Wednesday, 12 August 2020 | 03:26
View by:

Coronavirus a ‘gut punch’ for US offshore oil export terminals: Sentinel CEO

Wednesday, 26 February 2020 | 20:00

The race to build oil-exporting terminals offshore Texas is hitting roadblocks amid the coronavirus outbreak as negotiations stall with potential customers in Asian markets.

While Sentinel Midstream’s Texas GulfLink deepwater terminal project remains on schedule, the spread of the COVID-19 virus comes just as the company is trying to nail down contracted shippers and buyers, especially in Asian markets, Sentinel CEO Jeff Ballard said Tuesday in an interview.

The outbreak is coming just months before the US Maritime Administration is expected to start handing out the first permits to commence construction on the deepwater terminals that would allow VLCCs to fully load in the greater water depths.

“The coronavirus is a big gut punch right now,” Ballard said. “It’s put talks on hold.”

The hope is the outbreak will have mostly ended by this summer, he said. For now, it has put a halt on traveling to Asia to meet with potential customers. Any communications are only by phone and email.

“It’s not comforting because I’m a face-to-face person,” Ballard said.

Dallas-based Sentinel, a private equity-backed startup, is the underdog competing with the much larger Enterprise Products Partners to build large oil-exporting terminals offshore Houston.

Enterprise announced its final investment decision last year on its Sea Port Oil Terminal project, called SPOT, and recently partnered with Canadian rival Enbridge on the terminal after Enbridge decided to abandon its plans to build another terminal in the region.

Conventional wisdom within the industry held the market would support one offshore terminal in the Houston area — likely SPOT — and another offshore of Corpus Christi — Phillips 66’s Bluewater terminal. But Sentinel believes there’s enough market demand for two terminals offshore of Houston, Ballard said.

“Is there enough for two?” Ballard said. “The market wants competition. It keeps people honest.”

Ballard believes Sentinel is now only about a month behind Enterprise in the permitting process.

The expectation is Sentinel will get the final permit anywhere from June to September and start construction as early as the third quarter, he said. Construction would take 18-24 months, allowing for a potential startup in mid-2022, which is roughly the same timeline for SPOT.

“We feel pretty comfortable we’ll be able to move forward with construction after the permit,” Ballard said.

Will the COVID-19 virus eventually disrupt the timeline?

“It’s too early to say,” Ballard said.

Just last week, Magellan Midstream Partners confirmed its interest in partnering with Sentinel. Texas GulfLink’s pipeline would connect to Magellan’s large East Houston pipeline and storage complex, which also is a major pricing hub. Both Magellan and Sentinel are staying mum on whether they might form a stronger joint venture deal.

In January, Sentinel added momentum by signing on oil and gas trader Freepoint Commodities as an anchor shipper on the project. SPOT has Chevron as its anchor.

And both offshore terminals are expected to connect to Exxon Mobil’s planned Wink-to-Webster crude pipeline system from the Permian Basin.

A new Wood Mackenzie report says both Houston projects could be built, but the presence of both likely would equate to “sub-par” returns.

“In order to successfully coexist in a two-project dominated market, both competitors will need substantial commitments,” the report argued.

While the larger SPOT project is described by MARAD as capable of loading 2 million b/d, Texas GulfLink is listed at 1 million b/d. But the actual planned capacities are closer to 1.5 million b/d versus 1.15 million b/d, respectively, according to Wood Mackenzie. SPOT carries a price tag of about $1.65 billion compared to $950 million for GulfLink, the report says.

Wood Mackenzie estimates the two terminals would split about 1.7 million b/d between the two, while SPOT could operate to full capacity if it’s the only offshore Houston terminal built. They would need closer to 2.1 million b/d combined for both two terminals to generate healthier returns.

That would mean robbing market share from some refineries, competing market hubs—Beaumont, Corpus Christi and Louisiana—and nearly all of the crude exports from the Houston Ship Channel, leaving the ship channel to focus on exporting petroleum products and plastics, while still importing foreign crude.
Source: Platts

    There are no comments available.
    In order to send the form you have to type the displayed code.