Upstream Commercial Support: A Simple Example for Design of Export Facilities

March 24, 2014 By

March 24, 2014

by Michael W. Bloch

Often when Upstream projects are under development, it maybe difficult for design engineers to see beyond a specific set of capital investment goals. It is important that new Upstream projects be reviewed with a Downstream perspective in advance of making decisions, reviewing draft development plans and commercial agreements, or agreeing to preliminary or final terms and conditions. The following is an example of the problems that arise when Downstream issues are unknown or not considered.

An engineer designing export facilities for a new 15 kbd West African crude production project thought he could save capital investment and accelerate cash flow by designing the export facilities to export 500 kb cargoes on AfraMax tankers. This was problematic from several commercial perspectives:

  1. Standard size export cargoes in West Africa are 1000 kb which are typically loaded on SuezMax tankers on a one port basis or on VLCC tankers on a two port basis.
  2. Since SuezMax and VLCC tankers regularly load in West Africa, these size tankers are generally available in the area whereas an AfraMax tanker would need to be purposely positioned to West Africa and may require more lead time and a higher freight rate.
  3. An offtaker of the odd size 500 kb cargo would need to find a second balancing odd size 500 kb parcel to load a SuezMax tanker. Finding another 500 kb cargo may be difficult especially one with timing aligned for an efficient two port load.
  4. It would even be more problematic to find a balancing 1500 kb cargo to two port a VLCC because the 1500 kb cargo would also be non-standard.

In sum, it was estimated that export of 500 kb cargoes from West Africa might suffer a $1.00 to $2.00/bbl. discount in the market price versus a similar quality 1000 kb cargo. This discount was attributed to a combination of a higher freight rate and additional demurrage associated with a two or three port load. The estimated penalty was sufficiently large to change the overall project economics and justify investment in facilities to export 1000 kb standard size cargoes that could be loaded on SuezMax or VLCC tankers.

A problem like this can be solved with some Downstream perspective. Visit our Upstream Commercial and Logistical Support page to learn more about Stillwater can help develop smart Upstream facilities design, fiscal terms and marketing.