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Offshore crude export hopefuls may face project permitting pains

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Offshore crude export hopefuls may face project permitting pains

With three deepwater offshore permit applications filed between August 2018 and January, oil export opportunities appear to be gaining momentum, but the ostensibly tightly timed environmental review process may actually have more room for drag to slow the application process than prospective exporters would prefer.

Attorneys who specialize in offshore energy infrastructure development said that environmental and fisheries-related issues, as well as adjacent coastal states' veto power, will likely stop the clock on the Deepwater Port Act's roughly year-long timeline for licensing projects, which could push back commercial service across the Gulf Coast amid rising demand abroad for U.S. shale oil.

"Everyone has this kind of false hope ... that, 'Oh, it's going to be great, we're going to get a license within a year,'" K&L Gates LLP partner David Wochner said in an interview. "What happens is that 356-day requirement ends up going out the window."

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The allotted 356-day assessment period includes the preparation and publication of an environmental impact statement, the same document necessary for FERC-regulated infrastructure projects to obtain a full authorization, in order for the U.S. Department of Transportation's Maritime Administration to issue a license for an offshore terminal. If there is an issue with that process, the U.S. Coast Guard, which is responsible for doing the permitting legwork, can recommend that the Maritime Administration, or MARAD, stop the clock.

Those types of pauses can drag out the process to closer to two and a half years, according to Blank Rome LLP partner Jonathan Waldron.

"It often occurs because there may be inadequate information or permitting delays, often due to environmental issues. ... The applicant is sometimes forced to even ask for the clock to be stopped even if it doesn't want to because they're faced with the fact that if they don't, their project won't be approved because they maybe can't get all the environmental reviews done within the allotted time frame," Waldron said in an interview.

He added that offshore crude export facilities could experience the same permitting problems that offshore wind farms have faced, including opposition from the fishing industry, which has hampered turbine development in Rhode Island and Maryland.

Environmental opposition, which has delayed natural gas projects like the Williams Cos. Inc.-led Constitution pipeline that already obtained federal approval and prevented others like Pembina Pipeline Corp.'s Jordan Cove LNG export terminal from receiving that authorization, makes licensing offshore oil export terminals even more complicated.

"Getting projects to understand from the beginning that the application process for a deepwater port project looks much more like a traditional ... FERC-regulated interstate pipeline or LNG export terminal is crucial," K&L Gates' Wochner said.

That application process seems to have deterred gas pipeline giant Kinder Morgan Inc., whose Elba Island LNG terminal is nearing startup following delays, from partnering with Enbridge Inc. and Oiltanking GmbH on the Texas COLT crude export terminal offshore Freeport, Texas, that would be capable of loading very large crude carriers, or VLCCs, by 2022. Kinder Morgan recently divested its stake in the planned project after deciding it "does not align with [its] strategic priorities," adding that it also considered the necessary commitment to move the project through a regulatory phase.

Another provision of the Deepwater Port Act that can cause permitting delays is the requirement that the governor of the adjacent coastal state sign off on any proposed offshore crude export project, which according to Wochner "can be a significant component of the regulatory process."

Both Texas COLT and Enterprise Products Partners LP's Sea Port Oil Terminal, which also plans to fully load VLCCs starting in 2022, submitted applications to MARAD earlier this year, while Swiss commodities trader Trafigura Pte. Ltd., is awaiting the release of its Texas Gulf Terminals Inc. facility's draft environmental impact statement.

Trafigura, however, has seen opposition from a nearby onshore project under development by the Port of Corpus Christi and investment firm Carlyle Group LP. Attorneys for the port in August 2018 asked the Coast Guard and MARAD to withdraw Trafigura's application on the grounds that it did not detail the company's 2006 federal conviction for bypassing restrictions on sales of Iraqi oil established after the Gulf War in 1991. Port of Corpus Christi CEO Sean Strawbridge also has said that the project threatened the state of Texas' sovereignty.

The only offshore energy export facility that has completed the deepwater regulatory timeline is Fairwood Peninsula Energy Corp.'s floating Delfin LNG project. The developer applied to the Coast Guard and MARAD in May 2015, and received approval in March 2017 on the condition that FERC authorized its onshore components. The commission granted Delfin LNG a certificate of public convenience and necessity for those components in September 2017, but MARAD has still not issued the project its license. Fairwood still expects Delfin LNG to begin operating in 2021 or 2022, according to the project's website but has not yet made a final investment decision. Neither MARAD nor Delfin LNG responded to requests for comment about why the license has not been granted.

The regulatory process for onshore crude export terminals, on the other hand, has no formal lead agency, and instead relies on state authorization with federal engagement from departments like the EPA, Coast Guard and U.S. Army Corps of Engineers, which issues environmental permits for dredging. States' jurisdiction can help those projects move forward faster than offshore facilities, Wochner said.

"They tend to be located in Gulf Coast states that just generally at the state level ... are perhaps friendlier toward the industry," he said. "They have staff in place that can move the application forward quickly."

That does not eliminate regulatory setbacks, however. Carlyle and the Port of Corpus Christi's proposed terminal on Harbor Island could be delayed by up to 18 months until early 2022 after the Army Corps recently decided it requires an environmental impact statement instead of an environmental assessment, which takes much less time to complete, Reuters reported in March. Carlyle is spending $400 million to dredge the ship channel from 54 to 75 feet so that it will be capable of fully loading VLCCs.