Curbed Enthusiasm

By Paul Scott Abbott

Movers of energy-related project cargoes might just have to curb their enthusiasm in this extremely volatile time for the U.S. oil and gas market.

Record-high oil and gas prices are not yet translating to commensurate widespread increases in energy infrastructure investments, according to industry observers, but outlays for liquefied natural gas and renewable fuel facilities do continue to rise, particularly in Texas.

“Capital investment by the oil and gas industry is at a slower rate than might be anticipated,” U.S. Energy Information Administration industry economist Jeffrey Barron told Breakbulk. “It’s still growing, but it is less than one would expect considering how high prices and demand have been.”

Barron, who produces the Short-Term Energy Outlook reports for EIA – the statistical and analytical agency within the U.S. Department of Energy – said a host of factors
are contributing to uncertainties that have combined to make this “probably one of the most hard-to-forecast times for the oil and gas market for coming months, let alone years.”

Whereas oil markets are volatile “almost all the time,” according to Barron, “this is one of the most challenging and volatile times for the oil and gas market.”

The Covid-19 pandemic continues to cast a pall, while supply side questions abound following Russia’s Ukraine invasion, unrest in Libya and uncertainty regarding sanctions on Iran and Venezuela, Barron said. On the demand front, inflation and the overall U.S. economic slowdown are among significant factors.

According to the EIA’s Short-Term Energy Outlook report released July 12, sustained high demand supports a U.S. crude oil production forecast of an average of 11.9 million barrels per day in 2022, rising in 2023 to 12.8 million barrels a day, which would eclipse the record of 12.3 million barrels a day set in 2019.

Meanwhile, the report projects that per-gallon U.S. regular gasoline prices, which averaged US$4.11 in the first half of 2022, up from US$2.78 in the first half of 2021, will end this year at an average of US$4.05 before declining to US$3.57 in 2023.


Big Oil Slow to Invest

Nonetheless, Barron said, big oil companies have been hesitant to effusively pour newfound gains into infrastructure. Although some smaller private companies have been adding drilling rigs at an expected rate, he said, publically traded exploration concerns seem to be taking “a more balanced approach” as, rather than putting most of their profits into expanding capacities and capabilities, they are more substantially engaging in such activities as increasing dividends to shareholders, buying back shares on the open market and paying down debt.

“So,” Barron said, “we’re seeing slower growth in rig counts and activity than might be expected.”

Supply chain challenges, led by inability to get steel, have also limited the wherewithal of companies to increase rig counts, he said, adding that many of the older rigs that could have been called upon now to boost upstream production were cannibalized for parts throughout Covid-wracked 2020.

What upstream activity growth there will be is anticipated to largely occur in the Permian Basin region of West Texas and southeastern New Mexico, according to Barron, with lesser growth in the Eagle Ford shale play to the east of the Permian Basin; the Bakken Formation extending from Montana and North Dakota into Canada; the Niobrara region of northeastern Colorado and neighboring states; and the Anadarko Basin of western Oklahoma and the Texas Panhandle.

Barron’s tempered view is supported by executives of Jacksonville, Florida-based vessel operator and supply chain logistics provider Crowley Maritime.

“While we are seeing increased demand and consumption of refined products, we are not seeing a corresponding increase in upstream activity yet that would in turn drive breakbulk- and project-related activity, though it doesn’t mean it is not happening,” Tucker Gilliam, Crowley Shipping’s vice president of marine assets, told Breakbulk.

“With the increase in crude and gas prices, energy companies appear to initially be attempting to maximize the utilization of infrastructure and facilities they developed associated with the fracking boom,” Gilliam said.

During the fracking boom of the 2010s, companies made significant investments in production and logistics capabilities, mainly consolidation facilities, pipelines and receiving and export terminals associated with shale oil and gas production, and getting that production to markets, both domestically and via export, he explained.

“As the price of oil dropped, some of that infrastructure went underutilized,” Gilliam said. “Now, as the price of oil is at a steady increase, the first step for many will be to maximize utilization of those already established investments before they start to speculate on additional investment in production or capabilities.”


Focus Shifts ‘Greener’

Gilliam and colleague Matt Jackson, vice president of business development for Crowley Shipping and Energy, are seeing the U.S. energy industry increasingly transition its emphasis to “greener” fuels, including LNG, which have lower carbon emissions levels than traditional fuels. This trend is likely to be accelerated by climate change initiatives advanced in July by U.S. President Joe Biden, as well as the Inflation Reduction Act of 2022, with US$375 billion designated for efforts to fight climate change, signed into law Aug. 16.

“We do see investment in infrastructure associated with alternative or lower carbon fuels as focus continues for consumers and corporations steadily shifts toward decarbonization and sustainability,” Gilliam said.

Jackson added that a shortage of storage and lack of supply due to demand have resulted in building of additional large-scale LNG liquefiers along with new LNG contracts to support these investments.

“The downstream opportunities to produce and transport LNG have increased to help meet the increased demand worldwide,” Jackson said, noting that Crowley is heavily engaged with LNG, including this year opening a new LNG loading facility in Puerto Rico and partnering with Shell North America to build the largest U.S. LNG bunker barge.

An April report from Dallas-based commercial real estate services and investment firm CBRE, while focused on real estate, cites the opportunity for the U.S. LNG industry to help offset reductions in European imports of natural gas from Russia while also meeting burgeoning domestic demand.

Nowhere in the U.S. is the LNG boom having greater impact than in the Golden Triangle region, centered around the Southeast Texas cities of Beaumont, Port Arthur and Orange, with the Sabine-Neches Waterway as its main maritime artery.

“LNG facilities, refineries and chemical plants along the waterway rely on the Port of Beaumont to move the large pieces of cargo that bring their projects to life,” Sadé Chick, the Port of Beaumont’s director of corporate affairs, told Breakbulk, pointing out the port’s location at the uncongested north terminus of the federally maintained shipping channel.

“Oftentimes, the largest components are shipped in, moved to barge and sent back downriver to offload closer to the facility.”

Buoyed by significant foreign investment, more than US$65 billion in announced and proposed oil, gas and petrochemical industry projects are in the metaphorical pipeline in the Golden Triangle region, according to Chick.

With Qatar Energy and ExxonMobil as partners, the US$10 billion Golden Pass LNG liquefaction and export terminal facility in Sabine Pass, Texas, is under construction, on target to start up the first of three planned LNG production trains in 2024. The engineering, procurement and construction contractor is the CCZJV joint venture of San Antonio-headquartered Zachry Group, Houston-based McDermott International and a unit of Japan-based Chiyoda Corp. In April, the facility received U.S. Department of Energy authorization to export as many as 18.1 million tons per year of LNG to countries that do not have free-trade agreements with the U.S.


More Facilities Advance

Numerous additional facility development projects are in various stages of pursuit in the Golden Triangle, including the nearly US$5 billion plan to add a lumber-waste-to-fuels renewable fuels plant and nitrogen-based fertilizer production units by 2027 at the existing OCI Beaumont ammonia and methanol plant, owned and operated by Amsterdam-based OCI N.V., just south of Beaumont.

In Orange, Texas, a joint venture of Chevron Phillips and Qatar Petroleum has begun clearing land for the proposed US$8 billion CP Chem facility, to include an ethane cracker and high-density polyethylene plants.
Meanwhile, the US$10 billion Port Arthur LNG liquefaction project is moving closer to fruition, with Bechtel signed as EPC contractor for San Diego-based Sempra Energy. An interim project participation agreement has been signed with a subsidiary of Saudi Aramco, and the U.S. Department of Energy has authorized exports to non-free-trade agreement countries. The facility augurs to produce as many as 13.5 million tons of LNG per year.

Also in Port Arthur, about 90 miles east of Houston, the Diamond Green Diesel LLC joint venture between Valero and Darling Ingredients earlier this year contracted with Kansas City, Missouri-headquartered Burns & McDonnell to provide EPC services for development of a renewable diesel production facility being built at Valero’s 395,000-barrels-per-day refinery. With the ability to churn out 470 million gallons of renewable diesel per year, the facility will offer the largest renewable diesel train in the U.S. The Port of Port Arthur is busy handling project cargoes for its construction.

“Southeast Texas is the go-to location for many of these large industrial projects due to the proximity to healthy rail, highway and pipeline networks,” the Port of Beaumont’s Chick said.

On the Louisiana side of the Sabine-Neches Waterway, in Cameron Parish, a subsidiary of Houston-based Cheniere Energy and EPC partner Bechtel announced in February the ahead-of-schedule substantial completion of all six liquefaction trains at the Sabine Pass LNG terminal, where initial train production began in 2016. That brings the facility’s total LNG production capacity to 30 million tons a year.

According to executives of Reston, Virginia-headquartered Bechtel, newly added Train 6 alone will make enough energy to retire eight typical coal-fired power plants.

Cheniere and Bechtel also are teaming up on a US$5.5 billion expansion of liquefaction capabilities at the Corpus Christi Stage 3 LNG project on Corpus Christi Bay in San Patricio County, along the Coastal Bend of South Texas, about 200 miles southwest of Houston. In June, Cheniere made a positive financial investment decision to move forward with adding as many as seven midscale trains, to bring the US$14 billion terminal’s total nominal capacity to 25 million tons a year of LNG by the end of 2025.

Economic development officials report more than US$52 billion in industry investments throughout the Coastal Bend over the past decade, while, to better handle burgeoning export volumes via the Port of Corpus Christi – the nation’s No. 1 export gateway for American crude oil and No. 2 export gateway for LNG – separate endeavors are proceeding to deliver a 54-foot-deep ship channel and put in place a taller harbor bridge with 205-foot clearance. Corpus Christi’s export prominence got its start with the 2015 lifting of the 40-year U.S. embargo on crude oil exports.  


A professional journalist for more than 50 years, U.S.-based Paul Scott Abbott has focused on transportation topics since the late 1980s.

Image credit: Port of Beaumont