Offshore oil port's exports surge

BATON ROUGE -- The Louisiana Offshore Oil Port is becoming a major world oil trading hub, with record U.S. oil production transforming the nation's only deepwater offshore oil port from its previous role as strictly an importer to a major source of exports.

LOOP, about 20 miles south of Port Fourchon in 110 feet of water, has more than doubled the number of huge oil tankers that have loaded crude for export in the first six months of the year.

The trend will continue as U.S. production grows and new infrastructure comes online, LOOP President Terry Coleman said.

Until three years ago, LOOP took in about 300 vessels a year, offloading crude oil from Saudi Arabia, Iraq, Venezuela and other sources, then piping it through its vast pipeline network to storage caverns onshore or up to refineries in the Baton Rouge corridor and further inland.

Now, said Coleman, LOOP is handling less import volume but is almost always sending away those ships full of U.S. crude for export markets, like China, India and Europe. He estimates that about 40% of vessels now leave full of U.S. crude for export markets.

The major forces behind the surge of exports were the lifting of a 40-year ban on crude exports at the end of 2015 and the continued turnaround in U.S. oil production.

New technology, including fracking, has helped open vast oil reserves in places like the Permian Basin in Texas. As a result, U.S. production reversed a 40-year decline from a peak 10 million barrels per day in the 1970s to below 5 million barrels a day in 2010. It  has rebounded to a new record of 12.4 million barrels a day at the end of May.

The Energy Information Agency reported earlier this month that U.S. crude imports into Gulf Coast refiners had hit their lowest level since 1986, at 1.8 million barrels per day.

"As U.S. imports have come down, that has created more space for us to export," Coleman said.

It also means that the port, which employs more than 400 full-time and support staff, operates much more efficiently because loading crude onto tankers for export uses up far less energy than offloading the imported crude, he added.

Coleman said the additional commercial activity from the exports surge has helped to secure the jobs at the facility and it may mean LOOP can grow its workforce down the road if the exports business keeps expanding.

"The energy sector has had it rough the last few years so this is a good news story from that point of view. The new storage tankage we've put in recently -- seven new tanks that can hold about 2.5 million barrels, bringing total above-ground storage capacity to 12 million barrels -- means we're ready for this new tranche of business. Hopefully, if it keeps growing we'll be able to add new jobs," Coleman said.

LOOP receives oil for export via the Zydeco Pipeline, which carries crude from Texas shale fields through Houston to Houma. It links with the Houma-to-Clovelly Pipeline, which runs south through Lafourche Parish to LOOP's storage tanks in Clovelly, near Cut Off. From there, it links to LOOP's offshore import-export terminal, about 20 miles south of Port Fourchon.

LOOP, a joint venture of Marathon Pipe Line, Shell Oil Co. and Valero Terminalling and Distribution Co., is likely to see further export gains as new infrastructure comes online, said John Coleman, an analyst at Wood Mackenzie consultants in Houston.

The recently completed Bayou Bridge Pipeline now links oilfields in Texas with a terminal in Vacherie. Two proposals on the table would reverse the flow of a key pipeline that now only runs crude north to that pipeline hub from LOOP's storage terminals at Clovelly, in southern Lafourche Parish just east of Cut Off.

"Most likely just one of those proposals will be picked and once that (pipeline reversal project) occurs, you'll see another increase in crude volumes for export," said Wood Mackenzie's Coleman.

It's not all going to be one-way traffic, however. As the Energy Information Agency pointed out, the reasons for much lower crude imports and higher exports from the Gulf Coast have been both longer-term trends and recent events, such as U.S. sanctions on Venezuelan crude, which used to be a main source of supply for Gulf Coast refiners, as well as the production cuts by Saudi Arabia and other Persian Gulf producers under their OPEC obligations in an effort to support higher oil prices.

A look at the destination of U.S. export crude shows a surge in Asian buyers, especially China and India, over the past year. But the trade war with China and the loss by India this month of its "favored nation" trading status with the U.S. will likely cap that trend, just as it has already hit China's imports of U.S. seaborne natural gas.

"The volumes out of the LOOP are going to be very volatile," said Wood Mackenzie's Coleman. But the longer-term uptrend for crude exports is not likely to be threatened, because oil markets usually find a way around tariffs and sanctions, he added.

"Trade impediments are going to create inefficiencies, whether to crude or refined products," like gasoline or jet fuel, Coleman said. "But in our view, the market is always going to rebalance; they'll eventually find a new home."

Still, it is unlikely to be all smooth sailing for LOOP. It is likely to face competition from Texas, where several collections of companies have proposed new export facilities. That includes two Houston-based companies, Kinder Morgan and Enterprise Products Partners, which have teamed up with Canadian pipeline operator Enbridge, and filed for a federal permit to build a port about 30 miles offshore from Oyster Creek, Texas, where an oil storage terminal is also proposed to support the facility.

Wood Mackenzie's Coleman said the Texas capacity likely would siphon away potential business from LOOP as it would give Texas producers a nearer option to get the crude out to export markets. But he said that with U.S. production on track to top 13 million barrels per day next year, LOOP's business would probably plateau rather than see a drop off when the new competitors hit the market.