2014 July Port Bureau News by Greater Houston Port Bureau

Port Bureau July 2014

Greater Houston Port Bureau Houston from the Water Houston Pilots Give Mayor Parker a Ship Channel Tour

The Condensate Question:

Will the new ruling affect crude exports?

News

Export-Import Bank Reauthorization

Greater Houston Coffee Association

An asset vital to the health of our local, state, and national economy is in jeopardy

2nd Annual Dinner Tour

Father Rivers Patout Remembered for Ministry to Mariners

www.txgulf.org

Port Bureau

News

3 Captain’s Corner

Passion for What You Do

4 Port Watch

The Horse Latitudes Await

6 Houston from the Water

Houston Pilots Give Mayor Parker a Ship Channel Tour Publisher/President CAPT Bill Diehl, USCG (Ret.), P.E. Editor Christine Schlenker Copy Editors Emily Mitchell Judith Schultz Art Director Christine Schlenker For information about the Port Bureau:

Phone: (713) 678-4300 Email: info@txgulf.org 2 | July 2014

10 Export-

26 Chinese

Import Bank Reauthorization 18 The Condensate Question:

Regulators Say “No Go” to P3 Alliance

Will the new ruling affect crude exports?

Rick Shannon, President, Atlantic Ro-Ro Carriers

24 GHCA Dinner

31 Father Rivers Patout

Tour

Writers Dave Cooley Matt Logan Emily Mitchell Christine Schlenker Judith Schultz Patrick Seeba Front Cover Photo courtesy of Lou Vest

Photographers Christine Schlenker Patrick Seeba For information about the Port Bureau News stories or advertising:

Port Bureau Staff Jeannie Angeli Al Cusick Megan Essenmacher Cristina Gomez Janette Molina

Printing Company DiPuma Printing and Promotional Products www.dipuma.com

Email: editor@txgulf.org www.txgulf.org

30 Commerce Club

A Publication of the Greater Houston Port Bureau The Port Bureau News magazine is a monthly publication of the Greater Houston Port Bureau, a member-driven nonprofit dedicated to promoting the maritime community, providing vessel movement information and offering members premier networking and advertising opportunities to drive business. The magazine is distributed to over 6,500 professionals in the Houston maritime community via U.S. mail and email. Advertising is available for members.

Captain's Corner

Passion for What You Do It is the season for the Coast Guard to rotate its personnel: outgoing leaders are thanked, and incoming leaders bring change. Having had the privilege to serve, it is quite enjoyable to see people I know and respect move up in the Coast Guard. Last month I was fortunate to attend the Commandant’s Change of Command at their new headquarters in the DC area. Admiral Bob Papp, my former Academy company tactical officer, was relieved by Admiral Paul Zukunft, my former boss in Hawaii from 2002 to 2004. I was able to get a few minutes with Admiral Zukunft to wish him well as he assumes command of the Coast Guard’s 43,000 active duty members, 8,000 reservists, 8,500 civilian employees, and 30,000 volunteer auxilarists. I did not get a chance to congratulate Admiral Papp, but had I talked with him I would have thanked him for the lesson he gave me many years ago on having passion for what you do. In 1978, Admiral Papp was a Lieutenant in charge of overseeing the cadets in Delta Company, and at the bottom of that company was yours truly, a freshman 4th class cadet. Towards the end of the fall semester, Lieutenant Papp called me into his office to discuss my military performance. It was not a pleasant talk. He told me he was going to mark me the absolute lowest in my peer group. He then proceeded tell me: “You seem like a decent guy, but you totally lack passion for the Coast Guard and the training we are giving you. You need to resign and go find your passion in life.” It was a oneway conversation. Admiral Zukunft and Bill at For ten minutes, the Change of Command he backed up his

thesis with specific examples of my subpar performance. After he had inundated me with my own shortcomings, he asked if I had any questions. I took a second to glance down at my unshined shoes, then looked him in the eye and replied: “No SIR, permission to shove-off.” While I can chuckle at my response now, Papp was not amused and exploded with, “You don’t even care enough to offer a rebuttal!” and kicked me out of his office. Looking back on it, he was absolutely right. I was a slacker with no passion for the Coast Guard. I was homesick and did not want to be there. I enjoyed the Academy a little more when my brother Bert arrived the following year, and as we say, we did our time together. My academic classes buoyed my military grades, but my passion for the Coast Guard didn’t come until after I graduated from the Academy and started performing the missions of the Coast Guard. While I learned my lesson on passion at the Academy, many people in the Houston maritime community learned it from the cheerful demeanor of Father Rivers Patout, who passed away in June. His accomplishments during over five decades in the port are written up on page 31 of this magazine, but it was his passion for helping and ministering to seafarers that will be missed the most. He loved his fellow men and women and provided much joy to our seafaring guests, and I cannot think of a greater ambassador for our port. I’ll conclude on a lighter note: upon returning from the Change of Command ceremony and going to the services for Father Patout, I thought talking to my sons about the value of passion would be a good dinner table conversation. I thought these grand examples would get them excited about their studies. They both looked down at their plates, paused, then looked me straight in the eye and asked to be excused….the apple doesn’t fall far from the tree. Have a fun summer. ò

ceremony.

Greater Houston Port Bureau | 3

PORT WATCH

The Horse Latitudes Await Tom Marian, Buffalo Marine Service

n the age of sail, the seasoned mariners that but calm, yet the monthly arrival numbers were off by circumnavigated the globe dreaded the horse more than 3%. latitudes—regions of calm seas, nary a breeze, and Starting with the ports that experienced the greatwhere life came to an eerie halt. Legend has it that, est calms, Brownsville saw its fewest number of ships when Spain ruled the seas and dominated world trade, for the year with a precipitous 41% monthly drop, crews were forced to heave horses overboard as the raratcheting down its annualized yield by almost 13%. tions on a becalmed sailing vessel reached critical levels. The port of Galveston also tallied its weakest monthly Ultimately, the ship ship count, but the lull would drift through was a mere 2.6% below Texas Ports Deepdraft Vessel Arrivals this atmospheric limbo the previous month and May 2014 Year-to-Date Percent Change and be on its way the port is still enjoying BROWNSVILLE, -12.8% as the sails filled the second highonce again with CORPUS CHRISTI, 14.7% est improvethe brisk trades FREEPORT, 26.0% ment over the that bracketed these lativessel counts GALVESTON, 22.4% tudes. Thus goes the trade of 2013. HOUSTON, -1.3% of summer in the ports of While Sabine PORT LAVACA, 7.0% Texas and the freshening has seen months in 2014 with fewer arrivals, SABINE, 7.8% zephyr that accompanied May’s arrival numbers were 17% off. FortuApril’s trade has begun to TEXAS CITY, -7.2% nately, Sabine remains 8% above 2013’s yearlay down. Granted, May’s to-date totals. The only other port without a GRAND TOTAL, 3.7% trade picture was anything 4 | July 2014

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port watch monthly gain was Houston; however, May’s vessel 1,500 tally was the second highest of 2014. Thus, a 4.2% decline 1,000 for Houston was somewhat negligible when one consid500 ers the year-to-date totals are only 1.3% lower than 2013’s 0 figures.

Port of Houston Deepdraft Vessel Arrivals

May 2014 vs.

Category-wise, the winners nearly offset the losers. Energy was a mixed bag as reflected in a monthly decrease in tankers to the tune of 7%, but given this was the 2nd highest monthly total for the year, this segment of the market remains 6% above last year. Conversely, LPG vessels saw their highest monthly count for the year with a 25% leap that all but erased the vessel arrival deficit for the preceding four months. Chemical tankers could not match April’s strong performance as May notched a 4% decrease. Relatively speaking, that is a bright spot as the annualized count remains 25% below last year. Both containers and cars held their own as the former ticked up a modest 1% for the month and the latter saw one less ship during the same period. On a year-to-date basis, 4% more container vessels have called on the port and 4% fewer car carriers have done the same. General cargo movements took a bit of a breather with a monthly wane of 10%, but that was more than offset by bulk cargo movements which experienced their best month of 2014 with a 5% rise. Speaking of best months, to the west, Corpus Christi continues to post superb numbers as the port hiked its monthly vessel count by nearly 12% and improved its year-to-date performance by almost 15%. The port of Freeport also fared well in May with an 8.6% monthly positive change, resulting in the best annualized improvement of the Texas ports with a respectable 26% increase. Texas City also saw a monthly gain of 4%, but thus far remains 7% off of 2013’s totals. Finally, perhaps one of the brightest spots in the ma-

rine commerce picture was the inland tow comMay 2013 munity which documented its highest May 2014 YTD (Total: 3,397) monthly count of the year with a 2% gain. May 2013 YTD (Total: 3,441)

All in all, May was not a month in which one would throw horses overboard in desperation. Nonetheless, it was a month that demonstrated a slackening in commerce which, in turn, set the stage for a slower June. Mind you, a summer trade lull is nothing unusual as it reflects the transition point from the spring replenishment to the early fall inventory bounce in preparation for the holiday season. Thus, this year, it appears the status quo lull looms and Texas ports will emerge on the back side of this temporary hiatus with vigor as 2014 is poised to improve upon 2013. ò

Port of Houston Authority

Houston: America’s Distribution Center www.portof houston.com/map

Greater Houston Port Bureau | 5

Houston from the Water: Houston Pilots Give Mayor Parker a Ship Channel Tour Patrick Seeba, GHPB

“M

ayor, let me ask you: where do you think the Port of Houston ranks as a driver of the City of Houston?” asked Capt. Paul Rodriguez of the Houston Pilots. Mayor Annise Parker looked out over the water, towards the pilot boat Yellow Rose and the Seven Seas Highway, a massive pure car carrier angling towards the Bolivar Jetties, before responding: “It’s right up there with the moon landing.” The Houston Pilots bring over 8,000 vessels into the Port of Houston every year, making nearly 20,000 movements to, from, and between terminals. Working in conditions ranging from raging seas to placid spring days, they must exercise the greatest care and use the newest technologies to ensure a consistently safe flow of traffic. 6 | July 2014

In late June, Mayor Parker visited the Houston Pilots office and the Pilots’ training facility at San Jacinto College, and took a ride on the pilot boat Bayou City to observe boarding procedures in an experience designed to provide insight into the sheer scope and magnitude of operations on the waterfront feeding the Houston economy. Capt. Mike Morris, Presiding Officer of the Pilots, described the day as a “real opportunity to show the Mayor what we do, and some of the many ways our waterfront is such an integral part of the city’s economy.” Beginning at the Pilots’ office, Mayor Parker observed the state-of-the-art custom dispatch system that allows the 24-7-365 operation to keep traffic moving all year. “HarborLights has been a game changer for us over the last decade and a half or so,” explained CAPT JJ

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Industry Report Left: Commissioner Dean Corgey, Capt. Mike Morris, Mayor Annise Parker, Commissioner Theldon Branch III, Capt. Clint Winegar, and CAPT JJ Plunkett on the Houston Pilots’ Bayou City.

Plunkett, USCG (Ret.), the Pilots’ port agent and office manager. “We actually have fewer dispatchers moving twice the number of ships, get bills out as quickly as same-day, and are able to look through our historical records in a way that’s pretty unique among pilot organizations. And the only way that’s possible is with the HarborLights system.” Capt. Clint Winegar, a member of the Pilots’ executive committee, discussed the Pilot qualification proce-

dures with Mayor Parker. “In addition to a lengthy screening and testing process before you’re selected, our deputy Pilots have several years of training and evaluation ahead of them before they potentially qualify as a full-fledged Houston Pilot,” he explained. Deputies often spend nearly three years studying, testing, and receiving practical instruction from Pilots while underway to ensure that they are ready to bring vessels up and down the 52-mile channel. For example, one requirement of the rigorous testing is the ability to recreate from memory a table-sized chart of the Houston Ship Channel, with only millimeters of tolerance in their measurements.

At San Jacinto College’s maritime training facility, program director Capt. Mitch Schacter demonstrated

Greater Houston Port Bureau | 7

Industry Report Schacter noted the efficacy that the system brings to Pilot training. “Here at our maritime training facility,” he said, “we’re able to put push-boat operators on the channel next to pilots in deep draft ships, and let them interact in an environment that’s not only incredibly accurate but ultra-realistic as far as the channel dimensions and conditions that we can simulate.”

Following the shore-side demonstrations, the Mayor, Port of Houston Authority Commissioners Theldon Branch III and Dean Corgey, and a delegation from the Pilots drove to the pilot boat dock in Galveston for a trip to the Houston Ship Channel bar. Underway on the Bayou City to meet a chemical Above: Boarding the Stolt Topez. tanker, conditions briefly deteriorated, allowing for the use of several of the school’s room-sized replicas a demonstration of the 71’ long, 41’ wide SWATH’s of vessel bridges. Explaining that each of the simula- ability to operate steadily through rough seas. tors in the school could be linked with the others, Capt.

8 | July 2014

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Industry Report As the Bayou City edged alongside the Stolt Topez, a 580’ long chemical tanker bound for Odfjell, Capt. Paul Rodriguez gauged the sea states and differential between pilot boat gangplank and Jacob’s ladder. “This one’s a nice, friendly four-foot ascent,” he noted. “Sometimes we end up climbing nearly the whole side of the ship. Every boarding is a little bit different.” Later during the trip, the group observed another boarding, this time of the 656’ long Seven Seas Highway. “She’s forty-six feet from the waterline to the top of the main deck, and compared to a tanker or a break bulk ship, the visibility from the bridge is extremely restricted. To safely maneuver her, we make sure to have two pilots on board,” explained Capt. Winegar as the pilot boat Yellow Rose broke away for her next delivery.

After nearly five hours with the Pilots, the Mayor headed back to Houston to resume a busy schedule, with a scope of work ranging from city park beautification to urban health care management planning. “We were honored to have her aboard to learn about our critical role in shipping,” Capt. Morris concluded. “I think the mayor got not only a good impression of what we do as Pilots, but a bit of valuable insight to add to her appreciation of our waterfront economy.” ò

Greater Houston Port Bureau | 9

EX-IM BANK

Export-Import Bank Reauthorization

An asset vital to the health of our local, state, and national economy is in jeopardy. Matt Logan, GHPB On June 26, 2014, the Greater Houston Port Bureau’s Board of Directors voted to publicly support reauthorization of the United States Export-Import Bank.

t is hard to fathom a business or organization which turns over a billion dollar profit per year to simply close its doors, but this is exactly what may happen to the Export-Import (Ex-Im) Bank of the United States. Recent shakeups in Washington’s leadership structure, especially in the House of Representatives, have put the future of the Ex-Im Bank in jeopardy. The Ex-Im Bank’s mission is to support American jobs by facilitating the export of U.S. goods and services. The Bank accomplishes this by providing financing to companies that export U.S. goods and services in the form of loans, guarantees, and insurance. Ex-Im’s charter contains a sunset clause, which means the Bank must be reauthorized by the U.S. Congress or it will naturally expire and operations will cease. The current authorization expires September 30, 2014, and without further reauthorization thousands of U.S. exporters as well as commercial banks who work with the Ex-Im Bank will become casualties of Washington’s politics. For years the Ex-Im Bank has received bi-partisan support in Washington. In 2012, the vote in the House of Representatives reauthorizing the Bank was 330-93. However, a changing tide in Washington, combined with the surprise primary loss in June of then House Majority Leader Eric Cantor, who was a major supporter of the Bank, have made the Bank’s existence after September 30th very unclear. New House Majority Leader Kevin McCarthy has already said publicly he would like to see the Ex-Im Bank naturally expire. 10 | July 2014

As our elected officials debate the Ex-Im Bank’s fate, it is up to the millions of Americans whose jobs and everyday lives are supported by the Bank to make its extensive benefits known. Beginnings

The first director of the U.S. Export-Import Bank was Houston’s own Jesse Jones. Jones was appointed President of the Export-Import Bank of Washington by President Franklin Roosevelt upon its founding in 1934. The Export-Import Bank Act of 1945 established the Bank as an independent agency, and Congress officially changed its name to the Export-Import Bank of the United States in 1968. The Bank was vital in the reconstruction of Europe after World War II, and aided exports to the newly founded state of Israel in 1948. Through the years, the Ex-Im Bank has gone through various changes, focusing it on U.S. exports. As a result of re-structuring in the 1980s under President Ronald Reagan, the Bank began its initiative for small business exporters. Today, 20% of Ex-Im financing goes toward small business. The Bank also has initiatives to support women- and minority-owned businesses. Economic Benefits

In FY 2013, the Ex-Im Bank supported $37.4 billion worth of U.S. exports. The multiple programs ExIm provides (guarantees, insurance, and direct loans, just to name a few) are crucial to the exporting indus-

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EX-IM BANK try. Ex-Im allows many businesses to export goods they otherwise would not be able to, and also enables U.S. companies to stay competitive in the global market. Across the globe, 59 other countries have an entity similar to the U.S. Ex-Im Bank supporting their exporting companies. Since the U.S. already operates on a large trade balance deficit, losing an asset like the Ex-Im Bank would be detrimental to our domestic exporters that compete on a global scale. A top priority of the Ex-Im Bank is small businesses. For FY 2013, over 3,400 Ex-Im authorizations went to small businesses, or nearly 90% of total authorizations. This translated to more than $5.2 billion in financing and insurance directly supporting American small businesses. Opponents will argue the dollar value

is not high enough, but in actuality nearly 2,000 Ex-Im transactions in FY 2013 were for small businesses in an amount less than $500,000. Many of these transactions would not take place in the private marketplace, and this means nearly 2,000 annual export transactions could disappear if the Ex-Im Bank is not reauthorized. The Ex-Im Bank is a key supporter of American jobs. When U.S. companies can export their goods and services and expand, they create more jobs. In FY 2013 alone, 205,000 American jobs were supported by ExIm Bank financing. In the past five years, the Bank has supported 1.2 million American jobs. On top of everything else, of the 555 government agencies and affiliates, the Ex-Im Bank is one of less than ten that return a profit to the U.S. Treasury. Over

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EX-IM BANK

the past ten years, the Ex-Im Bank has returned over $14 billion to the U.S. Treasury and, in FY 2013 alone, Ex-Im returned $1.057 billion. Financial executive Bob Blades of Blades International provides a unique view which often goes

12 | July 2014

over-looked: â&#x20AC;&#x153;Ex-Im is a cornerstone of the exporting industry. The economic benefits are undeniable, and the Ex-Im Bank provides an un-matched source of expertise for various export industries when it comes to financing. The advice given by Ex-Im to commer-

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EX-IM BANK cial banks, as well as potential exporters, is something they could not receive anywhere else. The intangible strengths of the Ex-Im Bank represent significant goodwill.” Opponents

“Ex-Im is a cornerstone of the exporting industry. The economic benefits are undeniable, and the ExIm Bank provides an unmatched source of expertise for various export industries when it comes to financing.”

There is a growing constituency that opposes reauthorization of the Ex-Im Bank. One of the common views against the Bank is that the government is interfering with the free market process. Opponents will often refer to the Bank as “crony capitalism,” with the government picking business winners and losers. Another argument is that the public should not have to shoulder the burden private banks will not accept. In actuality, customers of the Ex-Im Bank must go

through a rigorous process to prove they are unable to obtain appropriate private financing for their export operations. This is the case for many of the small business clients of the Ex-Im Bank. Many times it is not that the businesses are bad investments, but that commercial banks have to do further due diligence on ex-Bob Blades porting arrangements between U.S. companies and smaller countries, or simply do not have the reach to extend a guarantee or insurance for goods exported to the other side of the globe. Commercial banks, especially after 2008, are very conservative in their approach when it comes to foreign risk. Many times, through no fault of their own, small businesses can be seen by commercial banks to pose an inordinate amount of risk. In contrast, the Ex-Im Bank sees these

BARGING AHEAD ever so politely.

Buffalo Marine Service, Inc.

www.BuffaloMarine.com Greater Houston Port Bureau | 13

EX-IM BANK small businesses as reasonable risks with potential and, therefore, may provide financing.

One example of the help received by small businesses is the case of Miss Jenny’s Pickles. The company was started when co-founder Jenny Fulton lost her job in the 2008 recession. To pay the bills, Ms. Fulton partnered with her friend Ashlee Furr and the two started using a family recipe to make pickles. The pickles were so good that the business exploded, and after a few years Miss Jenny’s was looking to expand overseas. The owners quickly found they could not offer favorable terms to foreign buyers because they did not have the scale to allow buyers to buy on credit (which is very common in the international market). Unable to get private credit insurance, the Ex-Im Bank provided Miss Jenny’s with the needed credit insurance for a fee, and now Miss Jenny’s pickles are enjoyed around the world. Exporting allows Miss Jenny’s to expand and, in producing more pickles, Miss Jenny’s produces more American jobs.

Opponents of the Bank will say cases like Miss Jenny’s exist, but the main beneficiaries of the Ex-Im Bank are large corporations. They point to the fact that only 20% of actual Ex-Im dollars go to small businesses. However, providing financing to large companies with very low risk helps the Ex-Im Bank foster support for small businesses, and this type of diversification is common in many financial portfolios. The diversified portfolio and diligent underwriting is what keeps the Bank’s default risk very low, under 1%. This number is far below the private lending average. In the last quarter of 2013, the Bank’s default rate was a mere 0.2%.

drive the U.S. economy. This is why the National Association of Manufacturers has said the Ex-Im Bank is vital to millions of U.S. manufacturing jobs and must be reauthorized, and why the U.S. Chamber of Commerce has made reauthorization one of its top priorities. Twenty-two Houston-area chapters of the Chamber of Commerce, along with many local organizations like the Greater Houston Partnership and Economic Alliance Houston Port Region, have publicly supported Ex-Im reauthorization. In 2013, the Ex-Im Bank supported $4 billion of export sales in Texas, $836 million of which went to small businesses. Texas is the top exporting state, and Houston the top exporting city, in the U.S. by tonnage. Bill Prout, chair of Houston District Export Council, estimated that in 2012 exports created between 30,000 and 35,000 Houston-area jobs. Exports play an important role in the Houston economy, and these exports would suffer without the Ex-Im Bank.

The pros for reauthorizing the Export-Import Bank are very real and quantifiable; real American jobs and livelihoods are supported by the Bank. If Ronald Reagan, who famously said that “government is not the solution,” saw value in the Ex-Im Bank, value is there. With the U.S. economy finally starting to grow again, profitable assets like the Ex-Im Bank must stay in place to spur the United States’ economic growth and strengthen its exporting around the world. ò To find out how you can help support reauthorization of the Export-Import Bank, please contact Matt Logan at mlogan@txgulf.org or (713) 670-1267.

Reauthorization

Some of the current leadership in Washington want to limit the size of the U.S. government. Starting this process with one of the few government agencies that actually makes money for the U.S. government is not the right call, especially not now. The U.S. economy is finally starting to rebound from the 2008 recession. U.S. manufacturing jobs took a serious hit due to this recession but recently have been slowly improving. Exporting more means we are producing more, which means more U.S. jobs, which 14 | July 2014

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Condensate

The Condensate Question:

Will the new ruling affect crude exports? Emily Mitchell, GHPB

n June 25, 2014, the Wall Street Journal reported that the U.S. Department of Commerce has given permission to two companies, Pioneer Natural Resources Co. and Enterprise Products Partners LP, to export a certain type of ultralight oil known as condensate starting in August 2014. The rulings, which were not announced by the Commerce Department, have led some to believe that the U.S. is taking an initial step towards loosening the ban on exporting crude oil, which has been in place since the 1970s.

The Commerce Department itself, however, argues that there has been no change in official U.S. policy. As reported by USA Today, Commerce Department spokesman Jim Hock said on June 25 that the condensate in question has been altered enough by the companies’ processes that it is no longer considered crude oil. Unlike crude oil, most petroleum products, such as naphtha, gasoline, diesel, and natural gas liquids, can be exported without a license, according to current U.S. law.

While the shipments are expected to be small in terms of total volume, the recent rulings provided to Pioneer and Enterprise come amidst a renewed interest in the debate over whether to modify or completely lift the ban on crude oil exports.

fracturing (“fracking”) technology. The Energy Information Administration (EIA) estimates that as much as half of the oil production from the Eagle Ford shale play in Texas could be classified as condensate.

The EIA defines condensates as “light liquid hydrocarbons recovered from lease separators or field facilities at associated and non-associated natural gas wells.” Furthermore, condensate consists mostly of pentanes or heavier hydrocarbons and “normally enters the crude oil stream after production.” Although condensate is light and gassy even in its liquid form, and some argue that it is closer in distinction to gasoline, the Bureau of

What is Condensate?

The decisions from the Commerce Department have to do specifically with a material known as condensate, a type of ultralight oil that is found in large quantities in shale plays throughout the U.S. and has achieved a new level of importance with the rise of hydraulic 18 | July 2014

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condensate Industry and Security (BIS), the Commerce Department entity which controls crude oil export licenses, includes “lease condensate” in its definition of crude oil. Therefore, exports of condensate that has not been distilled or refined are subject to statutory and regulatory restrictions.

With the surge in tight oil production from U.S. shale plays, and the potential oversupply of light and ultralight oil, U.S. producers have found it difficult to transport the oil to customers in the U.S. with the capacity and expertise to process and refine it, thereby leading to deep domestic price discounts. Refineries along the Gulf Coast are generally better suited to refine heavy crude oils, not the light and ultralight oil (such as condensate) which the EIA estimates accounts for approximately 96% of the 1.8 million BBL/D increase in U.S. oil production from 2011 to 2013.

Some analysts argue that the limited transportation and refining capacity, along with the steep price discounts, will eventually slow down drilling activity and production in the U.S. At the same time, companies have started ramping up investment in facilities known as “splitters” that distill the condensate into its various components, such as naphtha, propane, butane, and distillates. There are nearly 20 refining projects currently in various stages of development, including a $360 million splitter that Kinder Morgan plans to start near the Houston Ship Channel in fall 2014. Since the statements surrounding the new condensate development have been vague, it is unclear what the rulings, which are specific to the two companies involved, mean for the overall industry, or whether the Commerce Department is changing its definition of crude oil. The question is whether the companies will

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Condensate no longer have to send condensate to a splitter, instead putting the material through a wellhead process known as stabilization that makes the material safe for transport and storage. Stabilization is less complex, and less expensive, than a splitter or refinery, and many wellhead production facilities already have condensate stabilization units in use, including at Eagle Ford in Texas. For now, the rulings remain special exemptions for two companies, Pioneer and Enterprise, and the industry must wait and see whether this amounts to a first step towards more substantial change.

Background

The ban on crude oil exports stems from the Energy Policy and Conservation Act (EPCA) of 1975, which was passed by Congress in response to the price shocks following the oil embargo imposed by the Organization of Arab Petroleum Exporting Countries (OAPEC) in 1973. With the goal of protecting the U.S. from future oil embargoes, as well as reducing reliance on foreign oil imports through the promotion of domestic oil production and efficiency, the law requires the president to prohibit the export of crude oil with some limited exceptions. The EPCA also established a Strategic Petroleum Reserve for emergency situations.

combined with the fact that a large portion of this growing production comes from areas where refiners will not or cannot process it, or where there is inadequate transportation infrastructure, has dramatically changed the equation.

Renewed Debate

Even before the new condensate decisions, recent years have seen a renewed interest in the debate over crude oil exports. In March 2014, several legislators, including Sens. Ron Wyden (D-Ore.), Maria Cantwell (D-Wash), and Lisa Murkowski (R-Alaska), requested the EIA to study the potential economic effects of modifying the export ban. In addition to the support of domestic oil producers, the Council on Foreign Relations (CFR), as well as Tim Boersma and Charles K. Ebinger of the Brookings Institution, have released policy notices in favor of lifting the ban. The CFR

The ban does not apply to refined petroleum products, which can be exported without licenses. Even within the category of crude oil, the law provides for limited situations in which the Commerce Department will issue export licenses. Currently, Commerce allows the export of (1) crude oil from Alaskaâ&#x20AC;&#x2122;s North Slope that travels through the Trans-Alaska Pipeline System, (2) certain heavy California crude oil, limited to 25,000 BBL/D, (3) crude oil shipped to Canada for consumption or use therein, (4) crude oil from Alaskaâ&#x20AC;&#x2122;s Cook Inlet, and (5) foreign-origin crude oil that is being reexported. The regulations also allow the Commerce Department to issue licenses for some swaps with Mexico or Canada.

Exports of crude oil peaked in 1980 with a total of 104 million BBL for the year, but as of 2013 exports had dropped to only 43.8 million BBL. However, the rapid rise of tight oil production, 20 | July 2014

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Condensate argues that while the original goals of the 1970s legislation were to conserve domestic oil reserves and discourage foreign imports, neither of these objectives has been fulfilled by the export ban and companies should be allowed to freely export crude oil as the market dictates.

Arguments for Lifting the Export Ban

Each side of the debate puts forth several claims. Those who support lifting the ban, or at least modifying it, argue that free trade will reduce market inefficiencies and boost domestic oil production as U.S. prices converge with the world benchmark, thereby increasing domestic investment and creating jobs in the production sector. Additionally, global refinery operations would become more efficient, thus lowering U.S. gasoline prices by 2 to 5 cents per gallon, according to Stephen Brown and Charles Mason of Resources for the Future. Some argue that banning crude exports is a violation of U.S. trade obligations under the World Trade Organization and relaxing the ban would improve trade relations with foreign nations.

22 | July 2014

The most vocal proponents of relaxing the export ban are domestic oil producers, who would be able to ship crude oil to wherever the market demands and receive world market prices, as opposed to the discounted domestic prices with which they are currently confronted. They argue that the increased revenues would then flow back into higher investment in domestic production, helping to spur job creation and economic growth. While many analysts agree that the elimination of the ban could increase domestic production and reduce gasoline prices to some extent, it is difficult to predict the actual economic impact of such changes due to the high level of uncertainty regarding the future of the tight oil production sector. Hydraulic fracturing is a relatively recent technological development, and vast swaths of the U.S. shale plays have not been fully explored or their production capacity determined. Only time will tell if production keeps up with some of the more optimistic projections.

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Condensate

Arguments Against Lifting the Export Ban Conversely, environmental groups argue that allowing crude oil exports will increase production and burning of fossil fuels, thus increasing the release of greenhouse gases and exacerbating climate change. Other opponents of lifting the ban contend that exports will actually increase gasoline prices for U.S. consumers. By leaving the ban in place, the industry would be spurred to increase domestic refinery capacity and invest in transportation infrastructure at home. The most vocal opponents of relaxing the export ban are refineries, who have been lobbying Congress to keep the export ban in place. According to the refineries, allowing exports of U.S. crude oil would lead to a loss of jobs in the refining sector as domestic crude is sent to foreign refineries and U.S. crude prices converge on world prices. Maintaining the export ban would allow the refineries to continue purchasing crude oil at discounted domestic prices, and exporting their refined products at a premium. Sen. Edward Markey (D-Mass.), a member of the Commerce, Science, and Transportation Committee, has been outspoken in his opposition of relaxing the export ban. As the Washington Post reported on June 25, Sen. Markey maintains that the recent condensate decision “puts America on a slippery slope to send more of our oil abroad, even at a time when the Middle East is in disarray and tensions are running high with Russia. We should keep our resources here at home

for American families and businesses, not send this oil abroad even as we import oil from dangerous regions of the world.”

Conclusion

Despite the level of interest in and reporting on the Commerce Department’s decision to allow Pioneer Natural Resources Co. and Enterprise Products Partners LP to export minimally-processed condensate, it appears that the U.S. ban on the export of crude oil will remain in place, at least for the time being. According to both the Commerce Department and the companies involved, the rulings are in line with existing U.S. statutory and regulatory restrictions and do not represent a change in official U.S. policy. USA Today quoted Enterprise company spokesman Rick Rainey on June 25 saying that the company does not need the Commerce Department’s approval since the condensate in question has been processed and is no longer considered crude oil—the company simply wanted to ensure that its interpretation of U.S. law is correct. The debate is far from over and will remain at the forefront as advanced drilling technology continues to unlock new sources of domestic oil and future production projections become more predictable. For now, there is no doubt that the flood of light and ultralight oil production from U.S. shale plays has reignited a vital conversation regarding the United States’ economic future. ò

About the Author

Emily Mitchell is the newest staff member at the Greater Houston Port Bureau. Born and raised in southern Oregon, Emily moved to Houston in 2004 to attend Rice University. After earning her B.A. in Comparative Politics from Rice in 2008, Emily worked as a Project Assistant at the law firm Fulbright & Jaworski in downtown Houston before accepting a position in National Oilwell Varco’s Next Generation Program in January 2009. Her tenure at NOV included a stint in NOV’s Dubai office, where she worked in the legal department for two and a half years and specialized in contract management and negotiation. Emily returned to the U.S. in the summer of 2012 to pursue graduate studies at the University of Chicago, where she focused on modern Middle Eastern history and Arabic. She completed her M.A. from UChicago’s Center for Middle Eastern Studies in June 2014. While in graduate school, Emily spent the summer of 2013 interning for the U.S. Department of State at the U.S. Embassy in Manama, Bahrain. Greater Houston Port Bureau | 23

Coffee Association

Greater Houston Coffee Association

2nd Annual Dinner Tour Christine Schlenker, GHPB

n June 18, 2014, the Greater Houston Coffee Association hosted its second annual dinner tour aboard the M/V Sam Houston, courtesy of the Port of Houston Authority. Over 50 guests from the coffee, maritime, and transportation industries attended the dinner tour to network with their peers while appreciating the Houston Ship Channel from the water. Formed in 2001, the Greater Houston Coffee Association promotes and protects regional coffee trade through trade development initiatives, public outreach and networking, and advocacy for the industry. The Coffee Association in conjunction with the Port of Houston Authority started offering this complementary event last year to provide Coffee Association members and port users the opportunity to promote port business in a fun but educational setting. The event turned out to be particularly popular this year, filling to capacity just an hour after it was announced to the public.

Above: CAPT Bill Diehl, Port Bureau, with Maria Echeverry, President of GHCA, and guests Joe Knierien and Thanh Tran. Facing page: Guests enjoyed the remarkable weather riding on the Sam Houston.

The next Greater Houston Coffee Association event will be the annual luncheon on October 9, 2014, at Bradyâ&#x20AC;&#x2122;s Landing. The speaker will be announced closer to the event date. If you are interested in learning more about the Coffee Association, please email coffee@ txgulf.org or call (713) 678-4300. Ă˛

GHCA is led by a volunteer Board of Directors: Maria Echeverry, President; Stevi Croft, 1st Vice President; David Kennedy, 2nd Vice President; Ricardo Arias, Secretary-Treasurer; and Directors Carlos de Aldecoa Bueno, Bill Banta, Al Hernandez, and Charlotte McCanless. 24 | July 2014

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p3 UPDATE

Chinese Regulators Say “No Go” to P3 Alliance Judith Schultz, GHPB

hina’s Ministry of Commerce surprised the maritime community on June 17 when its regulators rejected the proposed shipping alliance between Denmark’s AP Moller-Maersk A/S, CMA CGM of France, and Swiss-based Mediterranean Shipping Company (MSC) due to “monopoly concerns.” Also known as the P3 Network, the alliance had already received regulatory approval from the United States and European authorities. All three parties had implementation plans underway and

had opened up offices in Singapore and London in anticipation of the alliance’s approval. The P3 partners have announced an end to P3 plans as a result of the June 17 decision by China. While expressing disappointment in the decision, each company in the alliance remains confident the P3 termination will not impact future performance. “The decision does come as a surprise to us, of course, as the partners have worked hard to address all the regulators’ concerns. The P3 alliance would have

Sea & Shore

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p3 UPDATE enabled Maersk Line to make further reductions in cost and CO2 emissions and not least improve its services to its customers with a more efficient vessel network. Nevertheless, I’m quite confident Maersk Line will accomplish those improvements anyway. It has delivered on those improvements over the last five quarters in the absence of P3 and I’m confident it will continue to do so,” said Group CEO Nils S. Andersen.

the P3 Network vessels were intended to be operated independently by a joint vessel operating center, the three lines would have continued to have fully

MSC released a similar statement on their website. “We are disappointed by the decision of the Chinese Ministry of Commerce but will continue our efforts to operate more efficiently and provide our clients with a comprehensive and excellent service,” said Diego Aponte, Vice President. “We could have achieved these efficiencies much faster through P3 but with our investment in more fuel efficient vessels, further economies of scale will be achieved over a period of time.” The P3 Network was intended to operate a capacity of 2.6 million TEU (initially 255 vessels on 29 loops) on three trade lanes: Asia – Europe, Trans-Pacific and Trans-Atlantic. While Greater Houston Port Bureau | 27

p3 UPDATE independent sales, marketing, and customer service functions. The Wall Street Journal reported China has taken an increasingly strong stand in antitrust matters, even those involving companies based outside the mainland. Cai Jiaxiang, vice president of the China Shippers’ Association was quoted by the Shipping Gazette earlier this year as expressing a negative view of the alliance, claiming that Cosco (China Cosco Holdings Co.) and China Shipping (China Shipping Container Lines Co.) would see market share decline from 60% to 10% if the P3 network were approved. The Wall Street Journal

also reported that China Cosco posted losses in 2011 and 2012 (although 2013 proved a better year for the company), and China Shipping posted losses of 2.65 billion yuan last year. An initial impact analysis of the P3 Network by Greater Houston Port Bureau analyst Matt Logan was published in our February issue. It can be read online at http://www.txgulf.org/news/index.php#feb2014. The P3 agreement cleared U.S. Federal Maritime Commission regulatory review on March 20, 2014. The approval article can be read online at http://www.txgulf. org/news/index.php#apr2014. ò

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COMMERCE CLUB

June 2014 Commerce Club Rick Shannon, President Atlantic Ro-Ro Carriers Judith Schultz, GHPB

earning to understand and respect diverse cultures and contending for transparency in shipping regulation compliance with foreign ports were the keynote topics of the talk given by Rick Shannon, president of Atlantic Ro-Ro Carriers (ARRC), at the Commerce Club Luncheon on June 12, 2014, at Brady’s Landing. “The profit is there, if you can make it move,” stated Shannon as he talked about opportunities while illustrating his major theme of regulatory transparency. “But a guy looking at a million dollars a week in fines [for a ship confined in port] – that’s just not in the budget!” Shannon punctuated his thoughts with lively anecdotes and “then/now” comparisons of his many years in the shipping and transportation business. “In 1991, when Yeltsin became president, Russian computers were like the old 60s-style Univac computers. They had 200 people doing documentation. Now they have eight people with laptops,” recalled Shannon. Despite the current political unrest surrounding Russian trade, Shannon expressed confidence that

“Russia is a market whose business will continue.” He believes the European Union will continue to do business with Russia, perhaps with some modifications, as Europe – particularly Germany – is dependent on Russia for oil and gas. “There will be those that pull out,” said Shannon. “We’ll see where we are in three to six months.” ARRC has not changed their investment plans for their U.S./Russian business and opened new offices in St. Petersburg in March 2014. A new vessel, the M/V Antonio made its maiden voyage from Houston the first week of June, and ARRC expects to add more new ships by 2015. The Port Bureau’s July Commerce Club will feature Port Commission Chairman Janiece Longoria on July 10 at Brady’s Landing. Reservations can be made online at www.txgulf.org/commerceclub.php or by calling (713) 678-4300. ò

Commerce Club Sponsors:

30 | July 2014

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IN THE COMMUNITY

Father Rivers Patout Remembered for Ministry to Mariners

Judith Schultz, GHPB

ather Rivers Aristide Patout III died Monday, June 2, 2014, in Houston, TX, at the age of 76. The son of Mary Azzalie Griffis and Rivers A. Patout, Jr., he was born in Galveston, TX, on April 2, 1938. Fr. Patout received a B.A. in philosophy from the University of Notre Dame in 1960. He entered St. Mary’s Seminary in Houston and was ordained as a Catholic priest in 1967. Fr. Patout was a founding member of the Houston International Seafarers’ Center and was known for his enthusiasm and passion for serving mariners from around the globe. The Seafarers’ Center is noted for being the world’s first such facility not associated with a single nation or particular religious group. Opening at a Christmas Eve service in 1972, the Seafarers’ Center provided a swimming pool, track, and soccer field. According to an article in the Houston Press, Fr. Patout was caught “off guard” by the concept that a mariner might want a quiet place to relax. “We said, ‘What? Why would any sailor in his right mind want a priest or preacher coming down interfering with his drinking and womanizing?’” he recalled during the interview. “That was the stereotype.” But the stereotyped image crumbled quickly after the center opened. “It was very evident soon that … they were family people, great people, and in fact, they taught us,” Fr. Patout told journalist Pat Jasper in a 2012 interview for Cite Magazine. “They were probably some of the more tolerant people in the world because they had seen every culture and didn’t hold it against you to be of a particular religion or race – that there were good and bad of all kinds.” Whatever his expectations for ministry may have been in 1972, Fr. Patout went on to serve as the

full-time chaplain – and eager champion – of the Seafarers’ Center. He witnessed many changes to the center’s activities during his 42-year tenure. Ship size, technology, time in port, and reduced crew size became factors in what the center needed to offer. The most dramatic change came, however, after 9/11, when Homeland Security required stricter measures for the crew coming ashore through port facilities. Accordingly, the center moved from more respite-based opportunities to a focus on communications and transportation services for the visiting seafarers. “In the early days, it would be ordinary to have 200 people a night up [here]. I didn’t have 11 people last night. Now, we do a lot of work. We provide the Wi-Fi so they could use their computers on the ship. We provide cell phones. We provide other aids to help them... We need more mobile transportation,” Fr. Patout said to Jasper in his interview. Throughout his many years of ministry, Fr. Patout’s devotion to the welfare of the maritime community never waned. His concern for his seafaring flock went beyond religious counseling and service, overseeing recreation, or a chance to phone home. He cared deeply about such difficulties as delinquent pay, abusive captains, unsanitary conditions, and broken promises, and worked tirelessly to resolve or ease a hardship. He was never too busy to listen or to seek assistance on behalf of a ship’s crew. He was honored numerous times for his work in the maritime community, including becoming the Notre Dame Man of the Year and Notre Dame Exemplar Award from the Houston Alumni Club, receiving the Religious Service Award from the National Conference of Christians and Jews, the Anchor Award from the Houston International Seafarers’ Center, the Transportation Person of the Year from the Transportation Club, the Certificate of Merit from Homeland Security/U.S. Coast Guard, and was named the Maritime Person of the Year from both the Propeller Club and the Greater Houston Port Bureau.

To learn more about the Searfarers’ Center and how you can contribute to its mission, call (713) 672-0511. ò Greater Houston Port Bureau | 31

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Greater Houston Port Bureau www.txgulf.org 111 East Loop North Houston, TX 77029 T. +713-678-4300 F. +713-678-4839

The 85th Annual Maritime Dinner Saturday, August 16, 2014 Reception, Dinner & Silent Auction 5:30 pm - Cocktails 7:00 pm - Dinner 8:00 pm - Presentation Bayou City Event Center 9401 Knight Road, Houston, Texas

For registration and information: (713) 678-4300 or ghpbdinner@txgulf.org Table and Event Sponsorships are Available.

Honoring Ned Holmes