Gulf Coast Crude Oil Flood Preparations: The Terminal Operators

Included in The Survey

The table below lists the terminals that we did cover in the series - together with their owners, locations and links to the relevant blog in the series. The individual blogs contain maps, pictures, descriptions and even a few video links for the terminals. Also in the table we summarize the storage capacity of the terminals today as well as documented expansion plans. Those summaries show that terminal operators plan to build 19 MMBbl of new crude oil and condensate storage capacity between now and the end of 2016 – although some of those projects may take longer to complete.

Name	Location	Owner	Existing Storage	Storage Additions Planned	Link to Blog
ECHO	Houston	Enterprise Products	750 MBbl	900 MBbl by 2014, 6 MMBbl Eventual	ECHO and the Blending Men
Nederland	Beaumont/ Port Arthur	Energy Transfer Partners (Sunoco Logistics)	22 MMBbl	2 MMBbl for Motiva in 2012	Nederland Crude Wonderland
OilTanking	Houston Ship Channel	OilTanking	12 MBbl	7 MMBbl	Crude Accommodation At The Oiltank Inn
Magellan	East Houston	Magellan Midstream Energy Partners	2 MMBbl	1.4 MMBbl for BridgeTex Project	The Stocks of Magellan
LOOP	Offshore Louisiana	Marathon/Shell/Murphy/Valero	67 MBbl		Thrown for a LOOP Part I and Part II
St. James	St. James, LA	NuStar	9 MMBbl	2 MMBbl by 2016	Back to the Delta
St. James	St. James, LA	Plains All American	6.9 MMBbl	1.2 MMBbl - 2012	Plains Trains and Diluent Deals
Galena Park	Houston Ship Channel	Kinder Morgan		750 MBbl - 2013	A Kinder Magic

 

Handling The Flood

The themes that ran through our series on crude terminals reflect the changing landscape for crude oil supply into the Gulf Coast region that we have been documenting over the past year. In Oh-Ho-Ho it’s Magic – Will Gulf Coast Crude Flow Smoothly we listed the new pipeline projects bringing crude into the Houston area by 2015 – increasing local supplies by as much as 3.1 MMb/d. Just handling that volume of new crude is going to be a logistics challenge. This week (Jan 21, 2013) we learned that the Seaway pipeline capacity between Cushing, OK and Houston that was increased from 150 Mb/d to 400 Mb/d earlier in January had to be scaled back to 175 Mb/d by operator Enterprise. The company posted a notice to shippers stating that because of “unforeseen constraints in outbound takeaway…. the Jones Creek delivery point has reached maximum capacity”. We guess that means that even though capacity from Cushing increased by 250 Mb/d the infrastructure at the Houston end – including the Enterprise ECHO terminal – is not yet able to handle the new flow smoothly.  If the Seaway expansion experience is repeated with other new crude coming on stream then the next two years look like being a bumpy ride for producers and refiners trying to navigate Gulf Coast crude oil infrastructure.  The moral – don’t count on new capacity until it has operated for a while and the bugs have been shaken out.

Good Connections and Storage Capacity

Which brings us to a second theme that came across time and time again – the power of good connections and adequate storage capacity. Crude terminals are most valuable when they are connected to as many refineries and/or key pipelines as possible. The task at hand as new crude comes into the Gulf Coast region – by pipeline, rail and barge – is to redistribute that crude to refineries in bite size chunks that they can digest without choking. One of the smoothest example of how all this works is the huge storage and distribution operation at Clovelly, LA that receives imported crude from the LOOP offshore port. Since the 1990’s LOOP has been able to store incoming crude from Gulf of Mexico production and from supertankers discharging million barrel cargoes into its 67 MMBbl of cavern and above ground storage. The LOOP operation then smoothly batches up and redistributes the incoming crude to as many as 50 percent of the nation’s refineries through pipelines. The bad news for LOOP is that the terminal is now facing the wrong direction to continue performing this critical task because crude imports are declining and the new flows are coming from South and West Texas and from North Dakota and Canada via the Midwest. However - the same logistics challenges that LOOP handled so well will now face the new and expanded terminals in the Gulf Coast region. The more connections that these terminals have and the more storage - the more smoothly they will be able to handle the traffic. Storage capacity is critical because it provides slack and flexibility in the distribution system. Hence the plans to construct as much as 19 MMBbl of new storage capacity at the terminals we reviewed. The only terminal not building new storage is LOOP, which sadly does not need the extra capacity today.   

The Power of Blending

A third theme for crude terminal operators is the challenge of handling the growing mismatch between the light sweet quality of the majority of the new crude showing up at the Gulf Coast and the heavier crudes that many refineries are configured to process. As we discovered in “Turner Mason and The Goblet of Light and Heavy” complex refineries built to process heavy crudes cannot easily switch to light sweet crude. So although the new incoming crude should in theory just replace refinery supplies that were previously imported, that turns out not to be the case. Refiners will still require heavier crude supplies and only over time will they make expensive changes to their configuration in order to handle light sweet crude. The twist in this equation is that the US does not allow crude oil exports, so even though light sweet crudes are expected to push out imports by the middle of 2013 (see The Bigger Gulf Coast Supply Demand Picture) the resulting surplus of light sweet crude cannot be exported. So unless the U.S. export rules change,  Gulf Coast refiners will have to adapt to the new diet of crudes – because they will be cheaper than imported alternatives. The solution to this challenge in the short term is crude oil blending. That means mixing together different qualities of light and heavy crude to meet refiner’s needs. Refineries often do not have enough storage capacity or want to tie up the inventory needed for blending. Crude oil terminals have the storage and blending facilities necessary to create and distribute a palatable diet for Gulf Coast refiners.   

Trains, Barges and Ships

The fourth theme that we saw throughout the series was the importance of providing access to a terminal by multiple different modes of transport. The most popular new delivery mechanism in the Louisiana Gulf Coast is crude by rail tank car. We learned how both NuStar and Plains All American built out rail facilities in St. James and are using them to unload over 100 Mb/d of crude from North Dakota. Rail traffic has increased because it is a more flexible way to deliver crude supplies from land locked production basins to coastal refineries where price premiums justify the higher transportation cost. Rail also offers more flexible destinations and has proven to be a considerably quicker alternative to waiting for pipeline construction. Besides rail transport, waterborne barge and tanker loading and offloading facilities have also been popular expansion investments for terminal operators. The Gulf Coast region is divided geographically and logistically into an eastern refinery concentration in Louisiana and Mississippi and western refinery concentrations in Port Arthur, Houston and Texas City. The only open access pipeline link between these regions is the Shell Houston to Houma (Ho-Ho) pipeline that we covered in a separate blog series (see Oh-Ho-Ho it’s Magic). That pipeline is in the process of being reversed to run from Houston to Houma, LA. So far only the first phase of the reversal – between Houston and Nederland, Port Arthur is operational. This lack of pipeline capacity between the eastern and western refining concentrations creates a big logistical problem. That’s because most of the new crude arriving by pipeline will come into Houston and a good deal of that crude is suited to refineries configured for light sweet crudes that are located in Louisiana. Given the lack of pipelines between east and west regions, waterborne movement and access for coastal barges and tankers are critical capabilities for terminal operators to offer. Those terminals we reviewed that do not currently have dock facilities are rapidly developing them. Waterborne dock facilities are also required to handle increasing supplies of South Texas Eagle Ford crude being shipped from the Port of Corpus Christi, TX along the Gulf Coast to Houston and St. James.

Responding to the Challenge

Finally we should highlight the theme of rapid response and flexibility. Crude oil terminal operators have quickly planned and built out new facilities to take advantage of the opportunities the new crude supply situation creates. They have adapted well to changing circumstances such as the sudden growth in rail traffic. Companies such as Plains and Kinder Morgan have built out networks to facilitate the movement of condensate several thousand miles from the Eagle Ford to Western Canada. LOOP is doing its best to find new opportunities to use its assets in a changing marketplace – by facilitating access for coastal traffic from Corpus Christi and improving its blending capabilities to better serve refinery needs. The marketplace is working.

However as the setback that Enterprise suffered last week on the Seaway pipeline proves, the next two years will indeed be challenging for midstream crude logistics in the Gulf Coast region. The pace of the changes that have already been made is remarkable – and will continue to be with the 19 MMBbl of new storage capacity coming online.   As we have learned – crude terminal operators in the right location with the right facilities look set to benefit significantly from the process of rewiring and blending supplies to Gulf Coast refineries. Hopefully the preparations that these operators have made in expanded infrastructure will prove capable of handling the flood of new crude.

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