Corpus Christi Holds the Key to Expanding US Oil Exports
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Corpus Christi Holds the Key to Expanding US Oil Exports

by | published March 22nd, 2019

As crude oil prices continue to rise, most U.S. producers are eying higher-priced foreign markets for expanded sales. But to move more American volume to those markets, export capacity must be expanded.

The situation with crude oil is accentuated by the fact that the U.S. is already the world’s leading exporter of refined oil products. This has been putting pressure on Houston and the channel to Galveston, currently the dominant port locations. The move now has been further south toward Corpus Christi, where large increases in export capacity are underway.

Source: Texas.gov

The present figures of crude oil-only exports hit an all-time high in late February, coming in at a bit over 3.6 million barrels a day (bpd). That figure results from some “tweaking” of aggregate port capacity. But there is no expansion of consequence left.

Expanding the capacity is essential to meet assessments of sustainable export levels. The Paris-based International Energy Agency (IEA) has said that U.S. crude export capacity is forecast to reach 5.1 million bpd by 2024 and could grow to 8.4 million bpd within five years.

But not given what is available presently. The reason is simple. The U.S. also leads the world in refined oil product exports amounting to some 4.8 million bpd. Meanwhile, crude imports (largely from Canada and, to a lesser extent, Mexico), hover between 6 and 7.5 million bpd.

There is no significant spare capacity left utilizing the existing port infrastructure combined with problems of gluts in the feeder pipeline system.

That logjam is one of the biggest issues currently facing the U.S. oil industry.

The U.S. Can’t Handle Its Own Supply of Oil

It may seem strange that, with all the talk of the U.S. becoming energy independent, the nation continues to import any oil at all. Imports are not needed merely to satisfy daily domestic demand. If meeting demand was the only issue, there are plenty of internal excess extractable reserves.

To accentuate that point, total American oil extractions now exceed 12 million bpd, a figure nobody would have believed less than a decade ago. The U.S. is now poised to be the world’s largest producer on a consistent basis, outpacing Saudi Arabia and Russia.

Rather, the need to import crude is all about the right balance of oil grade and price. It is also somewhat misleading, since the importers are U.S.-based refineries who then export back out a fair amount of the resulting processed oil products.

Still, there have been several days in the first quarter of 2019 in which the country has been a net exporter of oil. Most analysts believe this may become the norm in the future. But to do so requires that export capacity expand.

And that focuses attention once again on what has been underway in Corpus Christi. This is also a major factor in attending to the bottleneck that is created when moving expanded production out of the Permian.


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As David Blackman explained in a Forbes piece earlier this month, the situation in America’s premier production basin has steadily grown worse:

Over the last two years, the big bottleneck talk related to the Permian has centered on the need for a major expansion of pipeline takeaway capacity to move oil, natural gas and natural gas liquids (NGLs) out of the basin to major market and refining centers along the Texas and Louisiana Gulf Coast. But that particular bottleneck is about to start resolving itself during course of this year. Midstream projects will add up to 6 million barrels of oil equivalent of new takeaway capacity out of the Permian by the end of 2021 , and that just from the projects currently underway.

This new capacity is desperately needed, as the U.S. Energy Information Agency projects that Permian crude production will double over the next four years, from the current 4 million bpd to as much as 8 million bpd. Given that virtually all Permian Basin natural gas is associated production from wells classified as oil wells, we can expect similar increases in natural gas and NGL production during that time frame.

The nature of bottlenecks is that the resolution of one generally results in others developing further downstream. One of the big ongoing issues for the light, sweet crude coming out of the Permian is the lack of existing refining capacity set up to process that grade of oil. Due to the historic U.S. reliance on imports of crude from places like Mexico, Canada and Venezuela, most capacity at Gulf Coast refineries was designed to process heavy crude. While some refiners, like ExxonMobil (XOM), are working to accommodate more volumes of Permian crude in announced or ongoing expansion projects, the reality is that most additional barrels coming out of the region will have to be exported in order to find a refining home.

And there’s your next coming Permian-related bottleneck: Gulf coast export capacity, or lack thereof. At least in the near-term, that is. Over the longer-term, there are already a variety of projects in the permitting, funding or construction phases that help resolve the situation.

How America Fixes its Processing Logjam

In a piece posted last month, I discussed in detail the ongoing competition in the Corpus Christi area to complete three separate projects that would greatly expand that area’s crude export capacity. The Port of Corpus Christi has two projects of its own underway – one to widen and deepen its main channel, and a second in partnership with the Carlyle Group to build an export terminal at Harbor Island – that would both handle the landing and loading of the largest class of oil supertankers, so-called VLCCs. The third project in the region is the proposed Texas Gulf Terminal deepwater facility that is still in the stage of obtaining needed permits from both the Texas and federal governments.

With Harbor Island scheduled to come on-line in 2020 and the deepening and widening of the main channel to follow within the following two years, the completion of the Port of Corpus Christi’s projects will go a long ways towards alleviating the developing exports bottleneck.

Meanwhile, another competition involving three of the nation’s largest pipeline companies has developed about 150 miles up the coast, near the coastal town of Freeport. Applications were filed in late January to build two deepwater loading facilities, one by Enterprise Products Partners (EPD), the other by a partnership involving Kinder Morgan (KMI) and Enbridge (ENB).

The Sea Port Oil Terminal (SPOT), operated by Enterprise, would be sited about 31 miles off the coast in 115 feet of water and would be capable of fully loading a 2 million barrel VLCC within 24 hours. The Kinder Morgan/Enbridge Texas COLT (Coastal Offshore Loading Terminal) would have similar loading capacity and would be located about 40 miles out into the Gulf of Mexico south of Freeport. Assuming they received their permits within the next 12 months, both projects could be in service by 2022.

Many producers of Permian Basin crude have struggled for the past year to find ways of moving their production to market as the bottleneck developed and grew worse over time. But they now see light at the end of that particular tunnel as the new pipelines with major capacity start to come online this year. By the end of 2020, the Permian Basin will likely enjoy a surplus of pipeline capacity. So the transportation bottleneck, while severe, will end up being short-lived.

The existence of this set of ongoing expansions and proposed new projects indicates that the coming bottleneck involving export capacity will follow a similar pattern, with owners of the production experiencing a couple of years in which they will have to find creative means of getting their crude to market before the new capacity needed to resolve the issue comes online. The good news for Permian producers is that the coming bottleneck in export capacity will be the last potential roadblock they will need to resolve.

In the center of this drive to open additional volume in the Permian and expand US oil exports, the projects at Corpus Christi loom large. On March 11, the Carlyle Group (a major investment holding with an international “who’s who” of board members, and a main investor in expansion of Corpus Christi port capacity) announced that international-sized oil tankers will be moving out of Corpus Christi by October of next year.

The primary development here is the deepening of the port access, now underway and ahead of schedule.

Corpus Christi site where port deepening is underway Source: UPI

Here’s the kicker for you. Well before the port expansion is finished, stock in publicly traded companies involved in the export flow (and subject to my daily tracking over the past 14 months) are already beginning to pop in value.

As the new capacity moves forward and new pipelines from the Permian move on line, attractive investments will continue moving upstream.

What is underway in Corpus Christi will be making you a lot of money, so stay tuned to Oil & Energy Investor.

Sincerely,

Kent

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