A.D. Koen
Gulf Coast News Editor

Unpredictable U.S. oil markets and a federal scheme to curb imports scuttled plans for a deepwater oil port in the Gulf of Mexico off Freeport, Tex.

Without assurances of adequate oil imports or support from state or federal government, the coordinator of the Texas Offshore Oil Port (Texport) study said the project to accommodate large tankers isn't likely to be raised again soon.

In the past year, U.S. oil production briefly increased and imports decreased as domestic producers helped replace oil supplies lost to the embargo of Kuwaiti and Iraqi crude. But long term expectations of declining U.S. oil output and growing imports have endured, which first encouraged a group of 14 companies to consider building Texport.

Another deepwater oil port proposal is still on track.

Port officials at Corpus Christi, Tex., have received pledges from enough oil companies to begin Phase 2 of the Safeharbor proposal, a $455 million, 1.3 million b/d, inshore deepdraft port on Harbor Island in Corpus Christi Ship Channel. By yearend, contractors will complete detailed studies of three factors on which the proposal hinges:

Safeharbor's effect on salinity of Corpus Christi Bay.
Cost and logistics of delivering oil by pipeline to refiners in other areas.
Cost of dredging and maintaining a 74 ft deep channel more than 10 miles long to accommodate deepdraft tankers.

Meanwhile, Louisiana Offshore Oil Port (LOOP), 15 miles off Louisiana in 118 ft of water, apportioned capacity in August and September when officials calculated the facility couldn't handle all the ships making nominations to off load oil. LOOP officials said they don't expect to apportion capacity in October.

MARGINAL PROFITABILITY

Texport companies agreed early in the study that, at best, the project likely would be marginally profitable.

With estimated construction costs of as much as $1.146 billion, just to break even Texport would have required throughput of 1.5 million b/d 5-7 years after beginning service in 1996. Initial throughput of about 900,000 b/d was expected.

Study participants reckoned if throughput increased at that rate, Texport--in 110 ft of water 27 miles off Freeport--could be an economical business venture by charging users rates competitive with costs of lightering very large crude carriers (VLCCs) and ultralarge crude carriers (ULCCs) in the open sea.

But with the Bush administration preparing a National Energy Strategy (NES) based on decreasing U.S. oil consumption and imports while increasing domestic production, there weren't enough guarantees to proceed, said Jim Stephens of Phillips Petroleum Co., project coordinator of the Texport study.

"Even if the NES is partly successful, that would adversely affect the economics of Texport," Stephens said.

SHORT TERM FACTORS

Stephens said short term factors such as Iraq's invasion of Kuwait didn't play a major role in the decision by Texport's study group to shelve the project (OGJ, Apr. 29, Newsletter).

Although average U.S. oil production still was higher and imports lower for the 4 weeks ending Sept. 6 than in August 1990, when Iraq invaded Kuwait, Stephens said the Texport group concurred with mainstream oil industry thinking.

"We thought that once all the problems in the Middle East were resolved, it would be pretty much back to business as usual with most incremental increases. in crude supply coming from the Persian Gulf," he said.

He acknowledged lower U.S. oil imports and higher production this year compared with last contributed to Texport companies' doubts about whether adequate imports would be available to keep Texport from losing money.

Texport companies expected oil imports entering U.S. ports on the Texas Gulf Coast during 1996-2016 to remain essentially constant, at about 2.4-2.5 million b/d. To be successful, Texport needed larger percentages of longhaul imports arriving from the Persian Gulf, West Africa, and North Sea aboard ULCCs and VLCCs.

"We based our rate structure to compete with the avoided costs of lightering," Stephens said. "With the rate we would have had to charge, we felt Texport couldn't compete with small vessels delivering oil to U.S. markets from countries in the Western Hemisphere."

COMPETITIVE PORTS

Stephens said Texport figured to serve companies importing oil through Texas Gulf Coast ports from Freeport to Beaumont. Even so, there was a question about whether the facility could have competed economically with ports at Beaumont and Port Arthur, Tex., for East Texas refiners far north of Texport's proposed site.

"We could have lost up to 700,000 b/d of volume to those ports," Stephens said.

Texport did not consider itself to be competing for imports entering the U.S. through Corpus Christi. But if both Texport and Safeharbor had been built, the Port of Corpus Christi (PCC) deepdraft port would have competed for imports bound for refineries in Texport's vicinity. That still is part of Safeharbor's plan.

To operate economically, PCC officials estimate Safeharbor throughput will have to triple the 335,000 b/d of oil moving across bay waters. That will mean tying Safeharbor to pipelines capable of moving oil to refiners on and around the Houston Ship Channel, a feat port officials say already has been accomplished (OGJ, Mar. 25, p. 34).

Even with channel and berthing depths of only 74 ft, as planned, PCC officials say Safeharbor will be able to accommodate all tankers as large as 300,000 dwt, 80% of 300,000-350,000 dwt tankers, and 50% of tankers larger than 350,000 dwt.

Like Texport, Safeharbor would charge users rates competitive with costs of lightering large vessels. With throughput of 1 million b/d, Safeharbor would break even charging a 16 cents/bbl tariff. PCC officials estimate lightering costs 27 cents/bbl.

While Stephens said news of Corpus Christi's Safeharbor proposal had no effect on the decision to shelve Texport, he said, "Given the high costs of building deepwater oil ports and transportation infrastructure, oil imports through the Texas Gulf Coast aren't likely to support two ports."

DIVERSIONS BY LOOP

LOOP is designed to offload oil from VLCCs and ULCCs as large as 700,000 dwt at a maximum rate of 100,000 bbl/hr. The port has unloaded tankers as small as 67,000 dwt.

The facility's maximum capacity is often cited as 1.4 million b/d. But that can vary, depending on things such as the size of vessels using the facility, the rates at which they can unload, and types of oil on board.

LOOP can unload more than one tanker at a time but usually doesn't do so. The facility has only one 48 in. pipeline leading to storage onshore. Handling more than one vessel at the same time requires mixing cargoes.

Since receiving its first shipment of oil in November 1982, the size of ships calling at the port has been trending upward, LOOP Pres. Bob Thompson said. "In the early 1980s, we didn't see very many of the big ships," he said. "Now, the majority of ships we're seeing are ULCCs and VLCCs, and most of the oil we handle is long haul crude coming out of the Middle East or Africa."

LOOP in August received nominations totaling 1.126 million b/d from 27 tankers. August throughput was 1.045 million b/d from 24 ships.

The facility received September nominations of 1.231 million b/d from 26 ships. Officials expect September throughput to average 920,000 b/d.

As of mid-September, October 1991 nominations were 905,000 bbl from 27 tankers.

Thompson said tanker traffic also was diverted from the facility in May 1991, when LOOP received nominations of 1.25 million b/d from 37 tankers, and for 2 or 3 months during summer 1990.

In July, LOOP handled 1.015 million b/d of oil and in June about 1 million b/d.

"When we have more nominations than we can handle, we cut the number of ships we receive and allot a specified time for each shipper to get his cargo off," Thompson said.

LOOP throughput has been increasing steadily since first quarter 1991 and is averaging about 917,000 b/d for the year through August. In 1990, throughput averaged 913,000 b/d.

Phillips' Stephens said members of the Texport study group didn't expect oil shipments seeking to offload at LOOP to be diverting to other ports so soon.

"We expected that about 1998-99 a small amount of oil destined for the Upper Midwest to be shifted over into other systems," he said.

To consider reviving Texport, study group companies would have to see a development that would return the idea to a sound business footing, Stephens said.

"Certainly, government actions could cause it to come into being," he said. "if the government decided it was in the national interest and should be promoted, it could assist in a number of ways."

However, until something occurs to restore the promise of Texport's profitability, Stephens said, "people will really be apprehensive about spending that kind of money."

Copyright 1990 Oil & Gas Journal. All Rights Reserved.

TEXPORT DORMANT; ANOTHER U.S. DEEPWATER PORT ON TRACK

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