Corpus Christi and Moda Midstream are well-positioned to benefit as the U.S. and world economies recover from COVID-19. Moda’s Ingleside Energy Center terminal is the largest export terminal in the Gulf Coast’s hottest market, can partially load more economically efficient Very Large Crude Carriers (VLCCs), appears to enjoy the fastest loading rates in the Gulf Coast, and may be able to expand its draft to 52 feet by late 2021/early 2022, enhancing its competitive advantages. Perhaps just as important as the particular advantages of its Ingleside facility are the broader trends that Moda is riding. Exporters and downstream buyers appear to prefer Corpus Christi, while VLCC-capable projects will probably remain stuck in the water. 

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

Construction of the Cactus II, EPIC, and Grey Oak pipelines cumulatively added over 2.1 million barrels per day (MMBPD) of deliverable capacity to Corpus Christi in 2019 and 2020. The results have been pretty staggering: Corpus was the 3^rd most prolific crude exporter in July 2019. Now, over half of all U.S. crude exports are sent out from the mid-Texas port.

There are several reasons why exporters and buyers tend to prefer shipping from Corpus over Houston, Port Arthur, or St. James (where the offshore, VLCC-capable LOOP terminal is located). Corpus is less congested than the Houston shipping channel; is closer to the Permian; has (limited) local refinery capacity as well as pipeline connectivity, enabling optionality; and, finally, is believed to have less “commingling” risk than Port Arthur or Houston. It’s important to note that Moda has easy access to Corpus Christi Bay, strengthening its competitive position vis-à-vis many other Corpus Christi projects.

Competing VLCC-capable projects are in trouble

While the Bluewater Texas Terminal tie-up between Phillips 66 and Trafigura received an approval from the Port of Corpus Christi, most VLCC-capable projects have suffered from a run of bad news. Lone Start Ports LLC’s Harbor Island Terminal Lease has been terminated by the Port of Corpus Christi. The project was originally sponsored by Carlyle but foundered even in the pre-pandemic period. Perhaps the most important developments may be yet to come. It’s unclear to us if federal regulators will approve any of the projects with pending applications.

Energy Transfer’s Blue Marlin, Philipps 66/Trafigura’s Bluewater Texas Terminal, Texas GulfLink LLC, and Enterprise Products’ Sea Port Oil Terminal (SPOT) all have pending applications before the U.S. Department of Transportation Maritime Administration, or MARAD. We are, to put it mildly, very skeptical that these projects will receive MARAD approval from the new administration. Although the proposed offshore VLCC export terminals haven’t taken on the symbolic cache of, say, the Dakota Access Pipeline or the Keystone Pipeline, we expect the Biden administration to have little enthusiasm for new hydrocarbon projects.

Besides regulatory problems, VLCCs face much more challenging economic and financial conditions in the post-pandemic world. U.S. tight oil production faces stiff international competition, skeptical shareholders, and a growing ESG trend across boardrooms, broader society, and even its workforce. Scarce capital and low prices will likely limit future U.S. oil production – and the need for the services of crude export terminals. For a deeper look at VLCC vs existing terminal economics, drop us a line at inquiries@enkonenergy.com

A new challenger emerges

Max Midstream is opening a new 0.1 MMBPD export terminal at the Port of Calhoun (which lies between Corpus Christi and Houston); Max Midstream says it plans to grow export capacity to 0.325 MMBPD in 2022, and to 0.65 MMBPD in 2023 after completing a dredging project. Having seen Harbor Island Terminal’s face dredging problems for years, and the Foreign Dredge Act of 1906, we are highly skeptical that the Port of Calhoun will be able to complete their excavation project as quickly as they hope. The new terminal will likely reduce Corpus Christi’s volumes, but we expect the overall impact to be marginal, especially for 2021.

Corpus Christi Summer

The mid-Texas port, home to the USS Lexington and the Texas State Aquarium, is enjoying some tailwinds from several trends, including stabilizing or even rebounding crude production from the Permian. Moda Ingleside is particularly well-positioned for greater crude volumes: its VLCC-capable competitors are facing growing challenges, it is improving efficiencies at its docks, and Corpus Christi’s advantages are likely to prove enduring.