Rising TMX Crude Exports from Canada to Asia Set to Boost Aframax Freight Rates

As more tankers are deployed in the region, this could reduce crude shipments from the Middle East to Pacific markets, industry participants said on September 24.

Increasing Demand for Aframax Tankers

With the TMX pipeline edging closer to full capacity, demand for Aframax tankers is predicted to rise, potentially leading to a westward shift of vessels toward the US West Coast. Although no significant repositioning of Aframax tankers has occurred yet, the growing demand for Canada’s Access Western Blend (AWB) crude in Asia could result in a reduced supply of these tankers in the region. Currently, sufficient Aframax availability exists on the US West Coast, but a repositioning could occur next year if earnings become more attractive.

Freight rates for voyages between Vancouver and China or California are currently fetching owners between $1.75 million and $3 million per trip, yielding daily returns of $45,000 and $81,000, respectively. In comparison, Aframax rates on the Indonesia-Australia route have declined to $27,000 per day from their peak in May.

Potential Shifts in Aframax and VLCC Supply

Canadian crude exports have also sparked a rise in demand for Aframaxes performing reverse lightering, the process of offloading cargo onto Very Large Crude Carriers (VLCCs). Since May, two VLCCs have been heading monthly to the Pacific Area Lightering off Southern California for this purpose. Around eight Aframax reverse lightering operations have been conducted each month, although demand in Southeast Asia remains relatively stable due to VLCCs being able to discharge directly at Thailand’s Map Ta Phut port once again.

Impact on VLCC Freight Rates

The rise in Canadian crude exports may affect VLCC freight rates over the coming year, especially as refineries on the US West Coast increasingly source their crude from Vancouver. This shift could reduce the need for shipments from the US Gulf Coast and the Persian Gulf. However, the rising demand for both Aframax and VLCC tankers will become more evident as the TMX pipeline reaches full capacity, expected at 890,000 barrels per day.

Chinese and Indian refiners are also capitalizing on this shift, with one Chinese refiner purchasing 6 million barrels of AWB crude to replace Iraq’s Basrah Heavy crude. Despite the associated freight costs, Canadian crude remains more economical for buyers in Asia, further driving interest in West Coast Canadian crude.

Direct Shipments vs. VLCC Transfers

Some refineries, such as Rongsheng Petrochemical, favor Aframax tankers for their lower demurrage costs compared to VLCCs, despite longer laytimes. Aframax shipments of TMX crude from Vancouver to East China take less than half the time it takes to transport crude from the US Gulf Coast. Meanwhile, both Aframax and VLCC shipments of TMX crude from Vancouver are rising.

So far, more than 15 VLCC shipments have been made after lightering operations at the Pacific Area Lightering zone, with an additional 10 Aframax shipments being sent directly to China. Although shipping crude on a VLCC from Canada offers a savings of approximately $500,000, this advantage has diminished from $750,000 in May due to rising freight rates.

Aframax freight rates for Vancouver-to-East China shipments have ranged from $2.8 million to $3 million since May, while a VLCC carrying up to 280,000 metric tons of crude can transport the same volume as three to four Aframax shipments at a cost of around $11.5 million. This price includes the costs of transporting TMX pipeline cargo from Vancouver to the US West Coast, lightering at PAL, and demurrage for both Aframax and VLCC tankers.