The little-known Texas GulfLink project led by upstart Sentinel Midstream arguably took the lead in the now-stalled race to build offshore crude exporting terminals in Texas after becoming the first such project to receive a draft environmental impact statement from the federal government.
The private equity-based Sentinel is competing with much larger industry giants—Enterprise Producers Partners, Phillips 66 and Energy Transfer—for the deepwater terminals that could accommodate filling VLCCs to capacity. The Texas GulfLink project also could be in a better position to win the necessary contracts and financing if it's the first move to win approvals from the US Maritime Administration and the US Coast Guard as early as 2021.
While the draft EIS is just one more step in the regulatory process, Texas GulfLink is the first to achieve the milestone while competing projects are on hold pending environmental reviews and concerns about weakened export demand during the ongoing coronavirus pandemic.
Sentinel CEO Jeff Ballard called the draft report a major milestone toward eventually obtaining the deepwater port license.
"Recognizing these are challenging times for the energy industry, we strongly believe that the energy market will recover as global demand stabilizes and that Texas GulfLink will be uniquely positioned to benefit from this recovery," Ballard said in a statement. "It will address the current VLCC-loading limitations off the Texas coast by offering a more safe, reliable and economic crude oil movement solution."
Both the Enterprise-led Sea Port Oil Terminal project, called SPOT, and the Phillips 66-led Bluewater project are on indefinite hold as companies slash their capital budgets and delay projects during the pandemic. Meanwhile, Energy Transfer only submitted its application for its proposed Blue Marlin Offshore Port about a month ago, banking on an eventual rebound in export demand by 2023 or 2024.
From sprint to crawl
In January, the Cresta Fund Management-backed Sentinel added momentum by signing on oil and gas trader Freepoint Commodities as a new partner on the project. However, there was little public movement on the project once the pandemic set in. The project, as proposed, would to load up to 2 million b/d of crude, essentially able to fill up one VLCC in as quickly as 24 hours. The original plan for the terminal to only load 1 million b/d. Accounting for ship traffic, Texas GulfLink would service 15 VLCCs per month.
Both Texas GulfLink and SPOT are more direct competitors, proposing their projects to be built about 30 miles offshore of Freeport near the Houston Ship Channel. Bluewater would be offshore of Corpus Christi and Blue Marlin off of Nederland, Texas. However, energy analysts contend only one or two will ever be built because of demand constraints.
US crude exports were expected to keep surging before the pandemic took over, subsequently placing the urgency to build the offshore exporting terminals on hold. Before the pandemic, Enterprise had expected SPOT to receive federal approval by the end of June 2020.
There were other competing projects as well, but, for instance, Enbridge and Trafigura dropped their respective plans in order to instead team up with Enterprise and Phillips 66, respectively.
Matt Lewis, a senior energy analyst at East Daley Capital, said that, despite the progress, he's "extremely skeptical" Texas GulfLink will ever be built because of the challenge in committing enough customers while demand remains weak and crude prices low. Overcoming SPOT, with support from both Enterprise and Enbridge, as well as customer commitments from Chevron, remains a formidable challenge, he said.
"Both of those logistics firms have large marketing arms with capacity all the way to back to the wellhead, and they can commit their own volumes to that facility," Lewis said of Enterprise and Enbridge. "They also face competition from onshore facilities which are massively overbuilt and will be forced to lower their rates significantly in the future."
Currently, only one Gulf of Mexico port, the Louisiana Offshore Oil Port, called LOOP, can fully load VLCCs currently without reverse lightering from smaller vessels.
Crude exports fell from an all-time high of 3.71 million b/d in February to a year-to-date low of 2.75 million b/d in June, US Energy Information Administration data shows. In the last four weeks, crude exports have averaged just under 3 million b/d.
The S&P Global Platts cFlow estimate for the week ending Dec. 4 is about 2.75 million b/d of crude exports, including 2.5 million b/d from the US Gulf Coast.
Pre-pandemic, US crude exports were projected to rise to at least 4.5 million b/d by the end of 2021, but future volumes are now expected to fall in 2021 and 2022 before rebounding above 2020 volumes in 2023 and growing from there, according to S&P Global Platts Analytics. Still, crude exports are expected to remain closer to 3.7 million b/d by 2025.
