WJ Editorial

Rising Tide Of Oil And Gas Is Moving Barge Rates Back Up

Thanks to a rising economy bolstered by the record production and export of petroleum and its products, barge rates are rising again—but coal, grains and frac sand are all contributing their share.

According to Ken Eriksen, senior vice president at Informa Economics IEG, coal barge rates are “way up,” with some contracts extending into next year. As Campbell Transportation CEO Peter Stephaich noted in his speech at the Inland Marine Expo, when coal movement happen, they “suck up a lot of barges.” As the WJ was going to press, word came of a contract for 93,000 short tons of coal from East Kentucky Power, 10 bargeloads per month for its Spurlock plant to be delivered by Ingram Barge from its Docks Creek River Terminal near Wayne, W.Va., from July through December.

Coal barge movements like that may be partly driven by clean air rules. Since installing stack scrubbers in 2006, the Spurlock facility has been sourcing more of its coal outside Kentucky. With scrubbers, it is able to buy higher-sulfur coal more cheaply from other states and burn it more cleanly as well.  The cheaper coal is necessary to offset the $350 million capital expense of the scrubbers.

Barged coal movements are being driven mostly by exports, though.  Last year’s predictions of Robert Murray, CEO of Murray Energy, have been borne out: coal exports are offering the coal industry a temporary reprieve. According to Eriksen, most of the export coal moving south to the Gulf is headed to Europe or Turkey, a new customer for American coal.

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Grain markets also remain strong for now, despite trade uncertainty. Eriksen said that while trade disputes with China have been a factor, with China canceling some U.S. soy orders, demand in the rest of the world for U.S. corn and soy remains strong. A bad corn harvest in Brazil and a smaller-then-expected soy crop in Argentina have also helped. But U.S. farmers remain apprehensive about trade. Once lost, export markets can take a long time to regain.

However, petroleum liquids have been the star, said Eriksen, as pipelines become constrained due to rising production. The Energy Information Administration’s figures show that crude and liquid fuels production have risen during 2018 to about 18 million barrels per day, up from less than 16 million during 2017. The Commerce Department said June 6 that the U.S. shipped $19.9 billion in petroleum and its products overseas. We now export four times as much each month as we did a decade ago. Growth in barged liquids has come more from refined products than crude, said Eriksen.

That increased production has also boosted barged cargoes of frac sand. That’s because as wells go further down and become less productive, more sand is needed to keep them open.

At the end of last year, some equity funds were predicting a need for 100 million tons of frac sand in 2018, subject to market fluctuations. To cut costs, drillers are buying and operating their own frac sand sites. At the end of 2017, Select Sands Corporation began operating an Arkansas frac sand mine that sends barge loads up the Mississippi to Ohio to be used in the Utica and Marcellus shale plays in Pennsylvania.

But it’s the Permian Basin in Texas that is driving most demand for frac sand. As operators become more efficient, demand for frac sand is increasing. Oil and Gas Reporter notes that frac sand “intensities” (the amount of sand used per foot) are reaching 5,000 pounds per foot in some wells (1 ton equals about 1,900 pounds).

One analyst projects that Delaware and Midland operators alone will need 50 billion pounds of sand in 2018—doubling 2016’s total and quadrupling 2014’s total. The frac sand boom has been great for railroads as well, but sand for the Texas fields is typically barged down from Wisconsin or Minnesota, sources of the most highly prized “northern white” silica. Exact figures for barged frac sand are hard to come by, said Eriksen, but he estimates a total demand of more than 1 million tons. That won’t replace lost coal cargoes, but it helps.

About 30 petrochemical plants are expected to open in the U.S. during the next two years. Pipeline growth alone can’t keep up. Despite continued uncertainties over trade and infrastructure, as the U.S. barge fleet rebalances toward liquids, the barge industry can cautiously hope for higher and more stable barge rates.