Refiners may try on BOOTS-- Proposed offshore port could cut costs, risks

June 19, 2003, 11:26PM By MICHAEL DAVIS Copyright 2003 Houston Chronicle

Unocal Corp. will soon decide if it will build a $500 million deep-water offshore port that would move crude oil through underwater pipelines to Texas refineries.

This could allow refiners to avoid transferring oil from supertankers to smaller ships to get it onshore, reducing the risk of spills in Galveston Bay or sensitive areas near shore.

But Unocal still has to convince refiners by showing the savings on fees.

"We've been working on the project for about two years," said Michael Wilems, vice president of the Unocal subsidiary doing the project, BOOTS LLC.

"We looked at the supertankers that were coming into the Gulf of Mexico and what we could do to relieve the cost, based on lightering fees and ports fees."

The facility would be similar to an existing one named the Louisiana Offshore Oil Port, or LOOP. Located 18 miles south of Grand Isle, La., LOOP receives oil from tankers and moves it onshore through a pipeline.

The proposed Unocal facility would have its own catchy acronym -- BOOTS -- which stands for Bulk Oil Offshore Transfer System.

Because Texas ports are not deep enough to accommodate supertankers, oil arriving from places like the Middle East and Venezuela must be lightered. Crude is transferred from the supertankers, holding up to 2 million barrels, to smaller ships that take the oil to the refineries.

Environmentalists tend to favor moving oil onshore via pipelines as opposed to a tanker.

"Shipping petroleum products by a pipeline is often the safest route as long as the pipeline is monitored and any releases are immediately detected," said Chuck Wemple, executive director of the Galveston Bay Foundation.

"Pipelines aren't perfect, but as far as loss of life or damage to the environment, they are better than tankers or barges."

BOOTS would be a deep-water port 100 miles south of Beaumont, capable of offloading tankers at rates up to 1.2 million barrels per day.

The port would be capable of receiving vessels transporting crude oil from domestic Gulf of Mexico deep-water production fields.

The offshore port would be in a depth of 100 feet, deep enough it could berth a Very Large Crude Carrier class tanker, the largest that carries oil.

Before building it, Unocal has to prove the demand is there to justify the expense. It's doing that by asking for commitments from shippers to use the facility, in a process known as an open season.

Unocal said it has received expressions of interest for 500,000 barrels per day of the facility's capacity and is seeking further commitments for 700,000 barrels per day.

The open season ends July 3, and the company will make a decision in a few weeks, based on the commitments it receives, said Wilems.

The system could be in operation by 2007, assuming the company receives sufficient commitments and the necessary permits. Unocal plans to seek project financing.

Unocal has deep-water production that will be coming on line in a few years, Wilems said, and the port could be an alternative to shuttle tankers for that oil, although the economic feasibility is being judged on third-party users initially.

The offshore port would never replace the use of tankers to move oil into the area refineries.

Oil and petroleum products are the largest imports into the Port of Houston every year.

In 2001, about 670 million barrels of oil and petroleum products came into the port.

Valero Energy Corp., the nation's largest independent refiner, has not committed to using the facility, but the company would be interested if it could lower its transportation costs, a company spokeswoman said.

BOOTS and the LOOP would not be competing for customers because they serve different areas, Wilems said.

"We are addressing a completely separate market from the LOOP," said Wilems.

"We would be serving the Texas Gulf Coast, so there would be very little competition with the LOOP."

A spokeswoman for LOOP agreed that the facility would not be competing for its customers along the Louisiana coast.

The LOOP has a design capacity of 1.4 million barrels per day but usually handles 1 million barrels per day.

"It will be more complimentary to our operations," said Barb Hestermann, a spokeswoman for LOOP. "It's going to replace lightering."

The company estimates the facility would save users up to 60 cents per barrel in transportation costs.

"A new deep-water port and related pipelines will provide a more-efficient crude oil offloading facility that would result in reduced handling requirements, port calls and transit times, thus reducing costs and risks associated with the movement of crude to Gulf Coast refineries," said Joe Blount, president of Unocal's midstream and trade unit.