Energy Transfer LP officially entered a slow race to build deepwater crude oil export terminals in the Gulf of Mexico that can accommodate the largest oil tankers.
Even with an industry trend toward cost cutting during the coronavirus pandemic, Energy Transfer applied to build the Blue Marlin Offshore Port off the coast of southwestern Louisiana that would connect through pipelines to the company's crude storage hub in Nederland, Texas. In a move just before the application, Energy Transfer slashed its dividend payouts by 50% in October.
Energy Transfer's request for authorization by the U.S. Maritime Administration, known as MARAD, joined efforts by Enterprise Products Partners LP and Enbridge Inc.'s Sea Port oil terminal, or SPOT, offshore of the Houston Ship Channel, as well as Phillips 66 and Trafigura Group Pte. Ltd.'s Bluewater project offshore of the Port of Corpus Christi. But both of these projects have been delayed during the pandemic and will not receive federal approvals until 2021 at the earliest.
Most energy analysts contend there will only be enough demand to accommodate one or maybe two deepwater oil export projects. The licensing and approval processes through MARAD and the U.S. Coast Guard will take more than a year for the Energy Transfer project, giving the company time before it has to make a final investment decision.
The pandemic dampened surging U.S. crude exports and reduced the urgency to build the offshore export terminals. Crude exports fell from an all-time high of 3.71 million barrels per day in February down to a 2020 monthly low of 2.75 million b/d in August. In the last four weeks, crude exports have averaged about 2.81 million b/d, according to the U.S. Energy Information Administration, with few signs of improving much in the near term.
But none of the deepwater port projects will be completed before 2023, so the expectation is that the oil industry could largely recover by then.
Energy Transfer has long considered building a crude export port offshore of Nederland, but it waited as the Enterprise- and Phillips 66-led projects took the lead in the race to be first movers. Enbridge and Trafigura shelved their own projects in order to partner with Enterprise and Phillips 66, respectively.
Now, as the competing projects remain dormant, Energy Transfer has made its move. The only other pending application is from Sentinel Midstream LLC's competing Texas GulfLink project offshore Houston.
Sandy Fielden, director of oil research at Morningstar, said that despite the unusual timing, the Energy Transfer proposal could make sense as the best way to export crude from the Bakken Shale thanks to its geography and pipeline connections. The SPOT and Bluewater projects would instead focus on shipping crude from the Permian Basin and the Cushing, Okla., storage hub.
Fielden noted that Energy Transfer plans to expand its Dakota Access Pipeline from the Bakken, although the pipeline is still threatened with a potential shutdown in pending federal court cases. Blue Marlin likely would have shipper interest, Fielden said.
Energy Transfer did not immediately respond to requests for comment and project details, but the Blue Marlin application described a project that would service one very large crude carrier at a time and load up to 1.9 million b/d of crude oil, or 80,000 barrels per hour. Very large crude carriers, known as VLCCs, can hold close to 2 million barrels of crude each.
Energy Transfer said it would convert its existing West Cameron 509 platform from natural gas to accommodate the crude oil exports. Energy Transfer would build a new pump station in Nederland and a 37-mile pipeline from Nederland to its existing Stingray Pipeline system in Cameron Parish, La. The Stingray system also would be switched from gas service to crude oil. The project would require new pipelines from the converted WC 509 platform to a VLCC mooring system. Blue Marlin would connect to the tankers using large buoys, called catenary anchor leg moorings.
Currently, VLCCs in the Gulf of Mexico region can only partially load at most onshore docks and then fill up the rest of the way offshore from other ships in a process called reverse lightering. Only one Gulf of Mexico port, Louisiana's LOOP, can fully load VLCCs without lightering from smaller ships.
Jordan Blum is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.