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What It Takes - Why Enterprise's Offshore Crude Export Terminal Reached FID

The news has been out for a few days now: Enterprise Products Partners announced last Tuesday, July 30, that, thanks to new agreements with Chevron, the midstream company has made a final investment decision to proceed with its Sea Port Oil Terminal (SPOT) about 30 miles off the coast of Freeport, TX, pending regulatory approvals. Being out front on this is critically important; even with significant growth in crude oil export volumes through the early 2020s, only one or two new export terminals capable of fully loading Very Large Crude Carriers (VLCCs) are likely to be needed. What was it that enabled Enterprise to move first among a wave of proposed projects? And what does that tell us about the VLCC-ready export terminal projects being advanced by others? Today, we look at the SPOT project and the important roles that existing pipeline and storage infrastructure play in export terminal development.

All indicators point toward sharply higher crude oil exports from Gulf Coast terminals over the next few years. U.S. production now averages more than 12 MMb/d; domestic refineries can’t use any more of the light sweet crude that major U.S. shale plays are producing in record volumes; new oil pipeline capacity from the Permian and the Cushing, OK, crude hub to the coast is coming online; and — while marine docks in Texas and Louisiana can handle current export flows (an average of 2.5 MMb/d so far this year, according to RBN’s Crude Voyager report) — they may soon be overwhelmed if more export capacity isn’t added. We’ve been discussing all this in a number of blogs over the past year or so, including our Deep Water series, where we looked at the new terminals being proposed (most of them in deep water off the Texas coast) to fully load VLCCs — those deep-draft, 2-MMbbl behemoths that many shippers prefer for long-distance crude hauling because of their economies of scale. (We updated that series in early July with a look at two recent entrants in the race to build VLCC-ready export facilities: Sentinel Midstream’s Texas GulfLink project in the waters off Freeport, TX, and Phillips 66’s proposed Bluewater Texas Terminal off Corpus Christi.) Also, in our two-part “Where the Boat Leaves From” series, we discussed our estimate for how much crude export capacity is already in place (~5.1 MMb/d, or about double the average export volumes so far this year), how much additional capacity will be needed by the mid-2020s (at least 1 MMb/d, but likely more), and the challenging economics behind the development of offshore crude export terminals.

As we said above, Enterprise last week announced its FID to build the Sea Port Oil Terminal, plans for which the company first unveiled just over a year ago. The decision to proceed with SPOT (again, subject to regulatory approvals) came when the company entered into a group of long-term agreements with Chevron on crude oil transportation, storage and marine terminaling services. Few details were released during Enterprise’s second-quarter conference call on Wednesday, July 31, except to say that Chevron has agreed to send “significant” volumes of crude through Enterprise’s pipeline system from the Permian to the Enterprise Crude Houston (ECHO) Terminal in Houston, and from there to the new offshore terminal. (A new Midland-to-ECHO pipeline appears to be in the works; it would be Enterprise’s third between the two key points.) Chevron is a leading producer in the Permian; its production there averaged 421 Mboe/d (thousands of barrels of oil equivalent/day) in the second quarter of 2019 (up more than 50% from the same period last year), and the company has indicated that it expects to double its Permian output over the next four years. Others may sign on to support SPOT too, now that the project appears to be a “go.”

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