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Magellan may partner with Sentinel on Texas oil export terminal

Highlights

Magellan would connect the Texas GulfLink terminal to its Houston hub

In January, Sentinel signed Freepoint Commodities as a partner

Enterprise Products and Enbridge recently teamed up on competing project

Houston — Magellan Midstream Partners said Friday it may partner with Sentinel Midstream on plans to build a deepwater oil-exporting terminal offshore the Houston area.

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The race to build offshore oil terminals is heating up as projects consolidate and companies compete to be the first movers in the region to accommodate Very Large Crude Carriers to move oil from the Gulf of Mexico.

If Magellan and Sentinel marry their efforts, Sentinel would still lead the Texas GulfLink project, while Magellan would build the pipeline to connect its large East Houston storage and distribution system to the offshore terminal. The deeper water depths offshore are needed for the VLCCs to load up to capacity.

In January, Sentinel added momentum by signing on oil and gas trader Freepoint Commodities as a new partner on the project. Texas GulfLink, as proposed, would to load up to 1 million b/d of crude, essentially able to fill up one VLCC in two days.

Magellan has long weighed whether to build its own deepwater terminal offshore Houston or Corpus Christi, but it never submitted any formal plans, and it is now focused on teaming with Sentinel. Magellan declined to give any specifics on when a final decision may be reached.

STAUNCH COMPETITION

Texas GulfLink is competing directly with the SPOT Terminal proposed by Enterprise Products Partners and, now, Enbridge. SPOT - Sea Port Oil Terminal - received a final investment decision from Enterprise last summer after Chevron signed on as the anchor customer. In December, Enbridge decided to abandon its competing Texas COLT project and partner with Enterprise instead.

SPOT would be able to load 2 million b/d and simultaneously two VLCCs at a time. Both SPOT and Texas GulfLink are proposed to be built about 30 miles offshore of Freeport. Still, there is some debate about whether there will be enough demand to satisfy the existence of two nearby offshore terminals. So there is the possibility that only one will be built.

SPOT is considered to have a head start. Enterprise has said it expects to receive a federal permit for SPOT in the second quarter of 2020, with construction taking up to two years.

BEVY OF PROPOSALS

The United States is currently exporting close to 3.5 million b/d of crude oil with the capacity to ship out more than 7 million b/d, according to S&P Global Platts Analytics. If all the proposed projects are built, the capacity would rise to more than 13 million b/d by the end of 2021 with export volumes only expected to approach 4.5 million b/d by then, according to Analytics.

Texas GulfLink and SPOT are two of the four offshore oil terminals with applications pending review under the US Maritime Administration.

The others are proposed for offshore of Texas near Corpus Christi: the Phillips 66-led Bluewater project and the Trafigura-led Texas Gulf Terminals.

Other proposed deepwater projects that have not filed their applications include Texas terminals offshore of Brownsville and Nederland, Texas, as well as one in southeastern Louisiana. Energy Transfer CEO Kelcy Warren said earlier this week that it is moving forward with its project offshore of Nederland, but that a final investment decision won't come until later this year.

Only one Gulf of Mexico port, the Louisiana Offshore Oil Port, called LOOP, can fully load VLCCs currently without lightering from smaller vessels.