Companies race to build US crude export capacity

The race to build new offshore docks to handle the rising flow of US crude exports is on and speed is of the essence. Only the first few projects to be permitted and sanctioned are likely to get built.

The prize for Enterprise Products Partners, Phillips 66 and about eight others looking to build these offshore ports along the US Gulf coast will be the ability to fully load Very Large Crude Carriers (VLCC). That's because VLCCs offer the economies of scale needed to deliver US crude to farflung destinations like China and India.

The lead times for the projects are many years — meaning they will not have any impact on the ability of US crude to reach overseas in the short-term, as markets reel from the weekend attacks on Saudi Arabian crude production and processing. But they will play a role continuing to build on the US' role as a major supplier to global oil markets.

Five projects have submitted applications to the US Maritime Administration (MARAD) and the Coast Guard for the offshore projects, and at least four other projects could follow. In addition, a project on an island off the Texas coast also includes plans to fully load the supertankers, which can each carry up to 2mn bl of crude.

Some analysts predict that two or three of the VLCC offshore ports will come to fruition, including at least one off the coast of Corpus Christi and another in the Freeport area near Houston. The terminals will be key to the growth of US crude exports, which hit a record high of 3.16mn b/d in June and are already changing global markets. US exports fell to 2.69mn b/d in July, but are expected to continue in the 3mn b/d range this year.

Currently, only one US port is able to fully load a VLCC — the Louisiana Offshore Oil Port (Loop) about 20 miles (32km) off the coast from Grand Isle, Louisiana.

Midstream companies, refiners, a private equity group, a port authority and a trading firm are all vying to be the second.

Enterprise, already a key player in US crude exports, has reached a final investment decision on its offshore VLCC project near Freeport after signing long-term contracts for crude transportation, storage and marine terminalling services with Chevron, a top Permian producer.

Enterprise submitted a 10,000-page application to MARAD in January for the project, dubbed the Sea Port Oil Terminal (Spot). It would include two crude pipelines, built from a shoreline crossing to a deepwater port. The offshore port would connect to two single-point mooring (SPM) buoys and would be capable of loading and exporting oil at about 85,000 bl/hour.

Stop the clock

The Spot application hit a snag in May when federal regulators temporarily suspended the timeline of the review, also known as a "stop clock" order. The procedure, which has also been applied to two other pending offshore VLCC port applications, occurs when regulators need more information or analysis.

Enterprise said the "stop clock" was expected during the year-long MARAD process and that it will not affect the project's schedule. The company expects regulatory approval in the first half of 2020 and construction will take about two years. Enterprise is bullish on US crude exports, predicting they will rise to 8mn b/d in the next few years.

Phillips 66 more recently joined the VLCC race with its own Bluewater project off the coast of Corpus Christi. The facility is expected to service 16 VLCCs per month. Phillips 66 submitted a MARAD application for the project in May.

The Port of Corpus Christi Authority is supporting the Phillips 66 project, even as it has joined forces with private equity firm the Carlyle Group on another VLCC port at Harbor Island near Aransas Pass.

The Harbor Island project is not technically an offshore project but will be able to fully load VLCCs, as it includes a privately-paid-for dredging plan to reach a channel depth of 75ft. This is a separate project from a planned Corps of Engineers dredging project that will increase the channel depth to 54ft starting at the jetties at the entrance of the ship channel to Harbor Island.

The Harbor Island VLCC project does not need a permit from MARAD and has already filed for several permits with the US Army Corps of Engineers, said Jerry Ashcorft, chief executive of Lone Star Ports, the company set up to develop the project.

Ashcroft expects that about 4mn b/d of US crude will be exported out of the Corpus Christi area within three years.

Looking more broadly at the US Gulf coast, two new VLCC projects are likely to be developed -- one in Corpus Christi and one in the Houston area -- and possibly a third depending on the status of trading with China, Ashcorft said.

Another project competing in the Corpus Christi area is Trafigura's proposed Texas Gulf Terminal, which would be off the coast of Padre Island in Texas. The trading and logistics company earlier this year submitted its application to MARAD for the project which would use a single-point mooring buoy, similar to the one used at Loop.

MARAD put a "stop clock" on that project in February, asking for more information.

Texas Gulf Terminals said last month that federal agencies routinely "stop the clock" or pause the mandated schedule in the permitting process, to ensure officials have adequate time to review materials or to allow the applicant to provide additional information.

Canadian pipeline company Enbridge and storage and terminal operator Oiltanking are proposing to build a VLCC export terminal off the coast of Freeport, in direct competition with the Enterprise proposal. The Texas Crude Offshore Loading Terminal or Colt will include an offshore platform and two offshore loading single-point mooring buoys capable of fully loading VLCCs in about 24 hours. MARAD also issued a "stop clock" on that project in part related to a plan to add a marine vapor control system to the original design and amend its application.

Enbridge said last month that Texas Colt expects to file an amended application in the fourth quarter of this year and does not anticipate a delay to the project's schedule.

One other VLCC offshore project has submitted an application to MARAD – Sentinel Midstream's Texas Gulf Link project off the coast of Brazoria County, near Freeport. The project would have export loading rates of up to 85,000 bl/hour and is expected to handle 15 VLCCs per month.

Two other VLCC offshore projects are not in the Corpus Christi or Houston areas – logistics company Jupiter's VLCC plan off the coast of Brownsville, Texas, and Tallgrass Energy's plan related to its terminal in Plaquemines Parish, Louisiana.

Tallgrass said last month that it is in advanced discussions on the Plaquemines project with several counterparties that would lead to a final investment decision if consummated. The company envisions two phases of the project. The first will allow full loading of post-Panamax-sized vessels and the second would include building a separate offshore pipeline extension that would allow VLCC loading at a deep-water single point mooring.

Jupiter announced its Brownsville project last year but has not submitted an application to MARAD. The company has delayed the projected start date of its related 1mn b/d Permian crude pipeline by about six months to the first quarter of 2021.

Jupiter said in August that it has started the process to submit its MARAD permit and is also waiting for approvals from the Port of Brownsville.

Two other companies are weighing VLCC projects but have provided few specifics.

Energy Transfer said earlier this month it is negotiating with potential shippers on a VLCC project connected to its terminal in Nederland, Texas. The company said it was optimistic about the project and that it would take 2.5-3 years, including the regulatory process and construction.

Meanwhile, Flint Hills Resources last year teased a VLCC project related to an expansion of its terminal in Ingleside, near Corpus Christi. But Flint Hills, a subsidiary of Koch Industries, is now considering a sale of the terminal, leaving the related VLCC project uncertain.

Flint Hills said in August that it continues to advance the expansion project announced last year.

US Gulf Coast VLCC loading projects