I’m Waiting For The Crude – Texas Gulf Coast By-Pass Options

When over 4 MMb/d of new crude transportation capacity opens up to the Texas Gulf Coast by the end of 2015 shippers are likely to face congestion getting their supplies to refiners in the region. Given the U.S. Department of Commerce ban on exports, some of that crude needs to find a home elsewhere. Pipeline options to get crude supplies to Eastern Gulf refineries are limited to the Ho-Ho reversal project. Today we examine shipper alternatives.

The first episode in this series described 4 MMb/d of current and planned expansions to crude transportation capacity into the Texas Gulf Coast region (see Handling The Texas Gulf Coast Crude Flood). Once this new capacity is taken up, the volumes shipped will exceed local refining capacity in the Texas Gulf region of 3.7 MMb/d. And we cannot assume that the local refineries will actually consume 3.7 MMb/d of this new incoming crude. Our analysis shows that the new incoming light crude capacity will exceed Texas Gulf Coast demand by somewhere north of 0.5 MMb/d by the end of 2015. In episode two we described how some of these excess crude supplies would move east on the reversed Ho-Ho pipeline (see Gulf Coast Crude West to East Flows). But the Ho-Ho has limited capacity from Houston to Port Arthur (250 Mb/d) and from Port Arthur to Houma, LA (375 Mb/d) that may still be swamped by incoming supplies. This time we look at alternative routes to market for crude that might otherwise be destined for the congested Texas Gulf Coast region.

Eastbound

In addition to Ho-Ho – the transport options to move crude East from the Texas Gulf Coast to Louisiana are by rail or barge (assuming that truck movement is too expensive). Barge shipments are typically less expensive than rail and most Gulf Coast crude distribution terminals and refineries have existing waterborne access. As a result there are a number of ways that barge movements could help by-pass or reduce congestion at the Texas Gulf Coast by diverting supplies east.  But before covering west to east movements in the Gulf Coast region itself we should first review waterborne options for crude shippers in the Midwest – who can by-pass Texas Gulf Coast congestion using the Illinois and/or Mississippi Rivers.

Several barge terminals in the Midwest allow direct deliveries to refineries on the Eastern Gulf Coast. Such deliveries would, in effect, divert barrels to Louisiana that would otherwise travel through the Midwest to Cushing and then south to Texas. We discussed that route in our analysis of crude by rail destination terminals on the Mississippi River for heavy crude from Canada (see Go Your Own Way) and light sweet crude from the Bakken (see The Bakken St James Shuttle and Good Year for the Barges). There is also an option to ship crude by truck from Cushing, OK to the Port of Catoosa (near Tulsa, OK) and then by barge down the Arkansas River to the Mississippi. Right now such waterborne options are not favorable because of narrow crude price differentials between West Texas Intermediate (WTI) crude at Cushing and Light Louisiana Sweet (LLS) crude at the Gulf Coast. Those differentials mean producers get better netbacks shipping their crude to Cushing or to the East and West Coasts than to the Gulf (see Goodbye Stranger). Nevertheless the current price differential environment continues to be subject to rapid change so that alternative waterborne routes to the Gulf Coast that by-pass Texas remain important options.

In terms of barge movements across the Gulf from Texas to Louisiana, significant volumes of Eagle Ford crude and condensate are currently being moved out of the Port of Corpus Christi – 387 Mb/d during August 2013 according to the Port - either by barge along the Gulf Coast to refineries in Houston and further East in Louisiana and Mississippi or by tanker up the Atlantic seaboard to Philadelphia and New Jersey refineries or even further north to Canada (see Sittin’ on the Dock of the Bay and Float On). A major constraint on continued expansion of these movements is the limited fleet of barges available that meet Jones Act regulations for such coastal movements (see The Sea and Mr. Jones). The Jones Act vessel limitations do not apply to tankers shipping crude to Eastern Canada although those exports require a license from the Department of Commerce -  Bureau of Industry and Security (see The Lease Condensate Export Problem).

Also limiting barge and tanker movements out of Corpus Christi are dock loading capacity constraints (see We’re Jammin’). However, a recent announcement by Trafigura AG is reliable evidence of midstream operators working to overcome such constraints. Trafigura currently operate the Texas Dock and Rail facility at Corpus (see picture below). They have agreed to use a repurposed 82-mile section of Energy Transfer Partner’s Houston Pipeline System (converted from natural gas) to transport up to 100 Mb/d of crude and condensate from McMullen County, TX in the Eagle Ford basin to Corpus Christi. The resulting South Texas pipeline system is expected to be operational by the end of 2014. Trafigura is also building a second deep-water dock at their terminal capable of loading a 750 MBbl Aframax vessel. The addition of the second dock will allow Trafigura to load three medium range tankers and two inland barges at the same time.

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