Corpus Christi is the new king of U.S. crude oil exports

Corpus Christi has replaced Houston as the largest port for U.S. crude exports. Although COVID-19 is injecting extreme uncertainty into energy markets, Corpus will likely remain the king of U.S. crude oil exports due to its proximity to producing basins, pipeline and storage buildouts, and commercial operation of new export terminal capacity.

COVID-19 and exports

COVID-19’s impacts on oil markets are subject to considerable uncertainty: the crisis is in its early days, and there is no analogous situation in the modern era. Still, we think we can draw three key tentative conclusions.

First, U.S. crude exports will fall sharply due to COVID-19. Indeed, with world crude demand down 20-35%, U.S. exports in the week ending March 27 stood at 3.16 million barrels per day, down 24% from a month prior. Second, crude terminal projects will likely face delays due to financial and physical constraints. Oil and gas companies are reducing their CAPEX budgets, and construction crews will find it difficult to work amid physical distancing. We expect that terminals under construction will face delays. Finally, we expect that COVID-19 will slow development of Corpus Christi infrastructure, but the South Texas port is here to stay.

Corpus Christi exports rise amid infrastructure buildout

Exports from Corpus Christi have surged in recent months as pipelines have connected the port with the Permian and removed the chief barrier preventing exports. Cactus II, EPIC, and P66’s Grey Oak pipelines will cumulatively add over 2.1 MMbbl/d in deliverable capacity to Corpus Christi. The Cactus II pipeline started flowing in August, while EPIC began interim crude service in the same month on its 24’’ Y-Grade pipeline (it has achieved commissioning of its permanent 30’’ Crude Oil Pipeline). Finally, P66’s Grey Oak pipeline began service in November and is scheduled to reach full service by the second or third quarter of 2020.

Pipelines to Corpus Christi removed the key export bottleneck, but the city is also adding export terminal capacity. The Eagle Ford terminal, a JV between Plains and Enterprise, shipped its first cargo in the fourth quarter of 2019. In December, EPIC began shipments at its Corpus Christi crude export terminal, with more capacity expected in 2020. Mercuria and Dauphine’s Pin Oak is expected to bring additional capacity online in 2020, while South Texas Gateway will also likely reach initial operating capacity by the third or fourth quarter of 2020. Finally, Moda continues to make improvements to both Moda Ingleside Energy Center as well as its Moda Taft Terminal.

Corpus will likely remain the largest exporting port in 2020

We expect that Corpus will retain its position as the top crude export port by volume in 2020, although there could be some jockeying back and forth as Houston adds more pipeline and terminal capacity. Enterprise’s 0.45 MMBbl Midland-to-Echo 3 pipeline is scheduled to come online in 3Q2020; the company expects to add another Suezmax-capable berth at its Houston terminal in 4Q2020. Enterprise says the dock will add approximately 0.84 MMBbl/d of capacity. Port Arthur, meanwhile, doesn’t appear to have any new capacity coming online in 2020, although Energy Transfer has discussed adding a Very Large Crude Carrier (VLCC) capable project in Port Arthur/Nederland. Corpus Christi will likely remain Texas’s crude export capital in 2020.

Louisiana won’t displace Texas, as LOOP isn’t getting a lot of love from exporters. The U.S.’s only fully-capable (VLCC) loading port operated near 100% capacity for part of June, but volumes have slowed considerably since then. Remember, VLCCs leverage economies of scale and offer lower per unit costs than their smaller Panamax, Aframax, and Suezmax cousins. Despite some savings on VLCC shipping economics, exporters are valuing Houston/Corpus’ location/optionality/connectivity over LOOP’s VLCC capability.

Corpus remains on top?

We believe exporters are more likely to build VLCC-capable terminals in Corpus Christi or Houston due to their optionality and proximity to crude basins. Whether Corpus Christi can cement its advantages over Houston and retain its title as crude export king remains an open question. Much will depend on the development of VLCC-capable offshore terminals near those two cities. We’ll discuss those terminals and the impacts of COVID-19 on their development in a future article. Port-level analysis of crude exports by port could provide insight as to where the market thinks those terminals will ultimately be constructed.