Significant new crude oil and liquids transportation, storage and distribution projects in the Eagle Ford shale are melding into existing area midstream infrastructure and are creating a larger, more-flexible liquids transportation capability along the lower Texas Gulf Coast.

A number of projects are aggregating and transporting Eagle Ford liquids into the dynamics of the greater Houston area, and several projects have elected to route their liquids to the port of Corpus Christi, Texas, to meet local refinery demand there, and to utilize existing liquids terminals and their existing or enhanced storage capabilities, as well as access marine transportation to other markets.

Yet, questions have arisen regarding some problems or opportunities that could arise for parties who have elected to do so. Will the lighter, low-sulfur Eagle Ford crude oil and its related regional condensate be economically integrated or manageable by the Corpus Christi refineries and local markets?

And when available supplies exceed a desired mix in local refinery runs, can the light crude be stored, used to blend down heavier crude receipts, or possibly exported eastward to Louisiana or elsewhere to a market that would most certainly welcome the lighter crude?

The following is an overview of the various crude oil refineries and liquids transportation and storage facilities in the greater Corpus Christi area and includes commercial arrangements and infrastructure enhancements proposed.

Regional refineries

Corpus Christi, Texas, is the home of five major refining complexes. Two are operated by Valero Energy Corp., with a combined crude capacity of some about 257,000 barrels (bbl.) per day. Two other plants comprise the Flint Hills Resources LP refinery with a capacity of 288,000 bbl. per day. And the Citgo Petroleum Corp. refinery has a capacity of 156,000 bbl. per day.

This impressive regional refining capability, with more than 700,000 bbl. per day and somewhat similar operations to facilities near Lake Charles, Louisiana, has definitely attracted the attention of a number of the Eagle Ford area developers. With long-term access to developing Eagle Ford shale supplies, each of the major refiners is reviewing expansion possibilities, although no definitive plans have been indicated. All are reviewing their feedstock mix as well as their refining capabilities to determine how or when to incorporate Eagle Ford liquids.

Valero

Valero's Bill Greehey West Plant is a state-of-the-art complex and is highly rated for its design and product output capabilities, including the ability to produce 100% of its gasoline output as reformulated gasoline, which is required in many areas to improve air quality. The Bill Greehey East Plant was acquired by Valero in 2001 and has historically focused to converting heavier, high-sulfur crude to lighter crude products including conventional gasoline, ultra-low-sulfur diesel, jet fuel and other light products. Multiple grades of asphalt and petroleum coke are also produced there.

With significant frontage at the West Plant on the Corpus Christi Ship Channel, Valero has the ability to handle large ships for importing crude and exporting various products. Together with Valero's 98,000 bbl. per day Three Rivers refinery sited some 70 miles away, Valero's south Texas operations include an overall regional crude oil processing capability of more than 350,000 bbl. per day.

Beginning with some modifications and enhancements to its Three Rivers refinery and progressing downstream to its refineries in Corpus Christi, Valero is actively integrating Eagle Ford crude oil into its portfolio.

In one of its initial transactions, Valero and Harvest Pipeline announced a 50,000 bbl. per day (expandable to more than 70,000 bbl. per day) pipeline project to Three Rivers wherein Valero would begin to displace imported crude oil and oil that was being trucked into the refinery from other sources. This system would also include two truck offloading stations enroute to Three Rivers. With the Three Rivers location in play, Valero shifted its focus to working with NuStar Energy LP and other pipeline operators to route Eagle Ford crude to its Corpus Christi refinery.

Flint Hills

The Flint Hills refinery complex consists of two consolidated plants and is the largest in the Corpus Christi area with crude oil refining capability approaching some 300,000 bbl. per day. As of January, 2012, South Texas crude now accounts for more than two-thirds of the crude processed at the Corpus Christi facility.

The complex's jet fuel, low-sulfur gasoline and diesel products are transported by a proprietary pipeline and associated terminals into the San Antonio, Austin, Waco and Fort Worth areas, including the Dallas-Ft. Worth Intercontinental Airport. At the former Naval Station in Ingleside, Flint Hills is also developing and enhancing a ship terminal to load vessels to transport refined products into other Gulf Coast areas. Affiliated Koch Pipeline Co. LP is implementing a pipeline to connect the existing refinery and storage areas with the new Ingleside terminal. The scheduled start-up date is mid-2012.

With an appetite for the Eagle Ford light crude and condensate, Flint Hills is active on a number of fronts. First, working with affiliate Koch Pipeline, the company built a new 16-inch pipeline for future gathering of up to 200,000 bbl. per day of crude into its existing south Texas crude oil pipeline system for transportation downstream to the Flint Hills refineries.

Also, Koch leased some 30,000 bbl. per day of transportation capacity from NuStar and announced a joint tariff arrangement with Arrowhead Pipeline LP, operated by Harvest Pipeline Co., to provide 50,000 bbl. per day of additional upstream crude gathering capability.

Koch Pipeline also has built, for Flint Hills, a new pipeline connection to an enhanced Ingleside, Texas, marine terminal, where Flint Hills can deliver product for marine transportation.

Citgo

Designed and engineered to process heavy Venezuelan crude oil supplied by its owner, Petroleos de Venezuela SA, Citgo's Corpus Christi refinery has a capacity of about 165,000 bbl. per day.

With six docks on the ship channel that provides access to this imported crude, and a product output mix that is tailored more to the heavier crude supply, one might argue that this refinery is less likely to welcome significant quantities of light Eagle Ford crude and condensate into its supply portfolio. Competitively-priced regional supply, however, may prove to alter this strategy over time.

Crude storage and liquids terminals

Working in conjunction with new and existing liquids pipeline projects, a number of existing and new liquids terminals are being enhanced or implemented in the Corpus Christi area. Existing terminals have previously been focused on supplies from traditional South Texas sources as well as accommodating imported shipments of crude.

With increasingly available supplies from the Eagle Ford shale, and a larger portion of the imported supplies being backed-out of the refinery supply mix, oil terminals, the products they store, and the services they offer are being driven by these same dynamics.

NuStar Energy

With its recent evolution into a company independent from Valero as a result of a number of transactions, NuStar's North Beach crude oil terminal has four tanks with a capacity of 1.6 million bbl. Historically, all terminal receipts have been via marine connection with deliveries made by either pipeline or marine connection.

Recently, via several ongoing commercial arrangements with Valero and others, NuStar is enhancing its flow into the Three Rivers refinery from upstream Eagle Ford sources and has reduced significantly the amount of imported oil transported from Corpus Christi into Three Rivers.

As a result, it has established overall better connectivity to its North Beach facility, has executed a land lease option agreement with the Port of Corpus Christi, which would provide for future terminal expansions, and continues to optimize Eagle Ford flow capability on its existing pipeline assets into the Corpus Christi area.

Separately, NuStar operates a products terminal at its North Beach facility, with 10 tanks and 327,000 bbl. of usable storage for a variety of products. Deliveries from the facility are currently via marine vessels.

Plains All American

In conjunction with a commercial arrangement with upstream producer Chesapeake Energy Corp., Plains All American Pipeline LP will build a 130-mile, 300,000 bbl. per day pipeline from the western region of the Eagle Ford to transport crude oil and condensate to Corpus Christi and other Gulf Coast markets.

The company will also build and operate a marine terminal and provide 1.5 million bbl. of liquids storage capacity on the Corpus Christi end. Chesapeake Midstream Development LP and Flint Hills Resources have separate agreements in place which could provide a potential joint ownership in the project. The proposed implementation is fourth-quarter 2012.

Magellan Midstream

Magellan Midstream Partners LP owns and operates 3 million bbl. of heavy oil and refinery feedstock storage at its Corpus Christi terminal. Space exists for future expansion for up to an additional 3 million. Magellan currently has delivery capability to three of the Corpus Christi refineries and to a dock for export.

As Plains appears to have won the initial battle for crude from the western portion of the Eagle Ford, Magellan has since shifted its focus to regional condensate. A recently announced joint venture arrangement with Copano Energy LLC will result in a new 140-mile condensate pipeline—the Double Eagle Pipeline—which will connect to an existing Copano pipeline, allowing for delivery of up to 100,000 bbl. per day to Magellan's terminal in Corpus Christi.

The joint venture will also construct a truck unloading facility along the pipeline near Three Rivers to receive deliveries of condensate destined for Corpus Christi. In addition, Magellan will construct 500,000 bbl. of dedicated condensate storage as well as a new dock delivery pipeline exclusively for condensate.

Limited services are anticipated prior to yearend 2012, with full service available in first-quarter 2013. The joint venture will continue to seek opportunities to gather crude oil and condensate in the region.

Martin Midstream

Martin Midstream Partners LP will build a new crude oil terminal at the Port of Corpus Christi to receive crude oil from the Harvest Gardendale Pipeline. Facilities will involve over 300,000 bbl. of crude oil storage with the ability to expand to 600,000 bbl. The terminal will be connected to a barge dock and a deepwater marine tanker dock.

Initial delivery capabilities of the marine delivery system are 15,000 bbl. per hour, with expansion potential to 30,000 bbl. per hour. The completed terminal will receive truck shipments until the Gardendale Pipeline is completed sometime in mid-2012.

Mini-hub

Corpus Christi has all of the characteristics of a developing liquids mini-hub. As can be seen by the local refinery demand, existing and new or enhanced storage terminals, access to barge loading and deepwater marine facilities, Corpus Christi demand has attracted sufficient interest from upstream Eagle Ford producers.

With major long-term commitments to upstream supply infrastructure and midstream pipelines to route their liquids to market, ample supplies will be available at Corpus Christi for local processing and consumption as well as export to other markets.

Eagle Ford liquids are expected to capture an increasing percentage of the Corpus Christi feedstock market, with the possible exception of the Citgo refinery, which receives imported Venezuelan heavy crude from its foreign owner. However, as more liquids become available from the upstream, crude oil and condensate supplies are expected to be in excess of local needs. Therefore, the ability to store and export liquids via barge and deepwater marine vessels has been fully integrated into Corpus Christi acquisition and marketing strategies.

Targeted light crude oil and condensate markets include certain Louisiana refineries which prefer the lighter liquids. Many of these can be accessed by barges traversing the Intracoastal Waterway.

Similarly, lighter-end products can also be routed to other Gulf Coast markets, whether via existing pipelines or inland waterways. As far as exports of the lighter liquids to other refineries or markets, such as the U.S. Northeast, shipping regulations such as the Jones Act currently restrict cargos to U.S.-flag vessels only. However, foreign-flag vessels could be utilized to take cargos into the global oil market and compete for market share.