Port of Corpus Christi Project Proceeds Despite Repeated Delays

Trump uses the bully pulpit to help expedite a roughly $360 million port project
  • The CIP entails deepening the ship channel to 54 feet from 45 feet currently; widening it to 530 feet from 400 feet; and adding additional dedicated barge shelves.
  • The US Congress in 1990 authorized dredging the ship channel to 52 feet, but the funding was not authorized until 2007.
  • In July 2018 Corpus Christi priced and sold roughly $217m in senior revenue bonds to support the CIP, as well as future capital projects.

The Port of Corpus Christi’s long-delayed channel improvement project (CIP) is set to ramp up, now that it has received explicit support from the Oval Office.

President Donald Trump in a recent White House speech, directed acting US Environmental Protection Agency (EPA) Administrator Andrew Wheeler, to work with state leaders  to complete the development of Texas’ ports.

“Whatever you can do for the great state of Texas,” Trump told Wheeler. “This way they can bring the giant ships right in, fill them up, and they go out.”

The president’s directive comes months after the port priced and sold $216m in bonds to deepen and widen the channel, as well as finance other upgrades. However, it is unclear just how much can be done to expedite the estimated $360m project.

“We look forward to helping in any way we can,” an EPA spokesperson told Icons of Infrastructure. He declined to provide any specific information on what state leaders the administrator would reach out to, or what steps the agency would take to advance the project.

“As part of our capital program, we have to build more docks, storage facilities, and additional rail capacity to export America’s industry and meet global demand.”

– Sean Strawbridge, CEO, Port of Corpus Christi

Unprecedented growth

The CIP entails deepening the ship channel to 54 feet from 45 feet currently; widening it to 530 feet from 400 feet; and adding additional dedicated barge shelves. The development is due, in part, to Congress’ December 2015 repeal of a 40-year ban on exporting crude oil.

Notably, the port in October announced that it set a new record of 79.3 million tons in the first nine months of 2018.The throughput surpasses the previous record of 77.9 million tons set in the first nine months of 2015.

Corpus Christi attributed the volume growth in 2018 to an 11% increase in shipments, as well as 8% and 3% increases in petroleum product and breakbulk shipments, respectively. The port did not by press time respond to questions about the annual throughput expected upon completion of the CIP. However, Port of Corpus Christi Commission Chairman Charles W. Zahn in a statement at the time said that the record-setting tonnage supports the “critical need” for continued investment in infrastructure.

The Port of Corpus Christ chief executive Sean Strawbridge told Lloyd’s List that the repeal has been a “major growth sector” for the port, since large consumer markets in China and India are increasingly importing crude oil from West Texas. He added that there is currently not enough takeaway capacity in the field.

“More pipelines are needed,” Strawbridge said. “And many more pipelines are coming.”

Corpus Christi is the fourth largest port in the US in terms of total tonnage. The US energy export boom, and the port’s proximity to both the Eagle Ford Shale and the Permian Basin, has made it the nation’s main portal for the export of crude oil, natural gas and propane.

“As part of our capital program, we have to build more docks, storage facilities, and additional rail capacity to export America’s industry and meet global demand,”  Strawbridge said. “As Chenier Energy’s first train is slated to become operational next month, we need to be ready with a deeper channel and storage facilities so that we will be able to load in competitive and safe fashion.”

Houston-based Cheniere will on November 15 commission a new LNG export terminal at the Port of Corpus Christi. The project is being designed for five trains with expected aggregate nominal production capacity of up to 22.5 million tonnes per annum (mtpa) of LNG, according to the company.

Cheniere Energy did not immediately respond to questions regarding the CIP. The company’s chief executive Jack Fusco, alongside the bosses of Buckeye Energy, Howard Energy Partners, NuStar Energy, Occidental Petroleum Corp. and Plains All American Pipeline in a January letter urged President Trump to support the CIP.

“Completion of the CIP would allow very large crude carriers (VLCCs) to navigate the channel allowing larger shipments of exported oil and gas to trading partners in the global marketplace,” they wrote. The letter also noted that the port currently generates approximately annually? $20bn in economic activity for the state of Texas, including nearly $5bn in personal income, as well as $353m in state and local taxes and 80,000 in port-related jobs.

Despite those benefits, a lack of funding has resulted in a more than 20-year delay for the project.

The US Congress in 1990 authorized dredging the ship channel to 52 feet, but the body did not authorize funding for it until 2007. A decade later, the port signed a partnership with the Army Corps of Engineers (ACE) to pursue the project. Strawbridge said that, at the same time, the port accelerated $32m of its total $130m cost share in order to fund the effort, and transferred another $78m to the Army Corps of Engineers.

Strawbridge said that the federal government has to date provided the port with its $230m cost share to fund CIP. He added that, to date, the port has transferred $78m to  ACE. The transactions comprised: $32m in October 2017 following the signing of a project partnership agreement; $12m in May 2018 prior to the advertisement of the first contract, which ACE has not awarded; and another $34m in August 2018 for full year 2019 obligations. The port is obligated for $52m, under the current cost agreement.

Strawbridge said that ACE has provided roughly $36m to date, including $23m from the full year 2018 Work Plan, and another $13m in the full year 2019 presidential budget. He noted that ACE has an approximate $194m obligation for the project.

In July 2018 Corpus Christi priced and sold roughly $217m in senior revenue bonds to support the CIP, as well as future capital projects. Wells Fargo acted as lead manager for a syndicate including JP Morgan, Citigroup and Frost Bank.

According to Moody’s Investor Services, proceeds of the 2018A bonds, as they are known, will be used to advance fund the port’s entire $102m cost-share of the CIP. Approximately $44m of the 2018A proceeds will reimburse the port for funds already advanced. A second tranche of bonds, known as 2018B, will be used to finance capital projects including berth, dock and terminal projects. Those bonds priced in July of this year.  Proceeds from both bonds will according to Moody’s also make a deposit to a debt service reserve subaccount in the amount of six months of maximum annual debt service (MADS).

Moody’s Investor Services assigned an A1 Rating to the debt, while S&P assigned it a rating of A+.

Strawbridge attributed the delays to ACE having been overburdened with flood control and risk mitigation. The body in June of this year announced more than $509 million in funding for multiple projects in Texas. Those include flood mitigation and critical work for the Brays and Buffalo Bayous, as well as the Matagorda and Corpus Christi Ship Channels.

“Coordination with the Army Corps of Engineers takes a long time,” Strawbridge said. “ACE has more work to do than funding.”

Nicholas Laskowski, project manager for ACE, said that the body had a contract out for solicitation in June, but received bids that exceeded 125% of the estimated cost of the contract. He added that ACE began began working with the port to identify other options since it could not award a contract of that size.

Laskowski said ACE has since converted the solicitation to a negotiation, and is currently  reviewing some of the submitted proposals.

“If we can come to an amicable agreement, we estimate awarding the contract in early February 2019,” he said. “The corps is pleased to be partnering with the Port of Corpus Christi, and others that are leading the nation in strategic oil imports.”

Financing the future

Strawbridge said that CIP would go significantly deeper if it began today, since depths of 60 – 75 feet of water are needed to accommodate VLCCs that load West Texas crude. To that end, a second phase known as CIP II will see a deepening of 75 feet or more.

CIP II will also include the development of a portion of the port called Harbor Island. Harbor Island is the first stop in the channel and used to be a crude import facility for Exxon, Strawbridge said.

“We removed the pipelines and are now looking to develop it as a crude export facility,” he said. “Right after ACE gets the ship channel to 54 feet, we will start CIP II.”

Corpus Christi will partner with global asset manager The Carlyle Group to build a crude oil export terminal capable of handling VLCCs. Expected to be operational by late 2020, the terminal will include two new loading docks, additional crude storage tanks and dredging of the port’s channel to at least 75 feet deep.

A spokesperson from The Carlyle Group estimated the project’s cost at roughly $1bn.

Part of Harbor Island’s attractiveness as a development is its access to deep water. Feasibility and environmental studies for the project are currently in progress and permits are expected in the middle of next year.

Unlike the initial widening project however, CIP II will be a public-private partnership.

Public-private partnerships are increasingly becoming attractive for smaller ports that depend on the state for financing, Capt. Jeffrey Monroe, senior port and maritime management consultant at HDR said. While larger ports generally have money reserved for capital improvements, companies looking for long-term arrangements with ports are using P3s to gain a foothold.

“P3s are a great way to approach this [development] because it benefits both sides,” Mr Monroe said. “As a port director I know I’ll be getting a long-term tenant since they won’t want to put money into a port and then let their facility lie dormant. The interesting thing is that port directors have to recognize the level of control they give up when they become a ‘landlord port.’”

Strawbridge noted that more ports are now looking to take control of their destiny by pursuing P3s. For example, Ports America, the largest US port operator and stevedore, has entered into P3s for the Port Newark Container Terminal in Newark, NJ, and the Seagirt Marine Terminal in Baltimore Maryland.

Strawbridge said that Corpus Christi will request between $100m and $120mof the federal government’s $570m omnibus spending bill for CIP II, but will be able to match capital more than dollar-for-dollar if it can partner with the private sector.

“ACE is still useful for permitting and oversight, but we can move more nimbly than they can,” he said.

Another example of being able to move nimbly is the port’s planned 13-acre multipurpose cargo dock and a 35-acre marine terminal facility project with Gulf Coast Growth Ventures (GCGV). The roughly $10bn ExxonMobil and SABIC joint venture will according, to the port, construct and operate a worldscale ethane steam cracker for production of ethylene and derivative units for production of polyethylene, and monoethylene glycol.

Modules will be constructed off-site and delivered to a multi-purpose cargo dock on the La Quinta Ship Channel, according to the port. Large components will be transported from the La Quinta Ship Channel to the project site along heavy haul roads, bridges, and drainage features constructed by GCGV.

Upon completion in 2022, liquid products will be transported by pipeline to storage tanks at the marine terminal, where they will then be exported to overseas markets.

The project is expected to create 6,000 construction jobs, as well as another 600 permanent jobs that will pay each employee as much as $90,000 annually once it becomes operational, Strawbridge said. The average annual salary for construction and extraction services in Corpus Christi is $45,580 according to the Bureau of Labor Statistics.

“We will see more growth and, when you look at the restoration of manufacturing jobs, any industry heavily dependent on energy will be looking at Texas Gulf Coast,” he said. “We will create more jobs and help reduce the trade deficit.”

In the short term, the Trump administration’s trade war with China is a cause for concern, according to Strawbridge. China in September imposed a 10% tariff on LNG, but he maintained that the port is not going to amend its capital placement decisions based on tariffs.

“We understand what this administration is trying to do, and hope that headwinds in the current trade dispute will be short lived,” he said. “We have had some impact in agriculture space, but we don’t think China is going to hurt themselves with tariffs on energy. If we’re going to move the needle to reduce trade deficit with China, energy will do that.”

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