Survey: US offshore VLCC terminal race narrows

  • Market: Crude oil, Oil products
  • 12/18/20

The race to build US offshore crude export docks that can load very large crude carriers (VLCCs) has narrowed in scope, with some plans merging and others falling by the wayside.

But four major projects are still in contention — one off the coast of Corpus Christi, Texas; two near the Houston-Freeport area in Texas; and one connected to the hub of Nederland, near the Texas-Louisiana border.

US midstream companies Energy Transfer, Enterprise Products Partners and Sentinel Midstream are leading projects. The fourth is a joint venture between Phillips 66 and trading company Trafigura. All are vying to be the first to reach the finish line, banking on the continued growth of US exports, which have been resilient — hovering in the 2.75mn-3.2mn b/d range — even in the wake of the Covid-19 pandemic and its devastating impact on global oil demand.

Sentinel's Texas GulfLink project, off the coast of Freeport, recently cleared a major hurdle after the US Maritime Administration (MARAD) issued a draft environmental impact statement last month. Sentinel called it a "critical step in the regulatory process" and said the terminal will be uniquely positioned to benefit when global demand stabilizes.

Texas GulfLink includes a manned offshore platform with two single-point mooring buoys. The project would have export loading rates of up to 85,000 bl/hour. The facility is expected to service 15 VLCCs per month. The project is backed by private equity company Cresta Fund Management.

Another large US infrastructure company, Magellan Midstream, has been weighing a partnership that would connect its terminal in east Houston to the Texas GulfLink offshore port.

Magellan was tight-lipped about the potential partnership this week, saying that the company is "continuing to evaluate options for on and offshore infrastructure" to meet the needs of its customers. Magellan's east Houston terminal includes 9mn bl of storage. It is the pricing hub for the Argus WTI Houston assessment, which includes crude delivered from west Texas on the 440,000 b/d BridgeTex and 275,000 b/d Longhorn pipelines.

Enterprise, which also owns a large Permian-to-Houston pipeline network, is moving forward with a competing project, the Sea Port Oil Terminal (SPOT), also off the coast of Freeport.

Enterprise made a final investment decision on SPOT last year after signing term contracts for crude transport, storage and marine services with Chevron, a key oil producer in the Permian basin.

SPOT includes two crude pipelines running from the port to the shore. Two single-point mooring buoys will be able to load at about 85,000 bl/hour or about 2mn b/d. MARAD issued a draft environmental impact statement for SPOT in February. But federal regulators temporarily suspended the timeline of the review in June, using what is known as a "stop clock" order. The procedure, which has also been applied to other VLCC port applications, occurs when regulators need more information or analysis. The application for Texas GulfLink has seen two such temporary "stop clock" orders and the Phillip 66-Trafigura project, Bluewater, also was issued a "stop clock" order to obtain more information for its environmental impact statement.

Canadian pipeline giant Enbridge joined the SPOT project last year, after exiting a partnership with terminal operator Oiltanking on a competing offshore crude terminal.

Enbridge and Enterprise were planning to negotiate an agreement that would allow Enbridge to buy into SPOT after the project receives a deepwater license. The two companies are co-owners of the 950,000 b/d Seaway pipeline system which moves crude from Cushing, Oklahoma, to the Houston area.

The SPOT project is the most likely to get built first because it has committed shippers and the benefit of both Enterprise and Enbridge crude flows, Morningstar director of research, energy and commodities Sandy Fielden said.

Two at the most

The next in line could be the Phillips 66-Trafigura Bluewater project in Corpus Christi, but "if it does get built, it will be behind SPOT," Fielden predicted.

Overall, there is only need for two projects at most, one in Corpus Christi and one in Houston, Fielden said.

Trafigura earlier this year joined Phillips 66 in the Bluewater project, which includes two single-point mooring buoys loading crude 21 nautical miles east of the Port of Corpus Christi. The project is designed to load 16 VLCCs a month. Trafigura was previously developing a competing project but withdrew that application.

The Port of Corpus Christi Authority this week approved a lease agreement and a pipeline easement for Bluewater. The lease allows Bluewater to access existing pipeline corridors and other property, including 12 acres for an operations facility on Harbor Island.

Corpus Christi has become the top port for US exports of crude after three new pipelines went into service in 2019 and early 2020 moving Permian crude to the south Texas port. The new lines include the 670,000 b/d Cactus 2 line, the 600,000 b/d Epic line and the 900,000 Gray Oak line.

The Port of Corpus Christi has also proposed a separate project to develop a marine terminal at Harbor Island to increase crude export capacity, including the loading of VLCCs. That project is not an offshore buoy and does not need a MARAD application. A previous partner in the project, private equity firm the Carlyle Group, dropped out last year, raising questions about funding as additional dredging would be needed.

One of the largest US midstream companies, Energy Transfer, became the latest to officially enter the VLCC offshore port race when it submitted an application to MARAD in October for a project connected to its Nederland terminal.

The project — the Blue Marlin Offshore Port — will be capable of loading 80,000 bl/hour onto VLCCs or other crude carriers and will be designed to load up to 365 ships/year.

The project includes building a 37-mile (60km) crude pipeline from a tank terminal at Nederland to an existing natural gas pipeline, the Stingray pipeline, in Cameron Parish, Louisiana. The Stingray line would be converted from natural gas to crude service for delivery to an existing offshore platform complex.

Energy Transfer is proposing to start construction on the Blue Marlin Offshore Port in the fourth quarter of 2021 and to start service in 2023.

Just one US port, the Louisiana Offshore Oil Port, is currently capable of fully loading VLCCs. A few onshore marine terminals can partially load the supertankers but have to rely on reverse lightering to fill the ship.

All the offshore VLCC terminal projects were driven by a surge in US crude production, which hit a record high of 12.9mn b/d in November of 2019. But the Covid-19 pandemic caused global demand to plummet and US production cuts followed, with output now hovering around 11mn b/d.

"If shale expansion had continued in 2020 instead of stopping in its tracks for Covid, these terminals would be closer to the finishing post," Fielden said. Going forward, one project with shipper commitments is feasible and probably not before 2022 at least, he said. "Anything more is a gamble."

And all the focus on an energy transition away from fossil fuels is "a long-term damper on crude demand hence production" but Fielden said he doubts that "it comes into payback calculations for these terminals yet."

By Eunice Bridges

US VLCC-loading projects

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