June 2019, Vol. 246, No. 6
Features
Terminal Expansions Aid Permian Basin Exports
By Kathryn Clay, President, International Liquid Terminals Association
The re-emergence of the United States as a leading power in energy markets is good news for all Americans. A secure and resilient energy sector helps all end-users here at home, from manufacturers to residential consumers.
Growing our energy exports will help our balance of trade and will strengthen our economy. Now is the time to take the steps needed to prepare for our future as a global energy leader. This will involve changes already underway and additional efforts to ensure that we have the infrastructure needed to take advantage of rapidly growing domestic production.
To date, much of the focus has been on pipelines, but other infrastructure – including terminals and ports – also require expansion to ensure that the system functions efficiently.
Changing Landscape
The U.S. energy landscape has undergone significant changes in recent years, with dramatic expansion in both existing oil and natural gas basins and in areas outside traditional oil and natural gas producing regions. For the first time in 75 years, the United States has become a net oil exporter. U.S. crude oil production is expected to average 11.7 MMbpd in 2019 – a level that would surpass the previous record of 9.6 MMbpd, set in 1970. Much of this extraordinary production growth is coming from tight oil drilling in the Permian Basin of western Texas and eastern New Mexico.
Production in that region is expected to account for more than half of the growth in crude oil production in 2019. The Permian’s importance is expected to increase even more in the years ahead and could rise by another 60% by 2030, according to the Energy Information Administration (EIA), the statistical arm of the Energy Department.
As U.S. crude oil production declined in past years, most U.S. refineries became configured to handle cheap, heavy crude oil imports from Saudi Arabia, Mexico and Venezuela. But the Permian Basin produces a high-quality light, sweet crude that is incompatible with most current U.S. refining capacity. While retooling our refineries is an option, it would be neither quick nor cheap. As a result, most Permian crude in the near term is destined for export.
Until recently, pipeline capacity constraints have dampened wellhead prices for the region’s oil producers. This is starting to change, for example with the extension of the Sunrise Pipeline and the repurposing of the Seminole-Red pipeline. Sunrise will add an estimated 120,000 bpd of takeaway capacity from the Permian with increased delivery capacity to Cushing.
The Seminole-Red pipeline, which had previously delivered natural gas liquids from the Permian region to the Gulf Coast will add an estimated 200,000 bpd of crude takeaway capacity. Overall, companies have announced plans to build 9 million barrels in new pipeline capacity out of the Permian. But pipeline capacity is not the only problem.
While a great deal of attention is rightly focused on pipeline capacity, attention must also be given to the infrastructure needs for logistics, storage and transport of crude oil and natural gas liquids that extend beyond the end of the pipeline. Just like pipelines, liquid terminals are essential components of energy infrastructure. Ports and terminal provide essential services that enable these commodities to transition onward to carrier vessels.
Terminals accept products like crude oil and natural gas liquids from multiple transport modes – pipelines, rail, tanker trucks, marine or barge – and facilitate onward transport through the same diverse modes of transportation. New terminals, and expansions of existing terminals, are essential to absorb new capacity from pipelines out of the Permian.
In September 2017, U.S. Secretary of Energy Rick Perry requested that the National Petroleum Council (NPC) analyze the changing dynamics of U.S. oil and natural gas transportation infrastructure. His official request specified that the study should consider not only needs for pipelines, but also waterways, truck, rail, storage, and related system components. In support of the study effort, ILTA has been pleased to provide information related to current trends and projections for terminal expansion and new construction.
As in the case of pipelines, existing terminal capacity will be insufficient to handle all the new crude oil coming out of West Texas. Consequently, investors are looking beyond the Houston Ship Channel to other West Texas ports, such as Corpus Christi. To date, nine new deepwater terminals are planned for Texas and Louisiana, with the first startups likely at the end of 2019.
Harbor Infrastructure
Fundamentally, a well-maintained port system is vital to energy exporters of all kinds to connect their products to markets around the world. A great deal of dredging and ongoing maintenance is needed on a continual basis, just to keep from falling further behind.
To give a sense of the scale of the needed investment, each year, several hundred feet of sand, gravel and silt must be removed from U.S. waterways and harbors to keep pace with their accumulation. According to the U.S. Corp of Engineers, the amount of accumulation each year would be enough to create a four-lane highway, four feet deep, stretching from New York to Los Angeles.
Another challenge we face is the ability of Texas ports to accommodate very large crude carriers (VLCC), or supertankers. Currently, only one U.S. port – Louisiana Offshore Oil Port (LOOP) – can handle these vessels capable of carrying up to 2 MMbpd of crude.
While LOOP was the first to move into this space – opening to VLCCs after undergoing a $180 million expansion in 2018 – other ports will need to follow.
Harbor Maintenance
Congress originally created the Harbor Maintenance Trust Fund (HMTF) to ensure that our nation’s ports, waterways and harbors receive the investments they need to remain safe, efficient and globally competitive.
The HMTF is assessed on the value of imports and on domestic shipments through waterways. The current rate assessed, and transferred to the HMTF, is 0.125% on the value of the commercial cargo shipped through the ports.
Unfortunately, in recent years we have failed even to keep pace with cumulating needs for investments in our ports and waterways. For years, Congressional appropriators have significantly underutilized the HMTF.
As of January 2019, the HMTF held an unappropriated balance of $9.7 billion dollars. ILTA has urged that Congress rededicate the HMTF to its original, intended purpose. ILTA calls on Congress to move forward with a plan developed by the American Association of Port Authorities (AAPA) to restore and fully maintain our nation’s port infrastructure.
Secretary Perry has provided the right vision in his call for the NPC study. Industry and the investment community are stepping up to the challenge as well. It’s time for Congress to join us in making our energy infrastructure a priority – from the pipelines and through the terminals and the ports beyond that are the last gateways from our shores to overseas trade. P&GJ
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