July 17–As more of the nation’s oil production flows to the Texas Gulf Coast, one Houston firm aims to build a massive offshore terminal to ship much of the nation’s record crude volumes overseas.
Enterprise Products Partners said Tuesday it plans to construct an oil export terminal and dock miles off the Texas coastline that can accommodate the world’s largest crude-carrying vessels. Energy analysts estimated the project cost at $1 billion to $2 billion.
Putting the terminal out to sea solves a critical problem for Very Large Crude Carriers, more of which have been heading to Texas since the recent widening of the Panama Canal. Despite ongoing dredging efforts, water depths at Texas ports aren’t deep enough for these giant ships to fill to capacity. So Enterprise plans to build pipelines to run about 80 miles from its Houston-area network to the offshore terminal where the water is naturally deeper.
The project could be years in the making. Enterprise expects the state and federal permitting processes alone to take roughly a year before it can commence construction.
The plans come as rising U.S. oil production outpaces relatively stagnant domestic consumption, requiring more of the oil to be shipped overseas to developing markets in Asia and elsewhere.
With Houston known as the world’s energy capital for its dealmaking and a cluster of corporate headquarters, the city is increasingly becoming the destination for much of the oil itself.
Buoyed by West Texas’ booming Permian Basin, Enterprise believes the nation’s already record-high crude production will grow by another one-third from 2018 to 2022 to more than 13 million barrels a day with most of that new oil leaving the country via the Gulf Coast. Pipelines are sending much of the crude to refining and port hubs near Houston and Corpus Christi.
“Enterprise is making sure U.S. production doesn’t get gridlocked at the Gulf Coast,” said Colton Bean, an energy analyst with Tudor, Pickering, Holt & Co. in Houston. “The refining system isn’t really expanding much in North America, so exports are your one key relief valve.”
Enterprise’s announcement came the same day the Intercontinental Exchange Inc. commodities firm said it will base a new U.S. oil pricing benchmark on Permian oil that’s piped to Houston. The decision was made precisely because the Texas coast has become the key region for crude exports. The exchange, called ICE, said Houston makes for more accurate futures pricing than the traditional West Texas Intermediate benchmark that’s delivered to the Cushing, Okla. storage hub.
“The U.S. Gulf Coast, with Houston as its trading hub, is the natural delivery point for a North American crude oil benchmark based on WTI from the Permian Basin,” said Jeff Barbuto, ICE vice president of oil markets at ICE.
Still fresh off of Congress lifting the decades-old crude export ban at the end of 2015, the U.S. is currently shipping about 2 million barrels a day overseas with projections to double that volume in a few years.
More oil is being exported from the Houston Ship Channel while the competing Port of Corpus Christi aims to complete an expansion and a waterway dredging effort by 2021 to better accommodate the largest crude oil vessels. But logistical roadblocks remain for now.
In June, Enterprise loaded the first Very Large Crude Carrier, or VLCC, to ever dock at Texas City when it took on an oil shipment near Galveston. But Enterprise could only pump in about half of its 2-million-barrel capacity because the water depths can’t sustain the additional weight. Corpus Christi counts similar issues.
The VLCC filled up the rest of the way in an offshore transfer from another ship — a so-called lightering vessel. Enterprise said it’s loading a second VLCC, the Eagle Victoria vessel, this week, but it can only fill it up to 1.1 million barrels at Texas City.
“On the heels of our second successful loading of a VLCC at the Texas City terminal, we are now planning to expand our capabilities to load crude oil faster and more cost efficiently without the need for lightering vessels,” said Enterprise CEO Jim Teague.
The planned offshore terminal would load 85,000 barrels of oil per hour, Enterprise said. It’s no coincidence that over 24 hours at that pace would fill a VLCC up to its capacity of 2 million barrels.
The biggest bottlenecks for crude oil movement for now are the lack of pipelines to move the oil from West Texas to the Gulf Coast. But a wave of new intrastate pipeline systems are slated for completion starting in 2019. After that, the bottleneck moves to the export terminals.
“While most eyes are focused on Permian takeaway capacity, the key to export efficiency lies in fully loading VLCCs,” said Ethan Bellamy, an energy analyst with Robert W. Baird & Co.
For now, the Louisiana Offshore Oil Port, called LOOP, is the only terminal similar to what Enterprise is proposing. But the 37-year-old LOOP was built for imports and it’s only now conducting test runs with export shipments. There are tentative plans for LOOP to expand and increasingly focus on exports.
With a number of other projects in the works in Louisiana and Texas, Bellamy says the race is on to ship more of Texas’ production abroad.
(c)2018 the Houston Chronicle
Visit the Houston Chronicle at www.chron.com
Distributed by Tribune Content Agency, LLC.