SAN ANTONIO—A.J. Brass is an energy executive, not a guru, but the CEO of Houston-based Gravity Midstream LLC nevertheless offered his mantra to a Midstream Texas conference crowd that has been rattled by a year of low commodity prices and a shaky outlook:
In times of volatility, value optionality.
“We always try and look at different ways that we utilize assets and think about where we are in the overall flow of oil,” he said. “We think about what we can do differently in this industry and as a company with our assets, while things are upset, to bridge gaps.”
His company has developed the Gravity Oil Terminal at Corpus Christi (GOTAC), a 44-acre deepwater liquid petroleum storage terminal on the Corpus Christi Ship Channel to handle four modes of transportation—pipeline, ships, trucks and rail. By mid-2016, the dock will be ready for Aframax tankers. It also has its own crude processing unit.
GOTAC is designed for a post-crude export ban world. Gravity has positioned itself to handle light oil from the Permian Basin and Eagle Ford Shale plays when the restriction is lifted and a widening of the spread between Brent and West Texas Intermediate makes exports of crude and processed condensate favorable.
Brass believes that will happen because he already sees it happening in the futures markets, which have Brent trending up into the $60s by 2018. Inherent risks in the business may also play themselves out.
“We live in an extremely volatile time,” he said, “so the potential for geopolitical events causing disruption and thus price disruption are high, relatively speaking, and at some point there’s an expectation that the U.S. is going to have look at the current ban on crude oil exports.”
Brass said he believes that there is sufficient pipeline capacity in the Gulf to satisfy current production levels. On some of the major pipelines, he even sees excess capacity. But if the political and price environments change, those levels won’t be enough.
“To the extent that we do get a resurgence in flat price, we do get production up, we’re quickly going to run out of capacity on those pipelines,” Brass said. “As we increase capacity on those pipelines, we’re going to need additional export capacity in the Gulf to support getting those barrels to water.”
Joseph Markman can be reached at jmarkman@hartenergy.com.
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