Kinder Morgan bullish on Jones Act fleet

OREANDA-NEWS. January 29, 2016. Kinder Morgan's growing US-flagged tanker fleet is positioned to remain fully chartered, with renewals likely demanding rate increases, the company said in an investor presentation today.

The company's active eight-vessel fleet contracted anywhere from five months to nearly five years out, depending on the vessel, and five of the current lessors have options to extend those deals. Five of the seven tankers Kinder Morgan has under construction are contracted through at least 2020, with options running into at least 2023.

Kinder Morgan's average remaining contracted charter is 3.6 years, rising to 5.8 years assuming options are exercised. Even as freight rates have softened lately, Kinder Morgan chief executive Steven Kean said the company's existing term charters are below current term levels and "well below" spot rates, making options attractive.

The company is in "active discussions" to charter the remaining two vessels, American Liberty and American Pride. Respectively, they are due to come into service in the third and fourth quarters of 2017, Kean said.

He dismissed the idea that last month's lifting of restrictions on the export of US crude is a threat to the fleet of Jones Act compliant tankers — US-flagged, crewed and built ships allowed to travel between domestic ports without an intervening foreign stop. Only the "one or two" vessels shipping crude from the US Gulf coast to the east coast would be affected, he said.

As for fleet growth, he said the surge of new construction at the NASSCO and Aker shipyards — Kinder Morgan has contracts with both — will be counterbalanced by retirements of older vessels whose typical lifespan in the Jones Act market is about 30 years. Kean estimated net growth in the fleet of "about three" vessels, although he did not say which competing tankers would be scrapped or when that might happen.

Kean said Kinder Morgan expects "eight or nine" existing Jones Act vessels to come out of the market, although only seven are older than the 30-year-old threshold he indicated. The next oldest in petroleum service, S/R American Progress, is 21 years old.