Surveying the Export Field - Positioning U.S. Offshore Crude Export Terminals

As markets continue to reel -- initially, WTI and Brent surged 20% and some E&P company shares shot up 50% -- from the weekend attacks on two crude producing Aramco facilities in Saudi Arabia, we’re left wondering what would the impact have been to world markets without: the dramatic rise of U.S. shale oil production and, in 2015, the U.S. lifting a four-decade long ban on exporting U.S. crude. Many industry executives, including the CEO of Enterprise Products Partners, have compared the Houston Ship Channel to the Strait of Hormuz, given the strategic significance of the channel to exporting crude to the world. Interestingly, last week during the Democratic debates in Houston, the Channel was shut down due to protests from Greenpeace.


In addition to the race to build new crude pipelines in the Permian, which we capture in The Permian Edge , the next potential constraint to getting crude to countries such as China and India involves the development of new offshore ports along the U.S. Gulf Coast with the ability to fully load Very Large Crude Carriers (VLCC). With stringent regulatory review processes, these export projects will not have a material impact on the ability of U.S. crude to reach overseas in the short term, and stakeholders are left with the following two questions: what projects are viable and when can they be expected to come online?


Today, we consider the role of existing crude export facilities in the U.S., as well as the proposed projects currently subject to federal review, with a focus on the regulatory process, its pitfalls, and potential constraints to the planned terminal projects.

Shifting Expectations

Domestic oil production has grown in the past decade, increasing energy security as well as crude and products exports. While this year’s net imports dipped to negative values, the U.S. has not yet entirely replaced its dependence on foreign oil -- which is to say, we are not free of the impacts of Saudi Arabian supply or lack thereof on the international market. And the increased prices in the past few days, in combination with questionable supply abroad, may shape up to be an even greater opportunity for U.S. oil than we could have imagined.

Weekly U.S. Imports and Exports of Crude Oil and Petroleum Products

While there are many operating crude export facilities in the U.S., only one U.S. facility is able to fully load a VLCC, the Louisiana Offshore Oil Port off the coast of Grand Isle, Louisiana. In order to meet the growing demand to export U.S. oil, midstream developers are vying to construct terminals, particularly in the Gulf of Mexico, to get production to market. In particular, these facilities are looking to service VLCCs which, as their name suggests, hold the largest amounts of liquid.


However, these projects are hampered by not only federal review but also the current conditions in the Houston Ship Channel, which must be expanded to allow for this class of tanker. Although many players have expressed interest, there are only five proposed deepwater offshore crude terminals under review by the U.S. Department of Transportation’s Maritime Administration (MARAD), and the U.S. Coast Guard, the federal entities which are required to review and adjudicate these export projects, as we discuss in detail below.

In addition to these five projects, five additional projects are in very early stages and have not officially started the permitting process. These projects are sponsored by: Tallgrass, Carlyle/POCCA, Energy Transfer, Flint Hills Resources, and Jupiter.

Who’s Responsible for Review? 

Deepwater offshore terminal projects are reviewed by the MARAD under the Deepwater Port Act, which has been amended to provide a transparent and fixed review of applications. A mandatory 356-day timeline reduces the risk of delay -- in contrast to the various delays that  often make headlines when it comes to other agencies’ reviews of controversial pipeline projects in the Northeast. Does this sound too good to be true? Success hinges on the applicant’s thorough preparation of application materials. And the pre-application process allows applicants to communicate with MARAD and the U.S. Coast Guard, much like pre-filing for an interstate gas pipeline or Liquefied Natural Gas terminal project, to ensure the application is complete.

The first step in the process, and what starts the running of the clock, is the applicant’s submission of its license application to MARAD, typically thousands of pages in length, the  U.S. Coast Guard and other relevant federal and state agencies. The application is reviewed for completeness and, within 26 days, a Notice of Application is published in the Federal Register or a formal rejection is issued by the MARAD Administrator. The following steps are focused on meeting the environmental review requirements established by the National Environmental Policy Act (NEPA) in an effort to complete an Environmental Impact Statement (EIS). The bulk of time is spent on NEPA review, 240 days, and includes the results of federal and state agency review.
Finally, following NEPA review, MARAD has its own approval criteria that must be met before a license may be issued:

1. Financial Responsibility
2. Compliance with Relevant Laws, Regulations, and License Conditions
3. National Interest
4. International Navigation
5. Impact on the Marine Environment
6. National Environmental Laws
7. Consultation with the Secretaries of the Army, State and Defense
8. Approval of the Governor of the Adjacent Coastal State
9. Consistency with Coastal Zone Management Program

Projects Under Review at MARAD

The Realities of MARAD Review

Unfortunately, the 356-day mandatory timeline can be suspended in certain circumstances, stopping the clock, and extending the applicant’s review time. If information gaps are identified in the application materials throughout the course of review, MARAD may suspend the review in order to allow the applicant to gather the necessary information. In the past, the following issues have triggered “stop clocks”:

• inadequate information regarding project financing
• proposed re-gasification and liquefaction technologies
• fisheries analysis
• air quality review
• endangered species
• marine habitats
• cultural resources

If these issues seem familiar, it may be because they are no different than those faced by natural gas pipeline and liquefaction terminal developers. And of the five projects proposed off the Texas coastline, two have been suspended: the Texas Gulf Terminals and COLT Projects. In the case of Texas Gulf Terminals, the U.S. Army Corps of Engineers (Corps) requested additional information in a letter dated July 24, 2018, and advised that if the requested information was not received within 30 days, Texas Gulf Terminal's permit application would be withdrawn. The Corps did not receive the additional information in a timely fashion and, as a result, on October 23, 2018, the Corps notified Texas Gulf Terminals that its application was withdrawn. Texas COLT, on the other hand, has been unable to provide MARAD and the US Coast Guard with complete responses to certain information requests and, on June 19, 2019, met with the U.S. Coast Guard and MARAD to convey details associated with the project’s design. As a result, COLT will amend its application.

These suspensions suggest that it is still anyone’s game, with perhaps SPOT continuing to lead the pack. After all, there is still the issue of construction to contend with upon receiving approval, not to mention the expansion of the Houston Ship Channel to allow for increased traffic, which requires a collaboration between the Port of Houston, Corps, community and presidential approval. LawIQ will continue to follow these issues as they play out over the coming weeks and months.

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