Tuesday, July 8, 2014

Gulf Coast Ports Look Beyond the Box

By Jim Shaw

Ports along the Gulf Coast have been given at least another year to prepare for the opening of new locks at the Panama Canal but events in the shale oil industry may have already blunted the importance of that event for a number of southern gateways. In particular, production from the Eagle Ford shale formation in southwestern Texas has generated rapid construction of new crude and refined petroleum handling facilities at the Port of Corpus Christi, as well as at several other Gulf ports. LNG export terminals are also on the development agenda, with new facilities being proposed for the ports of Brownsville and Freeport, Texas, as well as at Mississippi's Port of Pascagoula.

In Alabama, a new coal terminal is being contemplated for development at the Port of Mobile, a facility that would be built adjacent to the port's existing McDuffie terminal. And containers and breakbulk cargoes have not been forgotten. New Orleans, Houston, Mobile and Tampa are all continuing to build for the box while steel and forest products continue to draw investment interest.

One of the largest southern projects, beyond the energy sector, is the on-going reconstruction of Mississippi's Port of Gulfport where $580 million is being spent to restore and expand infrastructure damaged by 2005's hurricane Katrina, an event now almost a decade old but from which several southern gateways have still not fully recovered. The Cruise industry is also showing growth and a number of Gulf ports, Galveston and New Orleans included, are building for it.

Corpus Christi Crude
In southwestern Texas it's oil that's leading the boom. The Eagle Ford formation, located only about a 100 miles distant from the Port of Corpus Christi, is currently producing more than 1.38 million barrels of crude and condensate a day, more than 20 times the 55,000 barrels it produced only four year ago. Within the port this has translated into more than 450,000 barrels of crude shipped each day compared to fewer than 10,000 at the start of 2012. The boom is generating about $22 billion in new construction at Corpus Christi alone, where the price of waterfront land available for development has more than tripled.

NuStar Energy LP, the nation's second-largest independent liquids terminal operator, recently opened its third petroleum dock at the port, which has doubled the company's loading capacity there to 30,000 barrels per hour. The docks used by NuStar are connected to a 1.6 million-barrel-capacity storage terminal fed directly from the Eagle Ford formation by two pipelines. Other firms investing in new infrastructure in the area include Cheniere Energy, Valero Energy Corporation, Castleton Commodities International and Magellan Midstream Partners.

The rapid investment and expansion has made Corpus Christi the most important energy hub in the US outside of Houston. To handle the massive increase in tanker traffic the port is preparing to widen and deepen its main navigation channel, which is currently limited to one-way traffic and daylight operation.

Corpus Christi Ore
Oil is not the only commodity sparking development at Corpus Christi. Earlier this year Austria's Voestalpine Group broke ground on the construction of a new $740 million plant at the port's La Quinta Trade Gateway development that will use iron ore to make hot-briquetted iron (HBI) for export. The facility will be powered by natural gas and will create 150 full-time jobs as well as about 800 construction jobs. As the largest foreign investment in the history of the Austrian group, the La Quinta facility is expected to produce two million tons of HBI and Direct Reduced Iron (DRI) annually once it comes on line in 2016.

According to Wolfgang Eder, CEO of Voestalpine AG, and head of Voestalpine's Steel Division, the Corpus Christi site, which covers an area of about two square kilometers, was chosen out of 17 potential locations around the world because it met certain key criteria, including logistics, inexpensive energy supply, stable political environment and well-trained local labor. "In the end, Texas was the most promising on all key criteria," said Eder, who noted that the La Quinta property is "superbly located right on Corpus Christi Bay and provides direct sea access for large ships." He also observed that the price of natural gas in Texas is about half of what it is in Europe, which will allow the company to "significantly enhance" the efficiency of its use of raw materials while, at the same time, demonstrating that this is possible while being responsible with the environment. About half of the plant's production is expected to be shipped to Europe while the other half will be retained as a "strategic reserve" and sold to long-term Voestalpine partners.

Brownsville Methane
South of Corpus Christi, the Port of Brownsville is considering a proposal by Houston-based Texas LNG that would see a barge-mounted methane exporting facility positioned at the port. The company's CEO, Vivek Chandra, and COO, Langtry Meyer, were in Brownsville earlier this year to discuss the project with local officials. The company's plan calls for a gas liquefaction plant to be built on a barge that would be fabricated overseas then floated to Brownsville where it would be permanently sited along the Brownsville Ship Channel. The plant would then be fed methane gas via a yet-to-be-constructed pipeline directly from the Eagle Ford Shale deposit.

After liquefaction, the gas would be exported to Asia by ship. Chandra estimates that around 300 engineering/construction jobs would be created by the project and that about 150 employees would be needed to operate and manage the finished facility. The required pipeline would have to be built and maintained by another party and the Brownsville Public Utility Board has already expressed interest in this project because of its plans to build a new gas-fed power generating plant at Brownsville.

Independent pipeline operators are also said to be considering the construction of a pipeline into the Brownsville area that would connect the city to the nation's gas pipeline grid. The proposed Texas LNG plant could serve as an "anchor tenant" for such a line but other customers could be served. According to Chandra, Texas LNG has applied to the Department of Energy for a Free Trade Agreement export permit and plans to be liquefying natural gas for export at Brownsville by 2018.

Houston Celebration
Eastward, the Port of Houston has been celebrating the 100th anniversary of its shipping channel, although the waterway was blocked by a major oil spill only two months ago. Last year, the Texas port handled 2 million TEUs and 36 million tons of cargo while recording $231 million in operating revenue, all new records. In addition, its 6 percent increase in the handling of loaded containers outpaced all other US ports while improved grain and coal exports helped generate a 13 percent increase in dry bulks. The port's next big project is to get sections of the Houston Ship Channel widened and deepened to accommodate the larger ships expected from the Panama Canal expansion. Specifically, the channels leading to the port's Bayport and Barbours Cut container terminals need deepening work. Port officials expect the Army Corps of Engineers to issue permits shortly for approximately $100 million worth of dredging that will bring channel depth at both facilities down to 45 feet.

The port is also gearing up for investment being generated by the shale oil boom. A survey commissioned last year found that as much as $35 billion is expected to be spent on new or expanded petroleum, chemical and gas facilities in the Houston area over the next few years. ExxonMobil Chemical is already building a new ethylene cracker in the Baytown area and is adding more polyethylene capacity to its facility in Mont Belvieu. At the same time, the Chevron Phillips Chemical Company is building a new ethane cracker at Cedar Bayou while Phillips 66 is adding two 500,000 metric ton capacity polyethylene plants to its Sweeny Refinery. Such has been the level of investment interest that Houston's new Executive Director, Roger Guenther, said he has been receiving calls from area petrochemical companies asking him directly whether the port will able to handle the extra traffic, which he notes is a "first" in his 26-year career at the port.

Mobile Coal
Petroleum is not the only commodity sparking investment interest along the Gulf. Coal, which has not yet found a major outlet on the US West Coast, has been flowing in volume from several southern gateways, including Mobile, Alabama where the McDuffie Coal Terminal accounted for two-thirds of port revenue in the first half of the port's fiscal year. Although total port tonnage at Mobile was down through the half, coal volumes were ahead of budget by 19 percent. This helped offset a 10 percent decline in general cargo volumes. Port Executive Director Jimmy Lyons noted that some steel handled at Mobile, mainly for movement up the Tombigbee River by barge, is not reported in port statistics. Still, general cargo generated $17.7 million in revenue through the period, nearly 10 percent more than expected.

Looking at expanding coal exports, the port is considering a proposal by Birmingham, Alabama-based Walter Energy to build a new $140 million coal terminal on the site of the old Mobile River Terminal, which Walter purchased from Warrior & Gulf Navigation four years ago. The coal company is currently moving its export coal through the McDuffie facility but would need the additional capacity of the new terminal, expected to total between 3 million and 5 million tons annually, to meet the needs of its recently acquired Yellow Creek mine in northern Alabama. While there has been some local opposition to the project, largely because of possible air pollution, Dan Grucza, vice-president of environment for the mining company, said that covered conveyors and fog control devices, including 16 water cannons, would be used to control dust and limit air pollution from handling and loading operations.

Gulfport Restoration
In neighboring Mississippi the Port of Gulfport is one of the few American ports to have a Port Restoration Director position, and Joe Conn has had full-time work in that position as Gulfport both rebuilds and expands its infrastructure following the destruction wrought by Hurricane Katrina almost ten years ago. In April, the port commission authorized port officials to start advertising for more than $100 million in bids covering new construction, with private investment expected to add another $150 million before the end of the year. This includes a substantial upgrading of facilities maintained by DuPont as well as $58 million to be spent by Island View Casino to restore its main hotel at the port.

Hattiesburg, Mississippi-based L&A Contracting has already been awarded a $55.8 million contract to rebuild the port's West Pier wharf. This will see much of the 3,000-foot-long wharf demolished so that nearly 700 new pilings can be driven and a new wharf face built. The stronger pilings will allow the structure to support three all-electric rail-mounted gantry cranes expected to be acquired from China's Shangai Zhenhua Heavy Industries Company at a cost of nearly $30 million. The new units will replace the port's two existing diesel-powered cranes, which are to be sold or dismantled. In addition, the port is working with the US Army Corps of Engineers on a dredging project that will deepen Gulfport's main entrance channel down to its original 36-foot depth. In March, the federal government agreed to increase the amount it will provide for the project by an extra $1 million while the port will kick in nearly $8 million.

The restoration and expansion work has persuaded Crowley Latin America Services, one of the port's two major shipping lines, to extend its facilities lease for another two years. At the start of this year the Gulf Coast Shipyard Group (GCSG) signed a three-year lease for space on the port's East Pier that will be used to fit out a series of new LNG-powered offshore supply vessels being built for Louisiana's Harvey Gulf.

Regional Cruising Grows
In the cruise sector, the Port of Galveston, Texas, already the fourth busiest cruise port nationally, is planning the construction of a third cruise terminal. In April, the port's governing body, the Wharves Board of Trustees, approved the commissioning of Los Angeles-based McTigue Architecture and Design to accomplish preliminary concept design work for the facility. Within the same month Carnival Cruise Lines announced it will add a third year-round cruise ship to the port starting early next year when the 2,974 passenger Carnival Freedom launches a new seven-day Caribbean program. This will mark the first time that a cruise line has deployed three year-round ships in Texas. The repositioning will represent a 38 percent capacity increase for the line in Galveston. At the same time, the Texas port is moving forward with $10 million in improvements to one of its two existing terminals as part of a five-year deal signed with Royal Caribbean Cruises, which sails year-round from Galveston.

According to port director, Mike Mierzwa, cruising is "a big income earner" for Galveston, with forty percent of the port's operating revenue now coming from the sector. Construction of the new terminal would mean more capacity plus the potential for more business, particularly as competition along the Gulf for cruise ships heats up. Only last year the Port of Houston gained the business of Princess Cruises, which will use the port's newly opened Bayport cruise terminal.

Although Louisiana's Port of New Orleans is considered too distant to be viewed as competition, it is also moving forward with expansion projects and recently completed a $2.3 million upgrade of its Erato Street Cruise Terminal to host Carnival Cruise Line's 3,646-passenger Carnival Dream, the largest cruise ship to be home-ported in Louisiana.