From The Wall Street Journal
U.S. energy exporters are wrangling with one of the country’s busiest ports in Houston, saying its recent move to accept larger container ships threatens to constrict the shale boom.
The issue has pitted a coalition of oil-and-gas companies—including Enterprise Products Partners EPD +3.60% LP and Kinder Morgan Inc. KMI +2.90% —against global ocean-shipping companies that are sending larger container vessels to Houston, affecting traffic in the port.
Accommodating both sides poses a challenge for Port Houston, which has grown thanks to its hometown energy industry but has recently invested hundreds of millions in new infrastructure to attract the potentially more lucrative larger container ships.
Houston is the largest U.S. port for energy exports, and exports of oil and byproducts such as natural-gas liquids are booming now that the U.S. is pumping crude at an record of more than 11 million barrels a day. In contrast to the energy exports, some of the container ships are unloaded by the port, bringing it substantial revenues.
“We don’t want to have the port’s biggest business pushed aside for the sake of container vessels,” said Vincent J. Di Cosimo, a senior vice president at Targa Resources Corp., one of the country’s largest providers of natural gas and gas liquids, which is a member of the coalition.
The group, known as the Coalition for a Fair and Open Port, has proposed that the port limit longer container ships to one vessel a week. At a public hearing last week, it asked Houston’s Port Commission to act immediately on its proposal.
In an interview afterward, Commission Chairman Janiece Longoria said the body hadn’t reached a decision on the issue, but her own view was that the port may restrict larger container ships to one entry or exit a day.
“The key point is the commission will work with all the stakeholders to prevent congestion,” she said.
The problem centers on one of Port Houston’s unique features: its distance from the ocean. A 50-mile channel stretches inland from the Gulf of Mexico to the port, with hundreds of ships navigating the waterway each day. To keep traffic flowing, the port authority allows two-way traffic.
But this summer, the port began accepting larger container ships, 1,100 feet or longer, which are so big that traffic is restricted to one-way when the ships are entering or exiting. Such transits can shut down two-way traffic along portions of the ship channel for hours, the energy companies say, restricting the flow of other cargo.
The Coalition for a Fair and Open Port says it has pressed the issue at private meetings with the Port Commission this fall. It says it constitutes 45% of the waterborne traffic through the Houston ship channel.
“We view Houston as the carotid artery of the U.S. energy industry,” Mr. Di Cosimo said. “Impeding two-way traffic is unacceptable.”
Port Houston is following a strategy to boost container cargo that is being pursued by many ports, which are racing to deepen waterways, raise bridges and add taller cranes to accommodate larger container ships. Facing declining revenues, global shipping companies have been running so-called megaships to reduce their costs, and ports fear they will lose lucrative ship calls if they don’t expand.
In August, three $35 million, 30-story-tall cranes designed for the larger ships arrived at one of Port Houston’s container facilities. The port has spent hundreds of millions of dollars in recent years to update the facilities.
“There’s a lot of competition for Houston,” said Paul Bingham, a trade economist with Economic Development Research Group. “If you’re the port authority, you want that cargo to come through there and not a rival port somewhere else.”
Container cargo brings in more revenue for ports and freight-handling businesses than bulk commodities like oil, Mr. Bingham said, and can spur regional economic activity.
But energy exporters say the port is ignoring its bread and butter.
Hydrocarbons accounted for $38 billion in trade through the first half of 2018, which is more than 90% of overall trade through the port, according to a presentation prepared by the coalition. Energy exports through the port will grow from about 4 million barrels a day in 2018 to more than 9 million barrels by 2025, the coalition estimates, worth $218 billion. If the large ships’ calls aren’t reduced, that growth will flatline or even decline, the coalition warns.
Oil and gas production is booming in Texas, but production is forecast to outpace domestic demand and the industry needs exports as a release valve. The U.S. became a net exporterof oil and refined fuels earlier this month for the first time in decades, a symbolic milestone that seemed unthinkable just 10 years ago.
“That’s a huge, huge problem, especially this soon in the export game,” said J. Alexander Blackman, an executive at Houston-based trading company Standard Delta LLC.
