Playing the Long Game: Offshore Crude Export Terminals

• Continued growth in US oil production will necessitate more crude exports.
• Offshore crude export terminals offer special advantages, including the ability to fully load Very Large Crude Carriers (VLCCs), which can carry ~2 million barrels or more of crude.
• While offshore crude terminals represent a better export solution, projects are far from simple. Permitting has taken years, and construction will also take years.

As the world’s leading producer of oil and natural gas, the US is a major energy exporter to the rest of the world. Exports support production growth and create opportunities for midstream MLPs and corporations, which not only help hydrocarbons get to the coast for export but in many cases own and operate export terminals. Lately, VettaFi research has focused on the opportunity for exports of liquefied natural gas (LNG) and natural gas liquids (NGLs). This note focuses on the outlook for crude exports and the potential advantages of the offshore crude export terminals that are under development.

In the first quarter of 2024, US total petroleum exports averaged 10.7 million barrels per day (MMBpd) according to the Energy Information Administration (EIA). This includes crude, NGLs and refined products like gasoline and diesel. Crude was the largest component, averaging 4.3 MMBpd.

Export markets are a vital outlet for US crude. Expected growth in US crude production will necessitate more exports as US refinery capacity. is more likely to contract than expand going forward, and US refineries are typically already running as much domestic crude as they can. Keep in mind that the US largely produces light, sweet crude, and the complex refineries on the Gulf Coast and in the Midwest are generally geared to run lower quality heavy, sour crudes. Therefore, incremental light, sweet US oil production will likely need to find a home overseas.

While production forecasts vary, significant growth is expected. The EIA’s 2023 Annual Energy Outlook forecast that US oil production would grow by another 1.5 MMBpd from 2022 to reach 13.3 MMBpd in 2030. Enterprise Products Partners (EPD) estimated earlier this year that US oil production would average 14.5 MMBpd in 2030 – an increase of 2.7 MMBpd from 2022 levels. These forecasts imply significant upside to current crude exports.

With this backdrop, there are multiple offshore crude export projects on the drawing board. Offshore terminals offer special advantages, including the ability to fully load Very Large Crude Carriers (VLCCs), which can carry approximately 2 million barrels or more of crude. VLCCs are a more economic way to transport crude to Europe or Asia, but these vessels also require deep and wide waterways. Currently, the Louisiana Offshore Oil Port (LOOP) is the only US export terminal that can fully load VLCCs.

In terms of onshore facilities, Enbridge’s (ENB CN) Ingleside Energy Center and Gibson Energy’s (GEI CN) South Texas Gateway Terminal – both near Corpus Christi – can partially load VLCCs. However, the VLCCs must be filled through reverse lightering, with crude transferred from a smaller ship in designated areas of the ocean. Although effective, reverse lightering carries more risk, results in more emissions, contributes to more congestion at ports, and results in more time and costs.

There are four proposed offshore terminals: EPD’s Sea Port Oil Terminal (SPOT), Energy Transfer’s (ET) Blue Marlin Offshore Port, Sentinel Midstream’s Texas GulfLink, and Bluewater Texas (BWTX) from Trafigura and Phillips 66 (PSX). The infographic from BWTX below provides helpful context on the advantages of offshore terminals relative to filling a VLCC through reverse lightering.

Of the four projects in development, only SPOT has received a Record of Decision and a deepwater port license from the Maritime Administrator. SPOT initially applied in January 2019 and received its deepwater port license in April 2024. EPD is continuing commercial discussions as it contemplates a potential final investment decision or FID (i.e., where the company commits to the project and starts construction). On its 1Q24 earnings call, management mentioned targeting FID for SPOT by the end of this year and discussed a three-year construction cycle for the project.

For its part, ET hopes to receive a draft Environmental Impact Statement (EIS) for Blue Marlin in 2Q24 and would hope to then have a permit and license within a year of receiving the draft EIS. Blue Marlin would use some existing offshore infrastructure, including existing pipeline. As a brownfield project, Blue Marlin may have some advantages in the construction process, with ET’s management estimating 2.5-3 years to build the project upon reaching FID. In late 2023, ET announced a heads of agreement with TotalEnergies (TTE) for 4 million barrels per month from Blue Marlin.

Crude exports are going to be increasingly important as US oil production grows, and offshore terminals represent a better solution for loading ships. However, these are large projects that have taken years to permit and will take years to construct if FID is achieved. Companies may provide more detail on capital costs with an FID, but project costs will likely be significant (over $1 billion). Sufficient long-term customer commitments will be necessary for companies to move forward with projects, but if contracts are secured, projects could represent attractive growth opportunities that will provide many years of steady cash flows. As the saying goes, good things take time.

ET and EPD are in the Alerian MLP Index (AMZ) and Alerian MLP Infrastructure Index (AMZI). ET, EPD, ENB CN, and GEI CN are in the Alerian Midstream Energy Select Index (AMEI).

AMZ is the underlying index for the JPMCFC Alerian MLP Index ETN (AMJB) and the ETRACS Quarterly Pay 1.5x Leveraged Alerian MLP Index ETN (MLPR). AMZI is the underlying index for the Alerian MLP ETF (AMLP) and the ETRACS Alerian MLP Infrastructure Index ETN Series B (MLPB). AMEI is the underlying index for the Alerian Energy Infrastructure ETF (ENFR) and the Alerian Energy Infrastructure Portfolio (ALEFX).

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