded on the tanker as it comes out of the upgrading processes).

Very obviously, the receiving terminal pays that premium in exchange for some savings in its operation or that of its end-clients.

I am trying to figure where exactly those savings are.
(essentially the difference seems to be in the Heat content of the crude)

I initially thought of energy savings in the pumps moving that crude from the terminal to the end-user facility (specially in cold climate). Viscosity is a function of temperature. However, most of that transport is done in the turbulent flow regime (an assumption on my part) where Viscosity has little significance. So, that does not seem to be the justification.

I have also thought of energy savings at the processing units, heat savings in the crude distillation unit for instance. This assuming that the receiving terminal ships the crude fast enough to the end-client and it arrives there with significant heat content.

Other than that, I have not been able to figure much else.

Thanks and regards,
MS

 

[BigInch]

First I've heard of that. Quite often it is working the other way around, because the higher temperature means a more expanded product, less dense, and hence lower BTU content, so sales contracts are normally based on a standard barrel volume at 60[°]F. But I suppose that is biased towards the probability that most customers want to burn it to extract its BTU value. If you found a customer that highly values the product's temperature when received because he can save some money by not heating it up for those few degrees, well there you go, just another good basis for making some extra pocket change by an astute crude marketing agent that doesn't want to get paid less when the temperature won't go down?

 

[mrspcs]

A note just to share an answer to this post I received via e-mail.

Shipping the crude while still hot from the coking process results in the tanker not having to use its heaters thus reducing the cost of the freight. The seller adds a portion of that reduction to the crude's base price so he makes that much more. The remaining portion of the reduction is passed on to the end-customer who pays that much less of the total cargo cost.
The additional comment was that on a 1 MMbbls cargo this deal seems to be of interest to all but in particular to the seller.
(of course all invoicing is based on "standard barrels" so the proper corrections are made for crude temp., water and sediment etc etc).

Still interested on comments and opinions about possible additional savings (if any) based on the crude arriving at destination at a higher temperature.

Thanks and regards.

MS

 

[BigInch]

due to relatively short lengths of pipe and the typical centrifugal pump's ability to handle pretty high viscosities without cost implications, I wouldn't look for much savings there other than what you already know of in direct fire cost.

There's probably more potential for loss of savings as the crude cools off sitting in a smaller tank for a week or so.

Wow! I figure this could be worth $1000 per [°]F on a supertanker 1MM-BBL load, at least before it cools off sitting in the settlement tanks for a day or two. Guess that's why I've not heard of this before.

 

[mrspcs]

According to the person providing the information (contracts manager for the seller) the figures are 'significant'. It even seems to justify the additional charges they pay for special scheduling at the terminal they ship from (to insure prompt transit from process units to tanker).
Also, a 1 MMbbl cargo seems to be pretty standard for them with cycle times of 1 or 2 weeks between loads for a given tanker (depending on destination, the Gulf or St. Croix or Bahamas etc). By the way, they define 'supertanker' as VLCCs of 2 MMbbls.

The deal seems to have been going on for years now. In light of the fact that you hadn't heard of it before they may consider dropping it altogether. I'll be glad to pass the comment on.

The bottom line seems to be that other than this type of savings there does not seem to be any other good justification (e.g. potential savings) for shipping the crude at high temp.
Initially that was my feeling too but having found out that they do it, I wanted to make sure I understood the reasons for that (it sure involves additional work so there had to be a reason for it).

Any other thoughts on the subject will be welcome.

Thanks and regards.

MS

 

[BigInch]

I know I haven't heard of everything, but ...

Doing the math with gas prices at $4.40/1MMBTU at Henry Hub (Wed), just doesn't cost that much to do your own heating, so unless you can move it at a whole bunch of [°]F, say 100-150[°]F ... maybe I'm interested.

 

[BigInch]

When its hot and at less density, less BTU/BBL the BTU cost adjustment goes the opposite way and you loose. Assuming you can only ship a finite volume of whatever some ship's tanks hold, when you top off the tank at a higher temperature you will not have std BBLS and hence a lower BTU count in your shippment, so price vector will be downward for that when they are adjusted to a lesser number of std bbls. There goes your $1000.

 

[mrspcs]

I'm trying to obtain information on the temperature of the oil once loaded on the tanker. I will post it if and when I get it.

For now, I'd assume that it may even be higher than 160 Deg. F.
I am not sure what is the discharge temp. of crude from the coking drums but it should be pretty high.
There may also be limitations on the fluid temp. range that the shipping pumps can handle.

Another factor would be the heat loss during transport from process unit to the tanker. In this particular case it shouldn't be much, the distance between the coking drums and the terminal is about 2 miles.

Since the crude is coming from a process unit, it may just pass-through the shipping terminal and on to the tanker without having to stay in tanks waiting to be certified for loading (e.g. water and sediment and other variables).

These aspects also hint at the fact that the availability of this "savings opportunity" depends on the physical distance between process units and shipping terminal as well as on the operational flexibility to load the crude as soon as it comes out of coking.

Thanks and regards,

MS


MS

http://www.msuarez.com

 

[BigInch]

You might be able to load directly, but most probably not unload without tank settlement time and QA/QC time.

160F sounds pretty high for a tanker. Can you imagine being a crewman on that ship from hell. One hot m.. you'd have to insulate all the piping for personal protection. Vapor handling system overload? Beef up the AC. That might be a pretty good hit on the BTU content reduction to STP as well.

All for $100,000 maximum (without STP conversion) gain on a load when the cargo is worth 100,000,000. That's like 1 PIP on the trading price.

Oh well. Sure this isn't a deck hand's get rich quick scheme?

Good luck.

 

[mrspcs]

Answer just came in: 140 deg. F out of the process.

There will be losses along the line from process to terminal.
On top of that, there will be some time at the tanker before they can certify the shipment. Probably not much, unlike crude from the fields, this one would not have water/sediment etc.
So final temp. will be less than 140 deg. F prior to tanker departure. The comment was "still enough to avoid having to use the ship's heaters".

I agree that a cargo at 160 deg. F could be tough in more ways than one.

Comparing 100 million with 100.000 does not look like much. Actually it's more like 85 million but still way higher than 100 K.

Perhaps the comparison in those terms is not realistic. The 85 million is 'gross sales' price, a lot of overhead to account for before getting to the real profit. Specially in this case, upgraded crude. On the other hand, the 100.000 is basically pure profit. All it seems to take to cash in on that is good foot-work and close coordination with terminal operations.

It doesn't look like a 'get rich quick' scam, there is quite a large number of people involved in materializing this 'savings'. Not like the more conventional 'tricks' used by deck hands (e.g. ship's tilt angle etc etc).

At any rate, it's something that seemed 'extraordinary' to me and therefore worth looking into to understand it (or try to anyway... these guys are pretty cagey when discussing prices, discounts, savings etc etc.).

Thanks and regards.

MS


MS

http://www.msuarez.com

 

[BigInch]

Buyer & seller both beware when there's "trader mentality" middlemen about.

Technically, what I think you need to check now is if there is more BTU lost to density decrease when crude is heated than there is to the gain in avoided BTU fuel cost when it's transferred at a higher temperature. Be very, very suspicious if you don't see a positive number. Its not a win/win game, so someone's sure to lose something, or at the very least, risk of something will be transferred to someone that doesn't want it to someone that probably knows nothing about it.

I would also try my damnest to find out why this scheme hasn't been developed into a finer art before. Usually there is a very, very good reason (having to do with negative numbers) that the last drop of blood, oh I mean cent on the dollar, hasn't already been squeezed into only pools of risk remaining only for the buyer's account in any form of commodity trading at any level.

 

[mrspcs]

I am still of the opinion that to implement this 'saver' the facilities have to have particular characteristics (type of processes, distance between the units and shipping point, scheduling flexibility, size of cargoes, shipper agreement etc). Therefore, it may not be feasible / applicable to all shipping terminals (in fact, it may be to only a few).

Avoiding the use of the tankers heaters will probably represent savings other than just the cost of heating fuel. Fuel cost is of course the easiest to calculate. Other costs may be subjective and data to evaluate them may not be readily available.
Will try anyway.

I am limiting the exercise to the technical reasons/aspects I can understand. The commercial side also has to be brought into the picture to some extent. However, delving too far into the trading tricks (specially in commodities) sure is quick sand for me.

Win-win situations are not unknown in the industry. Although they are about as rare as a free lunch....

Thanks and regards,

MS


MS

http://www.msuarez.com