Busiest US petchem port about to get even busier, compounding congestion

The cheap US natural gas boom triggered a slew of new and expanded chemical production that is poised to amplify vessel traffic in the already bustling Houston Ship Channel, home to the largest US petrochemical port and second only to Rotterdam in the world.

While growth is welcomed, shipbrokers and other industry players expect the Port of Houston, already teeming with liquid chemical tanker traffic, to become more so as too-few berths and fog shutdowns can strangle efficient commerce.

Much attention has been focused on increased polyethylene output as the first wave of new ethane crackers and associated PE plants at or near the Port of Houston start up this year through 2019, pumping out plastic pellets largely destined for export-bound containers to meet global demand.

However, industry players expect increased movements of liquid chemicals as well with more tankers moving monoethylene glycol, caustic soda, benzene, styrene and others in or out of the 52-mile Houston Ship Channel as new and expanded processing infrastructure starts up.

Shipbrokers say the channel already is clogged as tankers maneuver for available berths. Lines form quickly when vessel traffic is held up by fog, accidents or other issues. Vessels cannot loiter at berths, and have little choice but to find a place to “park” without transferring cargo until a berth opens up. The ship channel has few such waiting areas, so routine bottlenecks are exacerbated by fog shutdowns or unexpected berthing delays. Some tankers can sit for up to a month waiting for a berth as vessels slowly start moving again after a shutdown — nearly the time it takes to sail to Europe from Houston.

In 2015, the ship channel was shut 680 hours because of fog — the equivalent of nearly a month, and a 77% increase from 2014, according to the latest available US Coast Guard statistics.

And in shipping, holdups squeeze trading days, hike costs and shrink profits.

“If the market starts to spike as these projects come online in Houston, ships will be sitting, delayed, waiting for cargoes. It will be more expensive to find the right ship at the right price,” Scott Birtle, managing director of specialized products at Clarksons Platou, the world’s largest shipbroker, said at a conference in Houston in late 2016.

Market sources say the Houston port tries to keep ships moving, but there are limits. Unlike crude oil or refined product tankers that arrive, fill up or unload and leave, chemical tankers make multiple stops per port for multiple pickups and drop-offs — like a city bus — from multiple segregated tanks.

Different cargoes have different temperature and storage needs, so berths are not one-size-fits-all. Tanks must be inspected before they can unload and then cleaned and inspected before loading. If berths are at a premium, ships have to go to a public dock to clean tanks and may lose their place in line.

The vast majority of cases where a ship is late because of congestion involves “just trying to rotate through when there’s a hiccup in the system,” Lance Nunez, North America bulk marine mode leader for Dow Chemical, said at the same conference.

Capt. Bill Diehl, president of the Greater Houston Port Bureau, said efficient chemical ship movements is more about scheduling than congestion or capacity, though additional layberth docks — those parking areas — would help.

Houston has 169 ship docks and 129 barge docks, and the US Army Corps of Engineers and the Port of Houston Authority are working on a $10 million, four-year study to determine the best way to increase future capacity and safe channel navigation.

“Ships come to Houston because the facilities are here — 274 facilities representing 192 companies,” Diehl said.

However, shipbrokers say the issue is already critical and about to become more so with chemical production growth. A 2015 study by Texas A&M University’s Transportation Institute said that 43% to 39% of all transits in and out of the ship channel were chemical tankers from 2010 through 2014. In 2014 a line of vessels operated by global shipping company Odfjell made 88 port calls to Houston, during which they made 725 movements to more than a dozen terminals. While tankers can move efficiently, high volume means some ships spend days or weeks trying to rotate through, the study said.

And holdups emerge even with no unexpected issues or fog. When chemical tankers arrive, they submit a notice of readiness, or NOR, to all terminals where they need to load or discharge cargo. The study said that often a ship will issue NORs to multiple terminals, then head for the best one to start its rotation.

If that ship fails to cancel those other NORs, terminals “prepare for an arrival that is not coming and report that they are not available when they could be,” the study said. The ship captain may want to keep the next berth open, but a domino effect leaves other ships waiting needlessly.

Houston is primarily an export port, so cost control is “of paramount importance” to offering competitive export prices. With tight margins and timelines, companies need to corral per diem, demurrage and other costs incurred by waiting to load or discharge cargo.

“Given the rapid rate of expansion in the chemical and petrochemical industries in Houston, the current situation can be expected to deteriorate rather quickly,” the study said.