In a conference call hosted by USinvestment bank Stifel Nicolaus and equity analyst Ben Nolan, Dion Nicely andDonald Bogden said the surge in North American shale oil production willcontinue to drive the market for “at least several more years”.

MJLF’s forecasters believe shaleproduction could hit 5.0 million barrels per day by 2020, versus approximately 1.6million in 2012, and wouldn’t be surprised to see levels top 9.0 million givenwhat they described as “significant upside potential”.

The firm noted the relative cost to movea barrel of crude from the Gulf Coast to the East Coast on a Jones Act tanker currentlystands at around $4 to $5.00 per barrel, which is well below the $14.00 premiumpaid to transport a barrel by train from regions like the Bakken Shale formation.

“The spread of Bakken relative toGulf Coast oil prices has to be taken into account to determine the true pricedifferential, however,” Nolan pointed out in a recent report that summarised the keytakeaways from the call.

“Pricing is not the primarydeterminate for Jones Act shipping out of the Gulf Coast, because the oil iscertainly coming to that region regardless of prices, and must be shipped byJones Act tanker because there is simply no other place for it to go.”

MJLF also spoke about how the primaryrisk to a prolonged period of high demand is not the repeal of the Jones Act, acabotage law that requires coastwise cargoes to be carried on ships that are USbuilt, flagged, owned and crewed, but changes to regulations that prohibitcrude exports.

The firm, which is one of the fewmainstream US brokerages with a desk dedicated to the US flag, acknowledgedthat the $130m price tag for a medium-range product tanker newbuilding is highbut was quick to point out that returns for ships fixed on 10-year time chartersare around 12%.

During a question-and-answer sessionswith Stifel’s clients Nicely, who spent more than a decade with the US CoastGuard before joining MJLF, noted General Dynamics Nassco and Aker Philadelphia Shipyard are the only yards that are active in the construction of Jones Act tankers.

When pressed about why other shipbuilders aren’ttrying to get in on the action he said many of the duo’s competitors are busy withmilitary work and also lack the proprietary designs that would be needed to geta project going.

Today, brokers say rates for tankers tradingin the Jones Act market are hovering at around $75,000 per day but claim they haveseen levels as high as $105,000, depending on term and timing, given the lack of unencumbered unitsavailable for work.

According to MJLF, six of the 31 vesselsconnected to the segment are more than 27-years-old and are likely to be scrappedover the next several years, a development that would further constrain themarket’s ability to cope with incremental demand growth.

In Stifel’s report Nolan noted there are nopure-play equity plays in was billed as a “very niche segment” butpointed out that there are some names with exposure like Seacor Holdings (CKH),American Shipping Co (AMSC), Kirby Corp (KEX) and Overseas Shipholding Group(OSGIQ).

TradeWinds will be hosting a Jones ActShipping Forum on 18 September at the New York Yacht Club in Manhattan. ClickHERE or explore the links to the right of this article to learn more...