The booming Permian Basin has been one of the most amazing creators of competition the oil industry has seen in modern times. Every oil boom inevitably creates conflict, as individuals and businesses race to be the first to get in the various “games” that surround oilfield development. But the Permian is so vast, its available resource so gigantic, that it often seems to have created more races than NASCAR .
Examples of the races that have developed in and around the Permian in just the last few years include:
- The race to acquire leases and proved reserves that has driven the cost of acquisition in the region to as high as $95,000 per acre;
- The race to reserve drilling rigs and frac crews;
- The race to hire qualified workers, which continues to grow increasingly fierce over time;
- The race to provide frac sand;
- The race to develop and install water recycling technologies;
- The race to permit and build-out new pipeline capacity as a shortage developed in recent years;
- The race among producers to reserve capacity on those new pipelines;
- The race among refiners to finance and build new capacity to refine the light, sweet crude coming out of the Permian and other shale basins in ever-rising volumes;
As the competition to accommodate the Permian has moved ever-further downstream, it has now resulted in a growing conflict on the southern Texas Gulf Coast to be the first facility to build out new capacity to land and load the largest classes of oil tankers – so-called Very Large Crude Carriers, or VLCCs – and send them back out to sea.
Given its close proximity to both the Eagle Ford Shale and Permian Basin regions, the Port of Corpus Christi (PortCC) quickly developed into the nation’s key oil export facility after the ban on crude exports was lifted in December, 2015. PortCC officials embarked on an effort to convince Congress to allocate funds needed for the U.S. Army Corps of Engineers (USACE) to deepen and widen its main channel, which is not currently capable of fully loading VLCCs. Port leaders even made the decision to take on debt for the first time in the Port’s 100-plus year history to fund part of the process in an effort to speed the process along, but to no avail.
Congress lingered over the decision until early 2018, when it allocated an initial $36 million to the $360 million project, coming across with another $59 million last November. In the meantime, PortCC decided to move forward with a second VLCC-related project on its property at Harbor Island, which sits across the Intracoastal Waterway from Port Aransas on the northern side of Corpus Christi Bay. That project – a joint venture with the Carlysle Group – will soon get underway as USACE announced the awarding of a $92- million contract to Great Lakes Dredge and Dock Company LLC to complete the deepening of the channel from the Gulf of Mexico to Harbor Island. The Harbor Island facility should be operational in 2020, two years ahead of the anticipated completion date for the project to expand PortCC’s main channel.
However, during all the congressional delays, competition to both PortCC expansion projects arose in the form of a proposal by Dutch Company Trafigura to build an oil-loading terminal in deep waters of the Gulf of Mexico along with a pipeline system to transport crude to and from the mainland south of Corpus Christi. Because the terminal itself would reside in federal waters, this facility will need to obtain permits from several federal agencies, along with the State of Texas.
At the federal level, the Trafigura project has been fraught with difficulties. Several federal agencies, including USACE, the EPA, the Bureau of Safety and Environmental Enforcement (BSEE) and the U.S. Coast Guard have cited significant deficiencies in the company’s permit application to the Maritime Administration. PortCC officials have aggressively opposed the project, in part citing Trafigura’s recently being named in an investigation by the U.S. Department of Justice into an alleged corruption scheme involving improper payments to officials at Brazilian national oil company Petrobras.
Because Texas state waters and lands are involved, both Texas Land Commissioner George P. Bush and Governor Greg Abbott will ultimately have to personally sign off on the Trafigura application if it is to move forward. In an opinion piece published in the Corpus Christi Caller-Times last week, Kym Bolado, who chairs the Texas Energy Advocates Coalition (TEAC), noted that “Members of the Texas Legislature from both sides of the aisle, including state Sens. Juan “Chuy” Hinojosa, D-McAllen, Lois Kolkhorst, R-Brenham, and Judith Zaffirini, D-Laredo, and state Reps. Abel Herrero, D-Robstown, and Todd Hunter, R-Corpus Christi, have all formally requested that the state reject this deepwater port project.”
Trafigura states that its terminal could be fully operational within 18 months of the date on which it becomes fully permitted. With all the controversy arising around this project and the company itself in recent days, and such a strong list of Texas-based interests lined up in opposition to it, an ultimate decision by both Bush and Abbott allowing the offshore terminal to move ahead would be a controversial one indeed.