Prepping for Permian oil
Corpus Christi’s growth vital as U.S. upends global markets
CORPUS CHRISTI — Along the waterways of this South Texas city, tall cranes lean over half-built oil storage tanks, construction crews work to complete export terminals and bulldozers clear paths for new pipelines, telltale signs that an onrush of oil is coming this way.
Over the next few years, millions of barrels of crude produced in the Permian Basin in West Texas and New Mexico will pour into Corpus Christi on its way to seaports in Europe and Asia, making the city the main corridor for U.S. energy exports and giving the region a pivotal role in reshaping global oil markets.
But as the second U.S. shale boom gains speed, port officials here are trying to secure more federal money to dredge the Corpus Christi ship channel so it can accommodate the biggest oil tankers, capable of carrying the equivalent of the nearby Eagle Ford Shale’s daily output. Their success is not only critical to local economy, but also to Texas and U.S. oil companies that are producing more oil than domestic refiners can absorb, making exports vital to growth of the industry.
“Everybody wins,” said Kurt Barrow, an analyst at research firm IHS Markit. “The producers’ crude is
making it to market. The midstream companies benefit from being able to build new pipes. Trading companies can trade the crude.”
Exports are particularly important to economic growth because they pump new money into regional, state and national economies, instead of merely recirculating it through retail and other service industries. Corpus Christi port officials estimate that dredging the ship channel would clear the way for some $36 billion a year in exports to flow through the region.
This week, the Port of Corpus Christi Authority asked U.S. lawmakers to approve the $225 million it needs to finish the project by 2021. Otherwise, it could take more than a decade to deepen the ship channel, a project first proposed in 1990.
“Here we are, 28 years later, and we still haven’t turned a spade of dirt yet,” Sean Strawbridge, chief executive of the Port of Corpus Christi Authority.
Corpus Christi’s funding shortfall comes as energy analysts project rapid growth in U.S. oil exports, a development made possible by the lifting of a 40-year oil export ban in late 2015. Since then, crude exports have risen as high as 2 million barrels a day.
The International Energy Agency last week projected that nation’s oil export capacity will more than double to 4.9 million barrels a day by 2023, as U.S. companies upgrade or build 10 crude export terminals in coming years. Corpus Christi, one of the closest seaports to both the Permian Basin and the Eagle Ford in South Texas, has already drawn $50 billion in energy investments, and will receive the lion’s share of the additional crude volumes Texas drillers pump in coming years.
It helps that after a two-year oil bust, Texas oil fields are booming once again, poised to lead a second domestic energy surge that forecasters believe will meet most of the growth in global demand over the next five years. The first U.S. shale boom, which began in 2010 and ended in mid-2015 after oil prices collapsed, sent huge quantities of crude to U.S. refineries and storage tanks.
But this time, domestic refiners can only absorb a fraction of the oil produced here, because most were built to process heavy crude that comes from Canada, Venezuela and the Middle East. That means U.S. oil companies must sell most of the new oil they produce overseas and carve out a much bigger international market as demand grows in places like China and India.
Global oil consumption is projected to grow by more than 1 million barrels a day each year through 2023, according to the International Energy Agency, which monitors the world’s oil markets. American frackers will likely find the best deals in Europe, where refiners pay higher prices. By 2022, U.S. exporters will reach their peak in Europe, at 1.6 million barrels a day, energy research firm Wood Mackenzie estimates.
In the following year, 2023, the United States will likely raise its Asian oil exports to 1.3 million barrels a day, with about half going to China. All told, U.S. exporters will ship 4 million barrels a day of crude around the world, Wood Mackenzie said. Meanwhile, refining capacity in the Middle East and West Africa is set to increase, so those producers will keep more oil in their own countries and export less.
Near Corpus Christi, Occidental Petroleum, the largest exporter of Permian Basin crude, recently began expanding its oil export terminal and expects to begin partially loading VLCC vessels or Very Large Crude Carriers, at its docks by the end of the year. At the ship channel’s current depths, Occidental can load about 1.3 million barrels on the tankers; deepening and widening the channel would allow the Houston company to load the ships to their 2 million barrel capacity.
But progress on the expanding the Corpus Christi ship channel has been slow. The Trump Administration’s fiscal 2019 budget provides for $13 milpipelines lion to dredge the Corpus Christi ship channel. The Port of Corpus Christi Authority requested $60 million in federal funds for each of the next three fiscal years to complete the project in 2021.
Additional multimillion dollar investment also will be needed to fully develop the export hub, analysts said.
“Even the projects that have been proposed and under construction still won’t be sufficient,” said John Coleman, senior analyst at Wood Mackenzie. “They will have to make more investments in marine terminals and dock space to handle all of that crude heading in their direction.”
That says a lot about how much oil is expected to flow to Corpus Christi. Oil companies have begun building two major to run from the West Texas oil patch to the Gulf Coast port. Three other pipeline projects are in planning stages.
The advent of shale oil and gas has brought tens of billions in investments to Corpus Christi since 2011 and oil companies show no sign they’ll slow down investments. Last year, Exxon Mobil Corp. and the Saudi Basic Industries Corp., announced plans to spend $9 billion building a petrochemical plant just north of Corpus Christi.
Cheniere Energy, a Houston liquefied natural gas company, expects two super-cooling facilities that turn natural gas into liquid to come online in 2019 and plans to decide whether to build a third plant later this year. Howard Energy Partners, a San Antonio energy transportation company, plans to build 2.5 million barrels of oil storage capacity, as well as a dock that can load a Suezmax vessel — which can carry 1 million barrels of oil — within a day.
“The investments are going to be crazy over the next 10 years,” said Philip Ramirez, president of Turner Ramirez Architects, a Corpus Christi commercial architecture firm that Exxon selected to help design the layout of its petrochemical project. “We’re talking about jobs by the hundreds.”
Corpus Christi’s unemployment rate has dropped from 8.3 percent in January 2011 to 5 percent last year. And in that time, the number of jobs for welders, civil engineers, construction workers, waiters, waitresses and cashiers have all increased.
Bill Stockley, who owns a sixperson FastSigns franchise, has watched his sign-printing business grow 15 percent after Exxon Mobil and Cheniere Energy began ordering signs for their construction sites. The local economy has grown, too, he said.
“There’s a lot more hotels opening and a lot more restaurants,” Stockley said. “There are better jobs and more money to be spent. It filters down to a lot of people.”
Still, port officials worry efforts to expand the Corpus Christi ship channel will take too long. In November, the Port Authority, which has set aside $102 million for the dredging project, paid the Army Corp of Engineers $32 million to accelerate initial efforts to deepen and widen the port. That dredging has yet to begin, though officials said they believed the project would get underway this year.
“We’ve got to do this project,” said Strawbridge of the Port of Corpus Christi Authority. “If you don’t invest in the port, you’ve just created a bottleneck.”