Eagle Ford Exports Spurs Corpus Christi Port Construction Boom

By Dan Murtaugh

April 10 (Bloomberg) — America’s newest energy hub just got a little busier.

NuStar Energy LP officially opened its third petroleum dock at the Port of Corpus Christi, Texas, as Chairman Bill Greehey smashed a bottle of champagne against a loading arm that was filling a barge with crude.

NuStar and other companies are building docks, storage tanks and other facilities in Corpus Christi to take advantage of the oil boom in the Eagle Ford shale formation 100 miles away. The port shipped out 350,000 barrels of crude a day in November, up from under 10,000 at the start of 2012, according to port data.

“It’s a historic time right now for our port,” said Frank Brogan, managing director for the city’s port authority. “I’ve been here 27 years, and we’ve had more activity in the last two years than in the previous 25 combined.”

The new activity is putting pressure on the port’s infrastructure. When tankers used to leave the port empty, they could pass full incoming tankers without a problem. Now only one tanker is allowed to travel the ship channel at a time. Pilots are also restricted to daylight operations. Without the restrictions the port could move up to 30 percent more cargo, Brogan said.

The port authority is trying to gather funding to both widen the 45-foot-deep channel, which would allow tankers to pass again, and to deepen it to 52 feet to allow larger vessels as the Panama Canal expansion nears completion.

Unforeseen Expansion

“Had you asked the port managers of Corpus Christi five to 10 years ago whether they’d be expanding infrastructure, they would have said no,” said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York. “No one foresaw that domestic production, especially Texas production, would increase like it has. In terms of infrastructure, the industry has had to scramble.”

NuStar’s new dock doubles the company’s loading capacity there to 30,000 barrels per hour, said Greg Matula, a San Antonio-based spokesman. The docks are connected to NuStar’s 1.6 million-barrel storage terminal, which is fed by two of the company’s pipelines bringing crude from the Eagle Ford.

About 80 percent of the crude loaded on vessels in Corpus Christi goes to ports in Texas and Louisiana, Brad Barron, NuStar’s chief executive officer, said in an interview in Corpus Christi. The rest goes to refineries on the East Coasts of the U.S. and Canada.

Eagle Ford

The Eagle Ford is a long, narrow strip of underground rock in South Texas rich in oil and gas that was too difficult to recover until recently. Higher crude prices and advances in horizontal drilling and hydraulic fracturing helped increase the formation’s output to 1.36 million barrels a day of crude and condensate this month, more than 20 times the 55,000 barrels produced at the start of 2010, according to data from the Energy Information Administration.

The Eagle Ford’s proved tight oil reserves increased to 3.372 billion barrels in 2012 from 1.251 billion in 2011, the EIA said in a report released today. That makes it the largest tight oil play in the U.S., surpassing the Bakken in North Dakota.

When Eagle Ford production first began growing, it was bad for the port, Brogan said. Corpus Christi has three major refineries than can produce 775,000 barrels a day of oil products, and most of their crude and feedstock came through the port. The refineries reduced their imports as they began to run more Eagle Ford crude.

Light Crude

Oil from the Eagle Ford is very low in density and sulfur. Two of the three refineries are designed to process thick, high- sulfur crude, so they were limited in the amount of Eagle Ford oil they could use. That’s when the port began expanding in earnest, Brogan said.

“The enormous amount of crude coming out of the ground overloaded our refineries, consumed all available dock capacity and kicked off a huge wave of new dock construction at the port, just like the NuStar facility,” he said.

About $22 billion in construction is moving forward on the port, Brogan said. Waterfront land has tripled in price to about $300,000 an acre. Port industries employ 7,000 people, and 5,000 to 10,000 more are doing construction work on new projects.

“It’s a challenge for employers to find good-quality people,” Brogan said. “There’s no shortage of jobs.”

Energy Hub

More investment is coming. Cheniere Energy Inc. is building a liquefied natural gas export plant in Corpus Christi. Companies including Magellan Midstream Partners LP and Castleton Commodities International LLC have announced plans for condensate splitters, which would process ultra-light oil from the Eagle Ford.

Valero Energy Corp. plans to build a crude distillation tower at its Corpus Christi refinery to process more Eagle Ford crude to replace other feedstocks it ships into the refinery.

“There’s a huge refinery complex here, refined products pipelines, massive amounts of crude coming in and out,” Barron said. “Outside of Houston, Corpus Christi is the most important energy hub in the U.S.”

–With assistance from Eliot Caroom in New York.