As US crude exports increase, the race is on to build Gulf Coast terminals, however, some analysts say if all the proposed projects are built, there may not be enough crude for them.  Port of Corpus Christi photo.

US crude exports rose after President Obama relaxed 1970s-era banin 2015

Rising West Texas shale production is fuelling a race to build multi-million-dollar crude export terminals along the US Gulf Coast.

On Monday, Carlyle Group proposed to build the first onshore US crude export facility that could load very large crude carriers, or VLCCs at the Port of Corpus Christi.  These tankers can carry up to 2 million barrels of oil to markets in Asia, Latin America and Europe.

“Providing VLCC access at the Port is of critical importance to the United States, and we will collaborate with all stakeholders to ensure such service is provided,” Ferris Hussein, managing director on Carlyle’s Global Infrastructure team, said in a press release.

Carlyle will compete with other Texas and Louisiana projects that have been proposed by Switzerland’s Trafigura AG and pipeline operators’ Enterprise Products Parnters LP and Tallgrass Energy LP.

According to Carlyle, its facility could be up and running by late 2020 while Enterprise and Trafigura have yet to provide timelines, noting they have yet to receive permits.  Tallgrass says it hopes to have its Louisiana Gulf Coast facility operational by the third quarter of 2021.

All companies will have to be granted a number of government approvals and find ways to overcome labour and supply shortages.  After former President Barack Obama lifted a 1970s-era ban on US crude exports in 2015, a building boom in the Gulf drove up prices for necessary dredging work.

“These projects aren’t going to get any cheaper and the longer they take, the more expensive they’re going to be,” Strawbridge told Reuters.

With oil production in the United States expected to hit 11.8 million barrels per day (b/d) by the end of next year, existing coastal terminals will likely be inadequate for the expansion in output.

New pipelines to carry crude from the Permian Basin to the Gulf Coast are also in the works, and with some pipelines expected to be operational by next year, export terminals will be overwhelmed.

“There is probably going to be some tightness, particularly at Corpus probably in late ‘19 when these pipes start up,” said Don Wallette, CFO and Executive VP of Finance & Commercial with ConocoPhillips. Wallete adds that port expansion from Houston to Corpus Christi will solve the problem.

To accommodate VLCCs, the port facilities would require pipelines to be run away from ports to deeper parts of the ocean to allow for the loading of the larger tankers.

Along with licensing and other hurdles, completion of the Carlyle project also requires the completion of an Army Corps of Engineers project which has already been delayed about a year, according to Sean Strawbridge, chief executive officer at 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 told Reuters. Strawbridge added that for the Carlyle project to be finished by its 2020 goal, the company needs to secure permits by next spring and find dredging contractors available to work immediately following the completion of the Army Corps’ project.

A significant issue for these companies vying for project approvals is that while shale production is on the rise, it is not expected to be enough to fill all the proposed projects, according to John Coleman, an oil market analyst with Wood Mackenzie.

“Everyone is racing to throw their hat in the ring and get their project done before everyone else,” he told Reuters. Coleman argues that only one or two of the five proposed offshore ports likely will be needed. “There’s simply not enough oil volumes to go around.”

In June, total US crude exports hit 3 million b/d and analysts say the ceiling is about 5 million b/d.  This is less than the capacity of the proposed export terminals.

“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, told Reuters.

“Corpus Christi is certainly where the incremental barrels want to go as we have deep water, availability of land for development and plenty of capacity to absorb the forecasted U.S. energy production growth in oil and gas. Corpus Christi is open for business,” said Charlie Zahn, chairman of the Port of Corpus Christi Commission.

Port Corpus Christi is the 4th largest port in the United States in total tonnage and the leading U.S. crude oil export port.  Strategically located on the western Gulf of Mexico with a 36-mile, 47-foot (MLLW) deep channel, Port Corpus Christi is a major gateway to international and domestic maritime commerce.