Blue Marlin Blues - Can a Low-Cost Offshore Crude Export Terminal Hook Shippers?

U.S. crude oil exports are off from the record highs they reached earlier this year, leaving the Gulf Coast even more flush with surplus export capacity than it had been going into 2020. And yet … Energy Transfer is developing an crude export terminal off the coast of Beaumont, TX, that would be capable of fully loading a 2-MMbbl VLCC every day or so. Is the company’s Blue Marlin project based simply on a hunch that U.S. oil production and exports will rebound over time and eventually leave PADD 3 short of dock and ship-loading capacity? Or is Energy Transfer’s proposed offshore terminal, with its extensive re-use of existing infrastructure, a cost-efficient way of giving oil-sands, Bakken and other producers more direct access to deep water and the supertankers that long-distance shippers prefer? Today, we discuss what may be behind the seemingly long-shot effort to develop new export capacity in a region that’s already got way too much.

A few years ago, in an underappreciated track on George Strait’s Grammy-nominated album, I’m Here for a Good Time, the country music legend sang about a long, frustrating day he spent out in the deep waters of the Gulf of Mexico fishing for, yes, blue marlin. The refrain goes like this:

I got the blue marlin blues
From my hat to my shoes
I used to catch 'em in twos
No matter which bait I choose
How many more can I lose
They got me drinkin' the booze
I got the blue marlin blues

Several months ago — just before the novel coronavirus arrived — a slew of midstream companies were still pushing plans to build offshore terminals for loading crude oil onto VLCCs, and hoping to “hook” shippers into signing long-term contracts to support their projects’ development. Hardly anyone bit. As much as shippers crave the ability to fully load those crude-carrying behemoths in one place (instead of loading them piecemeal via reverse lightering), they were understandably wary of making long-term commitments. Then came COVID-19, and shippers’ wariness proved to be prescient. Expectations for rapid growth in U.S. crude oil production and exports dimmed, midstream companies reeled in their capital spending plans, and shippers came to accept that — for now, at least — they could live with either (1) transporting their oil by Suezmaxes or Aframaxes, (2) reverse lightering crude onto VLCCs in the deep waters of the Gulf, (3) partially loading VLCCs at the few onshore ports capable of doing so and topping them off offshore via reverse lightering, or (4) loading VLCCs at the Louisiana Offshore Oil Port (LOOP), which remains the only PADD 3 terminal capable of filling those supertankers to the brim.