Lloyds List: Sabine-Neches Waterway seeks to dredge up $900m

EXTRACT: The danger of counting one’s LNG chickens before they hatch was underlined in March, when Shell decided it was aborting the already approved 1bn cu ft a day Gulf Landing offshore project in Louisiana, citing demand realities.

THE ARTICLE

The biggest crude oil import waterway in the US, situated in the nation’s refining nerve centre, needs a substantial dredging upgrade to keep up with bigger ships and growing trade prospects. Rajesh Joshi reports for Lloyds List

Published: Apr 03, 2007

COMBINE an anticipated doubling of deep-draught ship calls from 2,000 a year to 4,000 by the year 2010 with huge trade growth forecasts, and you have a classically ‘critical’ case for federal dollars.

The Sabine-Neches Waterway in Texas is currently in that position, seeking to fund a whopping $900m deepening and widening project.

The backdrop is provided by the $25bn in new investments being made in infrastructure along the waterway, including the first new refinery to be built in the US since 1976 and three proposed liquefied natural gas projects.

This translates into a 44% increase in refining capacity along the waterway over the next decade, and the advent of regular LNG ship calls.

Even the shakeout in the LNG business, which is now raising fears of over-supply amid a belief that some new projects would be shelved, is unlikely to alter SNWW’s funding case.

The SNWW is the fourth largest waterway in the US by tonnage, and the largest importing hub for crude oil.

Slicing through the US refining heartland, the waterway is transited by 12% of all petrochemical tankers calling in the US. Refineries serviced by the waterway include Motiva, Valero, Total and ExxonMobil, representing 11% of US refining capacity.

Sempra, GoldenPass and Cheniere are the three LNG projects under way. Cheniere is expected to come on stream first, with concomitant LNG ship calls by next year.

Randall Reese, general manager of the Jefferson County Waterway and Navigation District, tells Lloyd’s List that the SNWW currently can accommodate only panamax and suezmax sized lightering tankers.

The current depth of 40 ft forces these lightering ships to sail in partially loaded with a draught of 39 ft or less.

Deepening the waterway to 48 ft will allow them to come in with draughts of up to 46 ft, which will increase the quantity of crude brought in by each tanker, Mr Reese says.

This will reduce lightering costs, which in turn will contain gasoline prices at the pump.

This, in tandem with the increasing price of crude oil, is reason enough to fund the deepening project, supporters of the maritime industry around Port Arthur are claiming.

Deepening is also logical for the longer term given the ‘never-ending increase in ship sizes’, Mr Reese adds.

A feasibility study on this subject commissioned in 1997 was finally delivered to local officials in March.

The study formalises the intention of deepening the channel to 48 ft along the Port Arthur Channel and Port Arthur Canal, and deepening to 48 ft as well as widening the Sabine-Neches Canal and the Neches River Channel from 400 ft to 500 ft.

The total cost of this improvement is pegged at $900m, out of which $675m is being sought from the federal government by way of a contingency authorisation pencilled into the Water Resources Development Act.

The remaining $225m would come from local sources.

Two Republican Congressmen from Texas, Ted Poe and Kevin Brady, are fronting a local lobbying push to get the US House of Representatives Transportation and Infrastructure Committee to insert the necessary language into the WRDA before it is finalised for a vote.

The last WRDA was passed in 2000, and attempts to pass a renewed version failed in recent years.

‘We cannot afford to miss this one,’ says Mr Reese.

He does not expect the ascension of the Democratic Party to majorities in both chambers of Congress to queer the pitch for a project in President George Bush’s home state.

‘This is not political football,’ he says. ‘The economic importance of the SNWW is beyond doubt, and accepted by everyone.’

Nonetheless, Paul Beard, board chairman of the navigation district, says the organisation has decided to change its name to the Sabine-Neches Water and Navigation District of Jefferson County.

‘Everyone knows the name ‘Sabine-Neches Waterway’, while Jefferson County is not that commonly known,’ Mr Beard says.

Figures cited by the Texas Congressmen in their funding appeals to Washington explain why the Sabine-Neches moniker is so popular nationally.

The SNWW’s network of pipelines delivers 13-16%, or more than 3m barrels per day, of all the refined crude products consumed east of the Rocky Mountains.

About 20% of the commercial jet fuel consumed in the US is produced here. About 73m tonnes of crude oil, 28m tonnes of petroleum products and 8.5m of chemical cargo move through the SNWW’s marine terminals annually.

In addition, the SNWW is the largest commercial military port in the US, and claims to be the second largest in the world.

Federal data showed almost 75,000 ship and barge trips through the waterway in 2003, the last full-year figures available. This included some 2,200 foreign vessel calls, or 4,400 trips.

Projections call for this traffic to exceed the ‘recommended maximum’ operating capacity by 2010. Mr Beard expects the foreign vessel component to double by 2010, to beyond 4,000 vessel calls annually.

The increase is because of the astonishing $25bn worth of new infrastructure coming up along the SNWW.

This includes four significant refinery upgrades. In a landmark move, Motiva is building the first new refinery to come up in the US in three decades, which will increase its capacity from 250,000 bpd to 600,000 bpd.

Total’s expansion will increase its capacity from 250,000 bpd to 300,000 bpd. Valero’s expansion will increase its capacity from 300,000 bpd to 450,000 bpd, whereas ExxonMobil’s expansion will increase its capacity from 385,000 bpd to 400,000 bpd.

‘This is a total increase of 565,000 bpd within a decade that is the equivalent of adding an entirely new Valero refinery,’ Mr Reese says.

‘Without the deepening, the system will simply break down.’

As if these oil bounties are not enough, three LNG terminals are on the horizon. Cheniere’s Sabine Pass terminal on the Louisiana portion of the SNWW has a permitted capacity of 4bn cu ft a day. Ship calls are expected by the spring of 2008, according to current projections.

ExxonMobil’s 2bn cu ft a day GoldenPass facility in Sabine, Texas, is under construction. Sempra’s 3bn cu ft a day project has been approved. The firm is understood to be still firming up sources of its LNG, and construction has not begun yet.

The danger of counting one’s LNG chickens before they hatch was underlined in March, when Shell decided it was aborting the already approved 1bn cu ft a day Gulf Landing offshore project in Louisiana, citing demand realities.

Local sources in Port Arthur suspect that Sempra’s project, too, would come on stream only after such basic considerations are satisfied.

However, this alone is unlikely to derail the overall growth visualised in the local LNG sector.

Captain Ellen Warner of Sabine Pilots, the representative body of the 29 pilots serving in the waterway, says there is a lot of frustration over the 10-year-long feasibility study process, and the time is nigh to get down to the actual work.

The feasibility study itself has stated that ‘deepening and widening the waterway will reduce ship delays and congestion, and the widening will improve operational efficiency and navigation safety’ factors Capt Warner’s organisation holds dear.

However, for these ambitions to come good Congress first needs to cough up the cash. This is why Texas politicians have pulled out all the lobbying stops.

Congressman Poe wrote to the House Transportation and Infrastructure Committee: ‘The SNWW is America’s most critical energy artery. To fuel our country and as a matter of national security, we must address its authorisation needs.’

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