Companies skip busy Ship Channel for less crowded, lower-cost ports
PORTLAND - Some of the nation's largest energy companies are bypassing the busy Houston Ship Channel and taking their multibillion-dollar expansion plans to other ports along the Gulf Coast, wooed by open land, easy access to deep water and proximity to Texas oil fields, the busiest in the United States.
Petrochemical plants, refineries and export terminals are popping up like Erector Sets from Freeport, just south of Houston, to Brownsville, at the southern tip of Texas, to this small city across the bay from Corpus Christi.
Companies like Houston refiner Phillips 66, oil producer Occidental Petroleum and liquefied natural gas exporter Cheniere Energy have expanded outside of their hometown port.
"There's no question that you get bogged down occasionally in the Ship Channel," said Greg Garland, chief executive at Phillips. "It's just congested."
The Houston Ship Channel has become a victim of its own success. The channel, and its largest port, the Port of Houston, have attracted tens of billions of dollars in investment and scores of companies in recent decades, leaving the area with soaring real estate prices and few tracts of land open for development.
"You don't ever see anything available down there," said Jim Foreman, an executive director at the global real estate firm Cushman & Wakefield. "People that own it don't ever sell it. It's too valuable."
The crunch along the Ship Channel comes as U.S. energy companies increasingly turn their attention to exports to offset flagging U.S. demand, seeking to ship crude, gasoline, petrochemicals and liquefied natural gas to growing overseas markets in Asia, Europe and Latin America. Smaller ports along the Gulf are providing a fast and relatively inexpensive path to foreign customers - and energy firms are taking it.
Last month, Occidental even tested a massive tanker, known as a Very Large Crude Carrier, at its new Ingleside dock, near Corpus Christi, hoping to send Texas crude to foreign markets via the big ships as soon as 2019. In March, Occidental opened a $1.5 billion facility built in a joint venture with the Mexican chemical maker Mexichem, one of several new petrochemical plants near Corpus Christi.
"It's just gone nuts," said Foreman.
Price of admission
The Port of Houston, the main port in the Houston Ship Channel, has long been one of the largest ports in the country. It gets double the international deep-water traffic - tankers and container ships, for instance - of any U.S. sea port, and regularly ranks among the top three in annual tonnage.
Its banks are full of warehouses, chemical plants and refineries. Investments made by Ship Channel companies have dwarfed those at other ports along the Gulf. The Greater Houston Port Bureau, a trade organization for the port businesses, surveyed its members a few years ago; they had $30 billion in expansions and maintenance planned between 2010 and 2015 alone.
Increased traffic has followed this growth. Some 8,300 deep-water ships arrived at the Port of Houston last year, an increase of nearly 10 percent or 700 ships since 2006. More than 220,000 barges traversed the Ship Channel, an increase of 10 percent, or about 21,000 since 2010, the first year for which data was available.
Nearly 200 companies with a combined 274 facilities pack the Port of Houston said Bill Diehl, president of the Port Bureau. There's still room along the channel for companies to expand, he said, but it's filling up.
"Is it busy? Yes," Diehl said. "Can it handle it? Yes. It's a manufacturing center. It's enormous."
It's also expensive. The Houston pipeline, processing and export company Enterprise Products Partners spent $6 billion almost three years ago to buy into the Ship Channel, merging with the Houston storage company Oiltanking Partners, which owned seven deep-draft ship docks, the largest terminal in the channel.
"People said we overpaid," CEO Jim Teague said. "And they were probably right. But our attitude is, what's the price of entry in the Houston Ship Channel? We wanted that position. We love the Houston Ship Channel."
Easier, cheaper access
Rising costs near the Port of Houston are among the factors that have made other Gulf ports more attractive, but not the only one.
Port Freeport boasts of its easy access to deep water. The Houston Ship Channel is more than 50 miles long, from tip through the shallow Galveston Bay. The end of Port Freeport's channel, on the other hand, is less than eight miles from the deep water sea buoy in the Gulf.
Ships can get in, get loaded and get out more quickly, said Garland, the Phillips chief. "Customers like that. Ship owners like that," he said. "We think it's going to be a very competitive location versus the Ship Channel."
The Port of Brownsville is leasing prime land for less than $6,000 per acre per year. Similar land would cost 10 times that or $60,000 per acre per year along the Houston Ship Channel. "The land prices here are, let me just say, very affordable," said Steve Tyndal, Port of Brownsville's senior director of business development. "We earn, per acre, in a year what they earn in a month."
He figures there's about $43 billion in projects in the works at the Port of Brownsville, including an LEED-certified steel mill, a pipeline that will cross into Mexico, and three liquefied natural gas plants. The port is also working to win Congressional approval to deepen its ship channel, from 42 feet to 52.
"Houston has been so good for so long, it's just challenging for them to do some of the things that are easy to do here," Tyndal said. "Once people realize that there are different options that work, but work well, I think that's what fueling industry moving south toward the border."
The southern migration is also changing the horizon along the Gulf Coast as construction booms in and around these ports. Phillips 66 opened a liquefied petroleum gas export facility in Freeport in December and a natural gas liquids separation plant in Old Ocean a year prior, costing the company a total of more than $3 billion. Freeport LNG, also based there, is building a $14 billion facility that expects first production next year.
Three liquefied natural gas companies, Annova LNG and Texas LNG, both of Houston, and Rio Grande LNG, a project of The Woodlands-based oil and gas company NextDecade, are all seeking federal approval to build facilities worth a combined $37 billion at total buildout in Brownsville.
New facilities or expansions also are coming to Point Comfort and Palacios, southwest of Houston, and Cheniere's original site at Sabine Pass, straddling Texas' border with Louisiana.
Big changes
One of the biggest single projects is Cheniere's new 2,000-acre, $13-billion facility here in Portland. Over 4,000 construction workers are erecting a maze of steel beams, shiny stainless pipes and towering cement tanks, as well as two white-concrete export docks on the coast. The ship berths are almost fully dredged. And the company has a contract on adjacent land that could further expand its LNG production capacity.
"You'd have a tough time finding a site like that in the Houston Ship Channel," said Cheniere chief financial officer Michael Wortley.
But there are some struggles here that Cheniere wouldn't find in the Ship Channel. Portland, a bedroom community, is industrializing, and residents aren't sure how to take it.
Two years ago, Cheniere began building on the other side of the golf course, with more than 100 cranes rising above the dunes like rigid metal trees. A year ago, the Austrian company Voestalpine opened a $740-million iron plant just outside town, with a black, 450-foot-tall production tower overlooking the neighborhood park. And now Exxon Mobil plans to put a $10 billion chemical plant near the high school, despite heated resident opposition.
"It's going to be a big change for our town," said Rhonda Harrison, 41, from Portland. "Big change."
"And this is just the beginning," said Tony Herrera, 40, a fourth-generation Portland resident and a worker at the Cheniere site. "Pretty soon, all our corn fields will be gone."
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