A high-stakes competition is emerging among energy exporters proposing multi-million-dollar crude terminals along the U.S. Gulf Coast to handle a gusher of shale oil coming from West Texas oilfields.
On Oct. 30, private equity firm Carlyle Group became the latest to place a bet, proposing with the Port of Corpus Christi what it said would be the first onshore U.S. export facility able to load the world's largest crude tankers.
The winners of the export terminal race likely will be those best able to navigate a regulatory process that includes multiple government approvals and overcome labor and supply shortages that have already frustrating some early projects to expand export infrastructure.
The contest comes as the shale revolution is expected to send the nation's oil production to 11.8 million barrels per day (MMbbl/d) by the end of 2019, from 9.35 MMbbl/d in 2017, according to the U.S. Energy Information Administration.
Existing coastal terminals could be overwhelmed by late next year as a flurry of new pipelines come into operation and move 2 MMbbl of oil landlocked in West Texas to the Gulf Coast, say oil companies and analysts.
Carlyle's facility, which aims to begin operations by late 2020, will compete with other Texas and Louisiana projects proposed by Swiss-trader Trafigura AG and pipeline operators' Enterprise Products Partners LP and Tallgrass Energy LP.
Enterprise and Trafigura have not provided timelines, noting permits must be secured first. Tallgrass says it hopes to provide an offshore crude loading terminal off the Louisiana coast by the third quarter of 2021, roughly a year behind Carlyle's estimate.
Each aims to fully load very large crude carriers (VLCCs)tankers able to carry up to 2 MMbbl of oil to markets in Asia, Latin America and Europe. Most would require running pipelines away from ports and into the deeper parts of the ocean to allow loading of the larger ships.
All of these proposals face significant licensing and other hurdles. Like others, the Carlyle-Port of Corpus Christi project, must pass lengthy state and federal approvals. It also must await completion of an Army Corps of Engineers project that has been delayed about a year, said Sean Strawbridge, chief executive officer of the Port of Corpus Christi Authority.
"One of the challenges is there more dredging demand than there is capacity in the United States right now," he said. For the project to hit its 2020 target date, it would have to secure permits by next spring and find dredging contractors to work immediately after finishing the Army Corps' project, he said.
Although shale production is expected to rise substantially, it will not fill all the proposed projects, said John Coleman, an oil market analyst at research firm Wood Mackenzie.
"Everyone is racing to throw their hat in the ring and get their project done before everyone else," he said. Only one or two of the five proposed offshore ports likely will be needed. "There's simply not enough oil volumes to go around."
Total U.S. crude exports hit a record 3 million bpd in June, and analysts say the ceiling is around 5 million bpd, which is less than the capacity of the export terminals beings considered.
"You can't build all these terminals, so there is an advantage to being among the first," Sarah Emerson, managing principal at consultancy ESAI Energy LLC, said on Oct. 30.
Currently, more than 60% of U.S. crude exports move through Corpus Christi's port. Its exports this year rose about 94,000 bbl/d in the first nine months from 518,000 bbl/d in 2017.
Oil producer ConocoPhillips, which has exported about 10 million barrels of crude from its South Texas operations from Corpus Christi this year, expects port facilities to be strained when coming pipelines open.
“There is probably going to be some tightness, particularly at Corpus probably in late '19 when these pipes start up,” said Don Wallette, Conoco's finance chief. However, port expansion from Houston to Corpus Christi will resolve the problem, he said.
The danger for oil producers is the pipeline congestion that has landlocked crude in West Texas becomes a Gulf Coast port congestion by 2020. The U.S. refining industry cannot consume all of the projected oil production.
The nation began an export-infrastructure building spree after former President Barack Obama in 2015 lifted a 1970s-era ban on U.S. crude exports. But as Corpus Christi's experience shows, that building boom has driven up prices for needed dredging.
Its initial project to deepen a shipping channel to 54-feet (16.5-m), enough to accommodate tankers carrying 1 million barrels of oil, is being renegotiated after bids were more than 125 percent of the budget for the work. With Carlyle, it aims to take a portion of the channel to 75-feet deep.
"These projects aren't going to get any cheaper and the longer they take, the more expensive they're going to be," said the Port of Corpus Christi's Strawbridge.