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Yo Ho Ho and a Cargo of Bunkers – The Kinder/TransMontaigne BOSTCO Terminal

The BOSTCO Terminal started operations this week on the Houston Ship Channel. By early next year (2014) the terminal will have 6 MMBbl of storage capacity. This $500 Million investment by two midstream companies is designed to meet the expanding needs of fuel oil blenders at the Gulf Coast. Before the first phase could be completed, 900 MBbl of additional refined product storage planned for phase two, was snapped up by Morgan Stanley for distillate fuels. Today we describe the terminal facilities and ownership structure.

This is the third installment in our series covering fuel oil infrastructure on the Gulf Coast. In the first episode we provided definitions for some of the many types and grades of fuel oil (see Yo Ho Ho and a Cargo of Bunkers). We discussed the main markets for fuel oil as a feedstock for refineries and as bunker fuel for ships. There is also demand for fuel oil or its derivatives in the manufacturing industry and power generation. In episode two we looked at the Houston Fuel Oil Terminal Company (HFOTCO) that has been the dominant player in fuel oil blending, storage and export on the Gulf Coast for thirty years (see The Houston Fuel Oil Terminal). This time we turn our attention to the new kid on the Houston Ship Channel block – Battlefield Oil Storage Company (BOSTCO).

The BOSTCO terminal start operations this past Monday (October 7, 2013) with 2.84 million barrels of residual fuel oil and feedstock storage. The terminal is located a few miles East of the HFOTCO terminal on the Ship Channel. You can see the locations of the BOSTCO (black circle) and HFOTCO (orange circle) terminals on the map below.  The BOSTCO terminal is clearly setting out to compete head to head with its older rival along the Ship Channel. The inspiration to build BOSTCO comes from the guy who started HFOTCO 30 years ago – John McDonald – who has a 2 percent ownership in the new venture. The story goes that Mr. McDonald was encouraged to start the project by HFOTCO clients frustrated by the lack of terminal capacity in the region for fuel oil operations.

Source: BOSTCO Website (Click to Enlarge)

Aside from Mr. McDonald’s two percent, there are two far larger BOSTCO owners. The biggest investor and terminal operator is Kinder Morgan Energy Partners (KMP) with a fifty five percent stake. Kinder is, of course, one of the largest terminal and pipeline operating companies in the US. We have covered their Pasadena terminal operations in the Ship Channel (see It’s a Kinder Magic) as well as their condensate takeaway infrastructure from the Eagle Ford in South Texas (see Eagle Ford Crude and Condensate Takeaway). The second large owner TransMontaigne Partners LP (TLP) is a subsidiary of Morgan Stanley Capital Group (MSCG) and owns 42.5 percent of BOSTCO. TLP own a network of refined product terminals around the US coast as well as along the Mississippi river. MSCG is the trading arm of Wall Street investment bank Morgan Stanley.

Ownership of the BOSTCO project went back and forth for a while between TLP and KMP. TLP started the project in November 2010 before selling 50 percent of their interest to KMP. Then at the end of 2011 MSCG was afraid that provisions of the Dodd Frank financial reform legislation would bar them from owning physical assets- so TLP sold the rest of their stake to KMP in early 2012 with an option to buy it back within a year. Apparently MSGC determined that the heat was off them by the end of 2012 and that they could allow TLP to exercise their option and buy back a share of the project. That probably hasn’t made a jot of difference to the number of storage tanks at BOSTCO, but it does demonstrate a certain anxiety by Wall Street banks about owning physical infrastructure assets – even wrapped up in a Master Limited Partnership (MLP) such as TLP (see Masters of the Midstream for more on MLP structures). JP Morgan’s recent decision to sell their energy infrastructure assets suggests that this concern continues to be a real one for our friends on Wall Street.

Aside from the ownership dramas, the BOSTCO terminal itself has proven popular with the market as the initial capacity is fully subscribed. The terminal, like all good infrastructure projects, has at least 3 Phases. The first phase just completed included 2.84 MMBbl of fuel oil storage at the Grand Opening on Monday with additional storage to be built out to 6.1 MMBbl by early 2014. There will be 50 storage tanks varying in size from 30 MBbl to 320 Mbbl. The first phase will also include two deep water ship docks and three barge docks that can load 12 barges each. A twin track rail siding connected to Union Pacific railroad will handle unloading from 12 rail tank cars. The price tag for Phase 1 is estimated to be $431 Million.

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