Houston driving energy exports
Trade balance shift could boost region’s economy
Massive cranes loom over the Port of Houston, ready to load cargo containers packed with plastic pellets onto ships bound for China and India, where the pellets will be transformed into grocery packaging, car parts and other consumer products for the growing middle classes of these developing nations.
Along the Houston Ship Channel, Enterprise Products Partners has added and expanded terminals to ship crude oil and petrochemicals. New terminals to process and ship liquefied natural gas are planned or under construction from Corpus Christi to Lake Charles, La.
All of this represents a dramatic shift in the Houston and Gulf Coast economy and another example of how the technologies that opened shale formations to oil and gas drilling were truly revolutionary. In less than a decade, Greater Houston has shifted from net importer to net exporter as energy and petrochemical companies find international markets for crude oil, natural gas, natural gas liquids, refined products and chemicals, including methanol, am-
monia and propylene.
This shift, in turn, could spur a new burst of economic growth as exports bring new money into the region that can be used to hire more workers, expand plants and invest in new businesses. Increasing exports already are contributing to the billions of dollars invested in new and expanding plastics and chemical plants and thousands of new jobs created to build and operate them.
“We are the new kids on the block when it comes to exports,” said Maria Burns, director of the University of Houston’s Logistics and Transportation Center. “But we have dazzled the global markets.”
Houston’s role as an ex- porter has grown as the region’s energy companies employed hydraulic fracturing and horizontal drilling to unlock vast new reserves of oil and natural gas, leading to a boom in production and an abundance of cheap oil and gas that are feedstocks for refiners and petrochemical manufacturers. The Houston area last year exported more than it imported by nearly $14 billion, running a trade surplus even as the U.S. trade deficit — meaning imports exceeded exports — widened to $502 billion, according to federal trade statistics.
U.S. gasoline exports, the majority coming from Gulf Coast refineries, have exploded from 4 million barrels a month in 2007 to 25 million barrels a month at the end of last year. As recently as 2010, the Gulf Coast imported more chemicals and plastics than it exported, according the economic research firm IHS Markit. But by 2025, the region from Corpus Christi to New Orleans — primarily the greater Houston area — is projected to export more than 42 million metric tons of bulk chemicals and plastics, six times the volume of imports and more than triple the amount shipped to foreign markets in 2010. ‘Just bonkers’
Ethane, which is used almost exclusively for chemical manufacturing, is one of the most dramatic examples of the shift in Houston’s balance of trade. For decades, the U.S. relied on imports of ethane, one of the natural gas liquids that are byproducts of oil and gas drilling. As recently as 2010, the nation exported fewer than 100,000 barrels a day of ethane and other natural gas liquids such as propane.
But today, exports of natural gas liquids exceed 1 million barrels a day, according to the Energy Department. Ethane production, meanwhile, is expected to double between 2013 through 2018, with a large share heading to petrochemical manufacturers in Asia and Europe through Houston.
These trends led Enterprise Products Partners to invest more than $1 billion to open the world’s largest ethane export terminal just east of Houston last fall. Enterprise expects to export an average of 150,000 barrels of ethane a day by the end of the year.
“The idea that the U.S. would be exporting ethane is just bonkers,” said Jesse Thompson, business economist at the Houston Branch of the Federal Reserve Bank of Dallas. “We were short on ethane for years.”
So what does this mean for the Houston economy? The growth in plastics exports alone could create up to 10,000 new jobs, including employees at the plants, longshoremen at the terminals, and truck drivers on the roads, said Patrick Jankowski, the Greater Houston Partnership’s chief economist.
Unlike retail and other service industries that primarily recirculate money generated within a regional economy, exports bring in additional money from outside, which in turn can be spent locally on goods and services or invested in new products and businesses, generating economic activity that leads to higher employment.
For example, petrochemical companies, buoyed by growing global demand, are investing an estimated $50 billion in new and expanded plants in the Greater Houston area, creating tens of thousands of construction jobs and several thousand permanent positions. Chevron Phillips this year will complete a $6 billion expansion of plastics and chemical operations, generating 10,000 construction jobs and adding 400 permanent positions.
“This is a great example of manufacturing returning to the U.S. in a major way, ” said University of Houston economist Bill Gilmer.
Apart from plastics, the next big jump in exports is likely to come from crude oil, after Congress lifted a 40-year ban on crude exports at the end of 2015. U.S. oil exports exceeded 1 million barrels in a week for the first time ever in early February and, last week, jumped above 1.2 million barrels, more than doubling the weekly average of a year ago. Houston pipeline companies, such as Plains All American, are responding by spending hundreds of millions of dollars to build and expand pipelines and terminals to move oil from the Permian Basin and other Texas shale plays and store it along the Houston Ship Channel.
The Port of Houston, meanwhile, is undergoing more than $1 billion in upgrades — including new cargo cranes — to accommodate the growth in exports. Alan Robb, head of the local longshoremen’s union, said more exports will mean more overtime and more jobs as container terminals at Barbour’s Cut and Bayport extend operating hours later this year to 11 p.m.
“Everybody is welcoming this,” Robb said. “The business is growing. Our numbers at the union halls are going up again.” Going south
Not all exports travel around the world. More Texas energy products are going to Latin American nations like Mexico and Brazil.
Mexico needs natural gas for electricity generation and gasoline and diesel to ease fuel shortages as the nation’s economic growth outpaces its refining and power generating capacity. Ohio-based Marathon Petroleum Corp. is investing $1.5 billion to expand and integrate its Galveston and Texas City refineries with the idea of producing more gasoline and diesel for Mexico and other foreign markets.
Between 1945 and 2010, U.S. gasoline exports never reached 10 million barrels of gasoline in a single month. Today, according to the Energy Department, the U.S. routinely ships more than 20 million barrels per month to foreign markets; in November, the U.S. exported a record 25 million barrels of gasoline, most of it produced along the Gulf Coast and much of it going to Mexico, according to Energy Department data.
Companies like Kinder Morgan of Houston and Energy Transfer Partners of Dallas are building pipelines to transport natural gas from Texas shale fields to Mexico. Energy Transfer’s nearly completed Comanche Trail and TransPecos pipelines from West Texas to Mexico cost a combined $1.3 billion.
All this growth, however, doesn’t come without challenges, beginning with uncertainty about trade policy under President Donald Trump, who has threatened to pull out of free trade deals and unsettled relations with longtime trading partners such as Mexico.
Environmentalists, meanwhile, are protesting the Trans-Pecos pipeline that runs near Big Bend Ranch State Park. Residents north of Corpus Christi in Portland are mounting opposition to plans by Exxon Mobil and a Saudi Arabian company to build a $10 billion petrochemical plant a mile from schools. The Port of Houston’s Bayport shipping container terminal was fought vigorously by Shoreacres residents when it was built a few years ago.
Regardless, the already heavily trafficked Houston Ship Channel is about to get busier, in part because of the recently completed expansion of the Panama Canal, which will allow more and bigger ships to pass from the Pacific to the Atlantic and the Gulf of Mexico.
“The port has been getting ready for this,” said Rich Byrnes, chief infrastructure officer for the Port of Houston Authority. “We’ve seen it coming.”