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Texas Expands Ports, Despite Panama Delays

DALLAS - Texas will add capacity to its seaports in 2015 despite mixed signals from the energy sector and delayed expansion of the Panama Canal.

A new set of Panama Canal locks to accommodate larger ships is expected to begin service in 2016; Panama's plans are a key driver of plans to export natural gas to Asia and increase the number of containers arriving and departing from Texas ports.

See Related Slideshow: Texas Exports

"Increased activity has resulted in Texas ports advancing their own capital improvement projects — over $300 million since 2010 — to satisfy existing customers' current and future needs, as well as to meet the needs of new tenants," according to the Texas Department of Transportation's 2015 report on port capital projects.

"The new shipping lane at Panama, fracking, the population explosion and the economy of Mexico are all driving more and more value for investment in port infrastructure," Texas Transportation Commissioner Jeff Moseley said at a recent meeting.

Most Texas ports can issue bonds backed by taxes or revenue, but "the demand for new infrastructure to support the state's economic boom has outpaced the ports' abilities to finance and construct projects in a timely manner," the TxDOT report said.

Of the 14 states with major ports, Texas is the only one that does not provide state subsidies to attract new tenants, according to the report. In 2001, the Texas Legislature created the Port Access Account Fund and the Capital Program but authorized no funding.

"This lack of funding has limited many ports' expansion opportunities because they do not generate the revenue to pay for capital improvement projects fast enough and do not have bonding capacity," the report said. "Without these capital improvements, existing clients and potential new clients move to other ports."

The report identifies $95 million of projects at nine Texas ports that would be eligible for the PAAF if the state legislature agreed to provide funding.

While Texas lacks a statewide port authority like those in Alabama and Mississippi, the state's ports interact with TxDOT through the Port Authority Advisory Committee. TxDOT's role in port development has historically been "outside the gates" road and rail connections to support port growth, officials explain.

In 2014, TxDOT approved more than $13 million for projects at the ports of Beaumont and Port Arthur, key shipping centers for chemicals and other products from the state's refineries. The commission also awarded $4.3 million to install a new set of railroad tracks inside the Port of Port Arthur.

To allow the Port of Corpus Christi to handle larger cargo vessels through the expanded Panama Canal, TxDOT approved a $175 million contingency fund for a new Harbor Bridge as the agency seeks additional funding from the 2015 Texas Legislature.

The new bridge will be at least 205 feet above the Corpus Christi Ship Channel, about 67 feet higher than the current bridge. It will also have wider lanes and better highway access.

On the southern tip of Texas, U.S. Army Corps of Engineers chief of engineers Thomas Bostick has approved the deepening of the Port of Brownsville by 10 feet. Bostick said the deepening of the port would increase commercial navigation in South Texas.

The Port of Brownsville, on the United States-Mexico border, serves as a port of entry for northern Mexico as well as Texas. The port has a depth of 42 feet on its Brazos Island Harbor Channel. The dredging work is expected to cost $251 million, with $116 million from the federal government.

At the state's largest port and the second busiest in the nation, the Port of Houston, expansion is continuing after a record year, with 34 million tons of cargo through November.

"Container volumes are on pace for a record year, and steel imports are set to surpass the previous tonnage highs set in 2008," Roger Guenther, executive director of the Port of Houston Authority, said in December.

Cargo and real estate business activities contributed to 12% growth in revenues for the year. Total cash flow of $109 million reflects a 10% improvement over 2013, port officials said.

About 60% of all vessels using the Port of Houston are shipping petrochemical products. The authority announced in May that the Corps of Engineers had issued permits to deepening the ship channel from its current 45 feet at Bayport and Barbours Cut and had agreed to maintain the channels at their new depths after the projects are complete in 2015.

To avoid delays caused by federal funding, the authority decided to self-fund the dredging projects at a cost of $80 million to $100 million, Guenther said.

In a Dec. 23 report, Standard & Poor's affirmed its AAA rating on the Port of Houston Authority's debt, which is backed by property taxes levied in Harris County.

Among the port's ongoing projects is a $23.8 million container yard under contract to Trans-Global Solutions, Inc. The project began in 2007.

"We're ready for bigger things to come," Guenther said.

Bigger things may be coming through the Panama Canal but not in 2015. The third set of locks that were originally due in 2014 are now expected to start service in early 2016 after a labor strike halted progress on the $5.25 billion project.

Anticipation of the massive container ships set off dredging of ship channels and the raising of bridges at ports in the Gulf Coast and eastern seaboard of the United States.

The labor stalemate, cost overruns and other disputes take some of the urgency from the port expansions in Texas.

Another key factor in port expansions - energy production - will also slow. Private investors are sinking billions of dollars into liquefied natural gas facilities designed to export gas from the shale plays of Texas, particularly the Eagle Ford in South Texas and the Permian Basin in West Texas.

The Sabine Pass LNG terminal between Texas and Louisiana is the first, scheduled to open this year. At a projected cost of $12 billion, the plant will be the largest LNG producer in the nation. Cheniere was the first in the nation to win government approval to broadly export LNG.

The Sabine Pass liquefaction terminal will chill natural gas to 260 degrees below zero Fahrenheit, allowing the commodity to be loaded onto tankers and sold to customers in Europe and Asia.

Heretofore, natural gas in the U.S. has priced as a regional commodity, its market limited to domestic customers served by pipelines, trucks and trains. Oil, on the other hand, is priced in a global market. The LNG process allows natural gas produced in the U.S. to find buyers overseas. However, Texas producers will compete with those in Australia who have already signed customers.

Most of the planned Texas plants have not yet signed customers for the product, according to regulatory reports.

"Falling crude oil prices threaten the economic viability of U.S. LNG export projects because of tandem decline in oil-linked gas prices in destination markets, primarily in Asia," said Robert McNally, president of The Rapidan Group, an energy research firm in Bethesda, Maryland. "Moreover, sustained low oil prices would negatively impact investment in U.S. shale oil projects."

With the Sabine Pass project underway, Houston-based Cheniere won approval from the Federal Energy Regulatory Commission on Dec. 27 to build a second $12 billion LNG plant in Corpus Christi.

As the plans were announced, concerns mounted as the price of oil fell 50% in just six months in 2014.

Acknowledging the issue, the Port of Corpus Christi published a report on its website entitled "Oil Prices Continue Declining - What will the future hold for our region?"

"Despite this shift in the South Texas oil boom, Corpus Christi and the surrounding region stand ready for the future," the port said in the report. "Though it will differ from rates at the peak of the oil boom, oil exploration and well production will continue."

The falling oil price claimed its first victim on Dec. 23 as Houston-based Excelerate Energy suspended plans for an LNG terminal in Lavaca Bay, southwest of Houston. The project, one of 13 in the works, was expected to begin exports in 2018.

"Due to the recent global market conditions, the company has determined that, at this time, this project no longer meets the financial criteria necessary in order for us to move forward with the capital investment," a company spokesman told Reuters.

In December, JP Morgan's chief U.S. economist Michael Feroli raised questions about the effect of sinking oil prices on the Texas economy. In 1986, a similar decline of just over 50% in crude oil prices caused a regional recession, Feroli said.

"As we weigh the evidence, we think Texas will, at the least, have a rough 2015 ahead, and is at risk of slipping into a regional recession," Feroli wrote.

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