The surge in domestic oil exports happened so swiftly that the Gulf Coast’s onshore ports are struggling to ensure space for larger, more cost-effective oceangoing vessels, according to the Energy Information Administration (EIA).
“The inability to fully load larger and more cost-effective vessels has pricing implications for U.S. crude oil exports,” EIA said in a note Wednesday led by principal contributor Mason Hamilton. “Using a number of smaller ships requires a wider price spread between U.S. crude oil and international crude oil prices to compensate for the lower economies of scale and costs associated with reverse lightering and partial loadings.”
The costs for using smaller vessels are less for exporting over short distances, EIA noted. However, “as exports to Asia are a growing share of total U.S. crude oil exports, these costs will become more important.”
U.S. oil exports last year averaged 1.1 million b/d, and to date this year, they have averaged 1.6 million b/d, even though Gulf Coast ports “cannot fully load very large crude carriers (VLCC), the largest and most economic vessels used for crude oil transportation.” The ports instead have had to rely on small, less cost-effective vessels.
A VLCC is able to carry around 2 million bbl, and it requires a port with a waterway wide and deep enough for safe navigation. The Louisiana Offshore Oil Port (LOOP) in the Gulf of Mexico is today the only U.S. facility able to accommodate a fully loaded VLCC, according to EIA. Weekly U.S. exports of crude oil have surpassed 2 million b/d four times to date this year. Two of those instances, for the weeks of Feb. 16 and March 30, corresponded with weeks in which LOOP loaded a VLCC for export, EIA noted.
The U.S. Maritime Administration (MARAD), which permits deepwater offshore ports, currently has no pending applications for new deepwater ports similar to LOOP. However, reports indicate the “most likely” export projects with the intention to fully load VLCCs may be sited near the Port of Corpus Christi in South Texas.
South Texas, with access to overseas and Mexico exports, is increasingly becoming a destination for Permian Basin and Eagle Ford Shale oil and natural gas.
Several Corpus Christi-destined oil pipeline projects from the Permian are underway, including Gray Oak Pipeline LLC, Plains All American Pipeline LP and Epic Crude Oil Pipeline. Epic also has a natural gas liquids pipeline project in the works that is running parallel to the oil line.
In addition, global crude oil trader Vitol Inc. and a Hilcorp. Energy Co. affiliate are developing Harvest Pipeline Co., an export terminal near Corpus to move Permian volumes to overseas markets.
“Corpus Christi has access to increased domestic production of light-sweet crude oil from the Permian Basin and Eagle Ford and regularly exports crude oil from the Oxy Ingleside Energy Center and other facilities,” EIA noted. The terminal began exporting in October 2016.
All Gulf Coast ports actively trading petroleum today are in inland harbors connected to the open ocean through shipping channels or navigable rivers. Because the waterways aren’t deep enough for fully loaded VLCCs, partial loadings and ship-to-ship transfers known as lightering typically are used. Lightering allows a larger vessel to partially unload to a smaller vessel, while reverse lightering allows smaller vessels to load onto a larger vessel.
MARAD data for 2015, the latest year available, reported that the two largest U.S. ports of call for tankers carrying oil/petroleum products were lightering zones: South Sabine Point and Southtex. The ports in 2015 each allowed nearly 250 million deadweight tons of tanker traffic volume.
Most Gulf Coast petroleum ports are capable of accepting vessels with capacities of about 500,000 bbl, but the number of ports that can accept vessels with capacities of 900,000 bbl to 1 million bbl is relatively limited, EIA noted.
“By comparison, other nations that export large volumes of crude oil generally have deeper and wider navigable waterways that are not located in inland/onshore harbors,” researchers said.
Corpus Plans VLCC Loading
The Port of Corpus Christi Authority has begun a feasibility study to fully load VLCCs without reverse lightering, which now is done on Harbor Island at the end of the Corpus Christi Ship Channel. The junction at Redfish Bay and the Gulf of Mexico also could be developed to store 20 million bbl of oil and for blending.
Initial work has begun to obtain a permit to dredge to a depth of 75 feet, which would allow VLCCs to be fully loaded. The Corpus port also is interested in developing Harbor Island, where it owns 250 acres and has a right of way to build pipelines.
If it were to receive permitting approval, Harbor Island could become the second port after the LOOP to be able to fully load VLCCs.
The feasibility study should be completed later this year, after which the port authority would seek a permit from the U.S. Army Corps of Engineers. Dredging and construction could begin in the second half of 2018, with VLCC mooring available by late 2020 or early 2021.
Meanwhile, Port Houston, where oil and petrochemicals products are exported, has several expansion projects underway to accommodate more cargoes. However, for now it is opting against additional dredging to accommodate VLCCs only as the costs would exceed $1 billion.
Texas Gov. Greg Abbott in April urged the Army Corps to advance funding to improve the state’s ports.
“The benefit to our economic and national security is unrealized because of the bottleneck caused by ports unable to transport the very materials that promote national and energy security,” Abbott said in a letter. “In fact, ships leaving energy dominant ports must short fill their vessels at the refineries and facilities then move offshore to get to capacity because the bulk carriers are unable to pass through Texas channels without dragging.
“Investing in our waterways will help the United States to lead the way in energy dominance and strengthen our national and economic security.”