Viewpoint: US offshore VLCC terminal race narrows

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 in November.

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

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's director of research, energy and commodities Sandy Fielden said.

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. Trafigura was previously developing a competing project but withdrew that application.

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 called the Blue Marlin Offshore Port.

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 and resulting economic slump 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."

By Eunice Bridges