By Irina Slav
The news that the U.S. Army Corps of Engineers has placed a US$93-million order with Great Lakes Dredge & Dock Company for the deepening and widening of its ship channel at the Port of Corpus Christi (PortCC) broke last week in what was still a sluggish news environment. But it is significant news: this is the first step the federal U.S. government has made to support efforts to boost crude oil exports and it is also the first step in a competition dance between the Port of Corpus Christi and commodity major Trafigura.
Energy analyst David Blackmon noted the significance of the contract in a recent story for Forbes, adding it was part of a bigger port expansion project that would require US$360 million in funding. The port authority’s determination to see this project through despite the bulky price tag was made evident by its willingness to tap the debt market for the first time in its history and cough up US$130 million for the expansion. The rest would have to come from the federal government.
Why expand? Because U.S. crude oil exports are on the rise and will continue to be on the rise for some time, potentially reaching 4 to 5 million barrels daily. For context, this compares with last year’s all-time high of 2 million bpd, touched briefly in the first half of the year.
As exports rise it would make sense to cut loading costs by using larger tankers. However, there is only one port in the United States at the moment that can load Very large Crude Carriers, the monsters that can carry up to 2 million barrels of crude. This is the Louisiana offshore oil port and it mostly handles imports, hence the urgent need for more export terminals.
Corpus Christi can also—partially—handle VLCCs: part of the load can be pumped into them at the port but once it reaches a certain level the VLCC needs to move into the deeper waters of the Gulf of Mexico and have the rest of the cargo loaded by barges. The U.S. Army Corps’ channel dredging will make it possible for VLCC to use it and load crude at a terminal yet to be built by PortCC.
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PortCC wants this expansion to happen as quickly as possible: last year Trafigura threw its hat in the ring with a proposal to build an oil export terminal off Padre Island, to the south of Corpus Christi, threatening the future profitability of PortCC’s own expansion plans. There are also others planning export terminals in Texas and Louisiana.
“It’s the new Wild Wild West for crude midstream is that everybody wants to throw their hat in and have their own project,” the Houston Chronicle quoted a Wood Mackenzie analyst as saying last September. Indeed, the rush is on as production continues up although a certain slowdown in growth is possible this year as a result of the latest oil price slide. This production growth will soon get a boost from new pipelines coming on stream, supporting not just prices but greatly improving the time and costs of getting the crude to export terminals.
PortCC is being backed by Carlyle Group in its expansion plans, with the terminal slated to begin operation in 2020. Yet it will be hard work: the regulatory process around building an oil-loading terminal is very complex and on top of that, the contestants in the oil export capacity race would need to deal with problems such as workforce shortages, Reuters noted in a reportfrom October last year.