Deepwater rivalry is growing fast in the Gulf
Pipeline titans file for competing projects for offshore crude export terminals near Houston
The race is on. Record crude oil production has three of North America’s biggest pipeline companies competing to build offshore oil loading terminals in the Gulf of Mexico just south of Brazoria County, where they hope to receive some of the largest tankers in the world and tap into a rapidly growing export market worth billions of dollars..
The Houston company Enterprise Products Partners and a joint venture that includes the Canadian pipeline company Enbridge and Houston’s Kinder Morgan have filed permit applications for competing export terminals. Under federal law, the application will be reviewed in 356 days. In the meantime, Enterprise and Enbridge will try to line up customers to support for their respective projects.
The Permian Basin of West Texas and other shale plays have boosted U.S. crude oil production to a record 11.9 million barrels of day while exports have risen to more than 2 million barrels per day, according to the Energy Department. Most of those exports are heading to Europe and Asia where refineries are turning U.S. light crude into gasoline, diesel, plastics and other products.
Capable of carrying 2 million barrels of crude oil in a single
load, Very Large Crude Carriers, or VLCCs are emerging as the tanker of choice to feed those refineries, but U.S. ports are too shallow to handle them. A fully loaded VLCC tanker requires 66 feet of water and ship channels in Texas and elsewhere are typically between 40 to 45 feet deep.
Some companies partially load VLCC tankers at their docks and use a second tanker to load the rest of the shipment in the deeper water of the Gulf of Mexico — a process that can take anywhere from two days to a week or even longer depending on the weather and other conditions. But Enterprise and Enbridge believe that building export terminals offshore is a cost-effective, time-saving solution.
Enterprise Products Partners announced plans to build the Sea Port Oil Terminal, or SPOT, in July. The company’s proposed export terminal would sit in 115 feet of water about 31 miles offshore. Capable of loading 85,000 barrels of crude oil per hour, Enterprise estimates that terminal operators will be able to fully load a VLCC tankers in 24 hours.
If approved, SPOT would be supported by the Oyster Creek Terminal, a proposed facility in Brazoria County that could store up to 4.2 million barrels of crude oil. A pipeline buried under the sea floor would deliver the oil to the offshore platform.
Using its existing pipeline network, Enterprise plans to draw crude oil from multiple shale plays. The company was working on its permit application and had planned to file it earlier this month but was delayed by the partial federal government shutdown. The company filed its application Thursday.
“The minute they opened, we got on the docket and submitted it,” Enterprise CEO Jim Teague told investors Thursday.
Enbridge, Kinder Morgan and German terminal operator Oiltanking are seeking to build a similar offshore crude terminal about 40 miles south of Freeport.
The joint venture filed its application for their Texas Crude Offshore Loading Terminal, or Texas COLT project, hours after Enterprise. The project includes an onshore tank farm storing up to 15 million barrels of crude connected by pipeline to the offshore platform, which would also have the capabilities to load a VLCC in 24 hours.
Shutdown’s impact
Perry Schuldhaus, vice president of business development at Enbridge, said the project draws on the strengths of all three companies The site, he said, was chosen for its access to several varieties of U.S. crude from oil fields such as the Permian Basin in West Texas, the Eagle Ford shale in South Texas and the Bakken shale in North Dakota.
“Having access to a wide variety of crude sources through connectivity to multiple Houston area pipelines is important to our customers,” Schuldhaus said. “This will allow our customers to blend crudes in our onshore terminal to their specifications or load more than one grade of crude oil onto VLCCs for export.”
The U.S. Department of Transportation’s Maritime Administration is responsible for reviewing the permit applications. Under federal law, the agency has 356 days to review the projects, hold hearings, prepare environmental impact state and make a permit decision.
Because the partial federal government shutdown closed the permitting office, neither Enterprise nor Enbridge could file applications earlier this month. A political compromise that reopened federal government expires Feb. 15.
If the federal government shuts down again, Enterprise Vice President Kevin Ramsey told analysts that the application would not be penalized. “Even if the government shuts down shortly thereafter,” he said, “that permit timeline continues to tick.”
Enterprise and Enbridge, however, are not the only ones with offshore terminal plans. Swiss commodities trader Trafigura filed an application with MARAD in July to build Texas Gulf Terminals , a VLCC-capable crude oil export terminal off the coast of Corpus Christi.
Meanwhile, the Louisiana Offshore Oil Port, or LOOP, is already being used to export crude oil. Located about 21 miles south of Port Fourchon, a joint venture of Marathon Petroleum of Findlay, Ohio, Valero of San Antonio and the Anglo-Dutch oil major, Royal Dutch Shell built LOOP nearly 40 years ago to import oil to feed Gulf Coast refineries. LOOP was reconfigured and started export operations in Feb. 2018. Three VLCC tankers loaded at LOOP in early December, facility operators reported.
“The U.S. Gulf Coast plays an important role in providing the energy that the world needs,” said Kevin Nichols, executive vice president of Shell’s pipeline subsidiary, Shell Midstream Partners. “LOOP is strategically positioned and has the capability to respond to the growing global market demand.” .
Not enough for everyone
The United States currently has the capacity to export up to 5 million barrels of crude oil per day, but as of mid-January, only exports 2 million barrels per day, according to S&P Global Platts, a commodities data and analysis firm.
With U.S. crude oil production expected to reach 13 million barrels per day by 2020 and domestic demand expected remain relatively flat, that leaves a lot of capacity for exports.
Based on pipeline construction and 15 proposed export projects, U.S. crude oil export capacity could grow up to 10 million barrels per day by 2022, S&P Global Platts Senior Oil Analyst Jenna Delaney said. Although overseas demand for light American crude is expected to grow, Delaney said it would not be enough to support all of the proposed export projects.
“If every single project comes online,” Delaney said, “it would be overbuild.”