Louisiana Offshore Oil Port is well positioned because of dependence on foreign energy
Posted by Jen DeGregorio
The Times-Picayune
May 24, 2009
When the nation's first offshore oil port opened off the coast of Louisiana in 1981, the country was still reeling from an energy crisis that had sapped fuel consumption and slashed commodity prices.
No market meant no profits for the Louisiana Offshore Oil Port, a platform standing 18 miles south of Grand Isle in the Gulf of Mexico. The port reportedly lost more than $40 million during its first full year of operation and struggled to turn a profit for years after that.
Nearly three decades later, LOOP is a much more lucrative operation. Demand for foreign oil has doubled since the 1980s, and the port receives about as much imported crude as it can handle. LOOP is now awash in profits, with $200 million in cash reserves at the beginning of 2008, according to Moody's Investors Services. LOOP's owners -- Shell Oil Co., Marathon Oil Co. and Murphy Oil Corp. -- shared $70 million in dividends from port operations in 2007, according to Moody's.
With dependence on foreign oil expected to hold steady for at least another decade, LOOP plans to keep raking in the dough. The port is finishing up a $180 million expansion that could bring even more crude through LOOP. Six 600,000-barrel storage tanks are already up and running, and another six should be built by the end of the year.
Domestic production has created a second market. LOOP has pipelines tied into BP's Thunder Horse field and Shell's Mars field in the Gulf of Mexico. Links to other offshore fields may come down the road, said Dale Rollins, LOOP's vice president of business development.
"Our facility is designed to grow," he said.
'Changed the business'
The idea for an offshore oil port began "on the back of a napkin," according to Barb Hestermann, one of LOOP's marketing representatives.
Imported crude has always come into the United States on massive supertankers, some as long as the Empire State Building is tall. But such huge ships are too big for the nation's inland shipping channels.
Before LOOP, supertankers had to unload onto smaller ships capable of taking crude to inland ports, a process called "lightering." Searching for a way to sidestep that process, which was time-consuming and often resulted in spills, LOOP's developers hatched a plan for a port where supertankers could unload directly.
"It changed the business," said Larry Wall, a spokesman for Louisiana's Mid-Continent Oil and Gas Association. "Now you can get great quantities of oil at one time."
Still, it took more than a decade of lobbying to convince state and federal regulators to back an offshore oil port. Congress ultimately cleared the way for LOOP with the Deepwater Port Act of 1974.
Others were harder to convince. Opposition came largely from environmentalists concerned about oil spills and other damage to the state's coast. LOOP's development coincided with revelations about Louisiana's endangered marshland, which has been rapidly eroding for decades under the pressures of river levees and industrial development.
LOOP ultimately tore up hundreds of acres of marsh in Lafourche Parish, making room for the complicated network of pumps and pipelines that carry oil from the offshore dock to refineries in Louisiana, Texas and the Midwest. Those facilities represent 50 percent of the nation's refining capacity.
A 1977 editorial in The Times-Picayune half-heartedly welcomed LOOP to Louisiana, calling the port a byproduct of the state's dependence on the oil industry.
"Unfortunately, oil refineries and petrochemical plants .¤.¤. seem to be the only industries we can attract, and the superport will bring us more of them," the editorial said.
Still, the economic arguments triumphed. LOOP cost $770 million to build, bringing a temporary influx of construction jobs to the state. The facility continues to employ about 160 people.
On a given day, roughly 30 workers are stationed offshore, where they work in shifts tending to the daily operations of the LOOP platform.
Others work from an office in Galliano that serves as LOOP's nerve center, which is staffed 24 hours a day. On a recent visit to the building, technicians could be seen buzzing around an arsenal of flat-screen monitors and other gadgets used to remotely control the flow of oil from the offshore platform.
A 48-inch pipeline pumps the oil to a booster station located at Port Fourchon, which then shoots the fuel into caverns carved out of a natural underwater salt dome in Clovelly, near Galliano. From the salt caverns, or from LOOP's above-ground storage tanks, the oil moves in measured batches to refineries.
About 1 million barrels of foreign crude moves each day through LOOP, or roughly 10 percent of all petroleum imported into the United States.
Additional effects
Louisiana gets jobs and some tax dollars directly from LOOP, but there have been many other indirect consequences, Rollins said.
While about half of the nation's refineries have closed since the 1980s, Louisiana has lost only two small facilities since then, leaving the state with 17 active refineries. Most have direct lines to LOOP, although it is difficult to tie the prosperity of the state's refining sector directly to the port, Wall said.
Still, the company that is spearheading one of the biggest refinery expansions ever undertaken credits LOOP for at least part of the decision to launch the $3.4 billion project in Garyville.
Marathon spokesman Robert Calmus said LOOP will provide easy access to oil for the Garyville refinery, which by year's end should be converted from the nation's 18th-biggest refinery to the country's fourth-largest.
"Because Garyville is so close to the Gulf of Mexico, that refinery probably gets more crude from LOOP than our other refineries," Calmus said, estimating that 75 percent of the plant's crude comes through LOOP.
Although Marathon is an owner, the company is not supposed to get special consideration for shipments through LOOP. The port must operate as a common-carrier system, and is regulated by both the state and federal governments, according to Calmus.
"We have to bid for space just like everybody else," he said.
Some concerns
The average consumer might also have ties to LOOP. Many observers think the facility has put some downward pressure on retail fuel prices nationwide, possibly lowering prices at the pump.
"What LOOP has done is minimize the cost of transporting imported crude to selected U.S. refineries," Eric Smith, a Tulane University business professor, wrote in an e-mail. "The LOOP pipeline has also made possible the shipment of some offshore production to shore without the need to build another Gulf of Mexico pipeline."
Gulf production may well be LOOP's next big market. Although domestic oil consumption is not expected to decline by 2030, foreign imports should fall somewhat as production in the Gulf unearths more domestic oil, according to the federal Energy Information Administration.
With that in mind, a team of investors recently proposed building a facility similar to LOOP off the coast of Texas, called the Texas Offshore Port System. The proposal has been put on hold, however, after members of the team pulled out.
Although LOOP eventually might want to expand further into Texas, Rollins expressed ambivalence about the prospect of competition.
"We don't see TOPS as a threat," he said.
LOOP's biggest concern is the national economy. LOOP saw shipments slide by roughly 10 percent this year, after demand for oil retracted under the weight of the recession. But Rollins expects shipments to rebound, and even grow, by early next year.
President Barack Obama, who is trying to shift the nation away from fossil fuels in favor of renewable energy, is another concern. Proposed caps on carbon emissions will have a drastic effect on refineries, which produce large amounts of that greenhouse gas, a known contributor to global warming.
But LOOP officials are not sounding any alarm bells.
"We don't see any immediate threats," Rollins said. "The U.S. is going to rely upon petroleum for some time to come."