Crude oil shipments by Kirby's inland barge fleet continued to slide in the third quarter of 2015, as did the price that transporting those volumes can command, executives said during the company's Q3 earnings call Thursday.
Kirby moved more inland barges out of crude service to meet growing demand for refined product and petrochemicals shipping, keeping inland fleet utilization as a whole above 90%, but the renewal prices of contracted volumes continued to fall, CEO David Grzebinski said.
It is a trend the company expects to continue into 2016.
"Pricing will likely continue to reflect the uncertainty in the market, principally driven by lower crude oil volumes," Grzebinski said. "We are seeing a continued decline in inland barges carrying crude oil."
Inland crude-by-barge shipping was nearly nonexistent before the massive boost in crude production that came with the advent of unconventional drilling in the US, but flexible shipping options like rail and inland barges were well positioned to move shale crude to coastal refineries while pipeline companies were still scrambling to adapt.
"So as all these shale plays came up, they couldn't get it in the pipeline -- the pipeline didn't exist -- so there was a big ramp up," Grzebinski said.
Even now, as production growth begins to slow and the market anticipates a leveling off or decline in production in 2016, pipeline transportation companies are seeing higher volumes as the last few projects come online.
Enterprise Products Partners brought the Rancho II pipeline online in Q3, and that company transported 21% more crude in Q3 than in the same quarter in 2014, reaching a record 1.53 million b/d, the company said in its Q3 results.
Barged crude volumes have been slammed by the dual hurdles of massive competition from inexpensive pipelines and slowing production growth, but some volumes might be saved by the difficulty of getting pipeline access on some supply routes, he said.
This "actually may be, kind of the floor here, where there will continue to be the need for barges on the inland side to move crude and condensate, just because logistically you can't get pipelines everywhere," Grzebinski said.
On top of that, the total number of inland crude barges on an industry-wide level has fallen from a peak of about 550 barges to less than 300, though, Grzebinski said.
"Consequently, we expect the pressure on inland pricing to begin to subside in the short to medium term as the number of crude barges in service continues to decline to a less significant number," he said.
Kirby Chairman Joe Pyne said he believes the falling contract prices are a reflection of a lack of confidence in a nearby recovery in the market -- a sentiment he has expressed in previous earnings calls.
"I think that once the confidence level shifts to the point that when I have a spot piece of equipment I can book it and I don't have to worry about it being idle for a period of time then you'll get the sentiment to move prices back to higher levels," Pyne said. "That hasn't happened yet, but I think that we're kind of bumping along the bottom and when that happens and then I think everybody will feel better."
