Let It Go - Will New Crude Export Terminals Be 'Frozen' in Favor of Expansions?

In our blogs and at our 2019 School of Energy a couple of weeks ago, we’ve spent a lot of time discussing the ins and outs and pros and cons of a multitude of proposed crude oil export terminals. What we’ve come to believe is that, with U.S. production growth appearing to slow and market players fearful of overbuilding, many of these multibillion-dollar greenfield projects are unlikely to advance to financing and construction. Odds are that the midstream sector instead will focus on ways to add new capacity to existing terminals, even if that means still relying on reverse lightering in the Gulf of Mexico to fully load Very Large Crude Carriers (VLCCs). In today’s blog, we discuss why producers, traders and midstreamers alike may be pulling back from investments in big, expensive export projects, and what it could mean down the road.

Exports of oil, gas, and NGLs are still the topic du jour in the U.S. energy sector, and with good reason. From a crude oil perspective, the forward curve is not very exciting — prices in the low-to-mid-$50s as far as the eye can see — nor is it very supportive of faster production growth. Permian pipeline deals were all the rage in early 2019, but as the Gray Oak Pipeline begins line fill in November, that system will be the last big addition to the basin until 2021. Yes, there are some interesting developments in the Rockies, some possible new pipes in Cushing, and some marginal production gains in other spots around the U.S., but overall, there isn’t a whole heck of a lot of intrigue and mystery in most parts of the domestic crude market. That is, except for exports and how new and existing terminals will fare in their quest to move oil, gas, and NGLs to overseas markets.  

Since the ban on exports of U.S. crude was lifted in late 2015, we’ve seen substantial growth in export volumes. In 2016, the U.S. exported about 500 Mb/d, on average. In 2017, that number jumped to 1.1 MMb/d. Then in 2018, it nearly doubled to 2 MMb/d, and it’s been averaging almost 2.9 MMb/d so far in 2019. But this year has been even more interesting for exports because of upstream developments, and increasing volumes at different terminals. As we touched on above, the wave of new Permian pipelines has relieved congestion in West Texas, and is pushing more and more crude to the Gulf Coast. Also, we’ve seen a real diversification in export points. Previously, Houston and Beaumont (the two largest pie-chart circles in Figure 1) were the primary targets of opportunity, accounting for a large percentage of the export volumes out of Texas ports. The Louisiana Offshore Oil Port (LOOP; lime-green segment in circle to far right), was also a big piece of the export pie, given its ability to fully load VLCCs without reverse lightering. But as new pipelines like Cactus II and EPIC have begun service from the Permian to Corpus Christi, that South Texas port (circle to far left) has seen its loaded cargoes increase significantly. Exports out of Corpus, which had previously averaged around 500 Mb/d, have averaged over 1 MMb/d since the end of August. [This is all data that we track weekly in our Crude Voyager report.]