The Gulf Coast Boom

By Andrew Lipow, Lipow Oil Associates

Over the last several years, the United States has seen a significant amount of investment in refineries, petrochemical plants, pipelines and terminals taking advantage of increases in crude oil and natural gas production, turning that production into consumer products and delivering those products to markets around the world.

The ports of the Texas Gulf Coast have benefitted from this growth as each port highlights its competitive advantages for the logistics and distribution of crude oil, transportation fuels and petrochemicals.

The Production Boom
The increase in crude oil production has become old news. Improvements in fracking technology increased production from 5.5 million barrels per day (MMBD) in 2010 to 8.9 MMBD in 2016. The Energy Information Administration (EIA) expects that crude oil production in 2017 to be 9.3 MMBD and in 2018 reach 10 MMBD, eclipsing the previous record of 9.6 MMBD set in 1970. The majority of this production is of the light sweet crude oil variety, and United States refiners already have enough of it.

Turning to natural gas, according to the EIA, natural gas gross withdrawals and production in 2010 was just under 27 million MMSCF (million standard cubic feet) which rose to over 32 million MMSCF in 2016. With that increase in natural gas, natural gas liquids production rose from 2.0 MMBD in 2010 to 3.3 MMBD in 2015. Today, natural gas liquids production is 3.6 MMBD.

The Refining Boom
In response to the increases in production, the domestic refining industry increased capacity. Since 1985, refining capacity has risen from 15.6 MMBD to over 18.6 MMBD today. If they build it, they will use it. Refinery throughputs have increased with increasing capacity such that weekly gross input levels have been setting consistent modern era records of processing well over 17 million barrels per day into the crude units.

As the refineries turn the crude oil into petroleum products, they have been able to easily satisfy domestic requirements and then supply more fuels elsewhere.

The Export Boom
On June 27, 2017, the Energy Information Administration issued an article noting that exports of crude oil and petroleum products more than doubled from 2010 through 2016. Exports had risen from 2.6 MMBD to 5.2 MMBD.

Some of the increase is attributed to the lifting of the crude oil export ban in December 2015. Crude oil exports in 2010 were a paltry 42 thousand barrels per day (MBD) rising to 520 MBD in 2016. More impressive is the fact that in February 2017, crude oil exports were well over 1 MMBD.

The boom in exports is not confined to crude oil; the fact of the matter is that exports had increased in nearly all petroleum product categories from natural gas liquids such as propane, to gasoline jet fuel and distillate fuels. Even petroleum coke exports, a solid fuel, increased.

The Infrastructure Boom
Houston is not alone in increasing its logistical capacity to handle the ever-increasing amounts of exports. Other locations are benefitting from changes in refining, pipeline and terminal infrastructure. Even landlocked Cushing, Oklahoma, the Grand Central Station of United States crude oil logistics with 24 inbound pipelines, 14 outbound pipelines and 93 million barrels (MMB) of storage, has at least four major terminal projects that could add well over 20 MMB of capacity.

Houston should consider Corpus Christi, Beaumont/Port Arthur and the Lower Mississippi River areas as competitors. What makes one location better than another is a combination of the cost of the goods delivered to that location, the costs involved in terminalling and storing goods at that location, and the cost of moving those goods to the ultimate destination. Each location is experiencing a boom in infrastructure. What’s happening?

Corpus Christi/Ingleside
In a June 26, 2017, Bloomberg article highlighting the berthing of a VLCC at the Occidental Ingleside terminal, port officials were quoted as saying that daily export capacity could grow from 960 MBD today to 2.8 MMBD in the future. With preliminary approval from Congress for money to dredge the channel from 45 to 52 feet, Corpus Christi would seriously challenge Houston for preeminence for crude oil exports.

While the port is seeking to improve its logistics, pipeline and terminal operators have plans to expand. Corpus Christi/Ingleside can receive crude oil from the Eagle Ford and Permian Basins. Three new major crude oil pipeline projects have been announced to deliver oil from the Permian Basin to Corpus Christi/Ingleside. They are the EPIC Pipeline with a capacity of 590 MBD, the Buckeye South Texas Gateway project with a capacity of 400 MBD and a project by Magellan with an ultimate capacity of 650 MBD. These projects would begin coming on stream in 2019.

To handle this oil, EPIC would add 4 MMB of terminal capacity, Buckeye would expand its South Texas Hub and Magellan could construct at least 5 MMB of storage on recently purchased land. In the meantime, Plains and Enterprise are constructing a new 2 MMB terminal which is expected on line in 2018.

Petroleum product volumes have been increasing with the commissioning of the Buckeye Splitter in 2015 and the recent start up of the Magellan splitter, both with 50 MBD capacity.
The big news for petrochemicals is the ExxonMobil Saudi Aramco joint venture to construct a 1.8 million ton per year ethylene complex, including ethylene glycol and polyethylene units at a cost of a $10 billion. Not to be forgotten is Cheniere’s LNG export facility.

Houston/Texas City
The Houston/Texas City area has seen a significant increase in tank construction and logistics. This region can receive crude oil from the Eagle Ford area via Enterprise and Kinder Morgan systems, the Permian Basin from Magellan Pipelines and from Canada and Cushing from Seaway and TransCanada pipelines. In September 2015, I estimated the terminal and refinery crude oil storage capacity in the area to be 66 MMB. As Enterprise, TransCanada, Seabrook Logistics, Genesis and Fairway Energy have invested, the crude oil storage capacity has increased to nearly 82 MMB. Recently announced projects including expansions at Seabrook Logistics and the Oiltanking Texas City TIDE terminal can bring capacity to over 95 MMB. Some of this new capacity is needed to handle additional quantities of crude oil delivered into the area by the new 450 MBD Enterprise Permian Basin Pipeline and recent expansions on the Magellan BridgeTex system.

Natural gas liquids handling is also growing. Enterprise and Lone Star continue to add fractionation capacity at Mt. Belvieu. DCP is expanding its Sand Hills Pipeline by 170 MBD in 2017 and 2018 while Enterprise announced the 250 MBD Shin Oak Pipeline and Targa announced the 300 MBD Grand Prix Pipeline for additional NGL capacity from the Permian Basin into Mt. Belvieu, both expected on line in 2019.

Increases in NGL volumes has led to a number of area petrochemical projects including expansions at the existing Lyondell Channelview site as well as new 1.5 million ton per year ethylene crackers at ExxonMobil Baytown and CPChem Cedar Bayou, both coming on stream this year.

Beaumont/Port Arthur
Not to be outdone by the Corpus Christi or Houston areas, Beaumont/Port Arthur is seeing export oriented growth. This region can receive Permian Basin crude oil via Sunoco Logistics systems and from Cushing and Canada via the Seaway and TransCanada pipelines. Houston connects to Beaumont/Port Arthur via the Shell Zydeco pipeline. The recent completion of the 570 MBD Dakota Access Pipeline from the Bakken, along with the under-construction Bayou Bridge Pipeline to St. James, Louisiana, increases the importance of the area for crude oil. Sunoco, Enterprise, Phillips 66 and others have added significant amounts of tankage over the last few years, by my estimate it amounts to nearly 15 MMB.

Product exports are now becoming more important. Valero filed a permit for a dock at Pleasure Island to export gasoline and diesel. Northstar is constructing a dock for additional product exports from the Motiva refinery. Howard Midstream announced plans to construct an initial 1 MMB of tankage that could ultimately be expanded to 24 MMB. Meanwhile Jefferson Terminal and Green Plains Renewable Energy are starting up their ethanol export facility.

Summary
The Houston/Texas City area continues to benefit and thrive from the increases in natural resources that are making their way into the area, then either further processed into transportation fuels or petrochemicals and supplied into the domestic market or exported elsewhere.

The Port of Houston plays an integral part in making the logistics and distribution systems work to the economic advantage of its customers. While Houston remains and will remain one of the largest ports in the United States, there is increasing competition from other locations along the Texas Gulf Coast to handle crude oil, transportation fuels and petrochemicals.

Lipow Oil Associates LLC provides consulting services to crude oil producers, midstream operators and refiners based on over 35 years experience in the oil industry.

Editor’s Note: Andrew Lipow, president of Lipow Oil Associates, will be the guest speaker at the Port Bureau’s Commerce Club on September 14, 2017. Register online at txgulf.org/commerce-club.

  • Date September 6, 2017
  • Tags Aug.-Sept. 2017