Midstream company secures funding for first leg of giant Houston crude oil storage facility

Fuel Fix ^ | July 23, 2015 | Joshua Cain

[thackney]

The midstream company planning to build one of the largest crude oil storage facilities on the Gulf Coast said Thursday that it had reached a deal to fund the first phase of construction on the project in southwest Houston.

Fairway Energy Partners LLC said in a release that Houston private equity firm FBR & Co. agreed to fund the first leg of the Pierce Junction storage facility, which will convert three underground salt caverns near the intersection of the 610 and 288 Freeways into crude oil storage.

Fairway is backed by Haddington Ventures LLC, a Houston investment firm that manages a host of energy storage and processing projects around the U.S.

Fairway said it expected Pierce Junction to be in service by the end of 2016. The financial terms of the deal were not released.

The project, first proposed in 2011 when the shale drilling boom was beginning to flood U.S. storage with crude oil, will hold up to 20 million barrels of crude oil. According to the Wall St. Journal, that could account for more than a quarter of the new capacity planned for the Gulf Coast by the end of next year.

The first phase of the project will build out 10 million barrels of storage in the caverns and construct 21 miles of pipelines connecting the facility to two other storage hubs in southeast Houston.

Fairway said the pair of new pipelines will add more than 1 million barrels per day of capacity to the Houston crude oil network.

[thackney]

Pierce Junction
http://www.fairwaymidstream.com/pierce-junction.html

Our team is focused on developing the Pierce Junction Crude Oil Storage Project that consists of:

- 8 existing caverns (5 segregations) on the Pierce Junction salt dome uniquely positioned in Houston, TX

- 19.3 MMbbls. of existing capacity with the potential opportunity to develop 20.0+ MMbbls. of additional existing cavern capacity and surface tankage

- 2 x 24” bi-directional pipelines with 15 Mbbls./hr. flow capability from light to heavy crude oil types

- Crude oil segregation, batching and blending capabilities

- Pipeline and rail connectivity to the major crude oil hubs in the greater Houston area

[SMARTY]

“...he project in southwest Houston. “

Should this be public information?

[thackney]

Do you think a project this size next to a major freeway is secret?

[thackney]

The Pierce Junction Oil Field associated with this name and general location has a lot of history. The Pierce Junction Oil Field was just south of Houston Texas and produced some fantastic wells. These old wooden derricks are long gone but the location should be familiar to most Texas football fans. The old Houston Astrodome and the new Reliant stadium were built on top of the Pierce Junction Oil Field.

http://oilmanmagazine.com/oilman-pride/

[Straight Vermonter]

Call me ignorant but what is the purpose for this facility? Why does so much oil need to be stored rather than sold/used?

[painter]

How deep are they, and what keeps them from leaking? Just curious.

[thackney]

Why does so much oil need to be stored rather than sold/used?

The US has less than 500 million barrels of oil in commercial storage.

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCESTUS1&f=M

That sounds like a lot, but for the entire country, that is less than a less than a single month of supply.

http://www.eia.gov/petroleum/weekly/images/crdsusm.gif

This facility is just a little piece of that supply chain.

[thackney]

I don’t know the specifics of this facility. But I can give you a comparison of the SPR oil caverns, which are bigger.

http://energy.gov/fe/services/petroleum-reserves/strategic-petroleum-reserve/spr-storage-sites

Strategic Petroleum Reserve caverns range in size from 6 to 35 million barrels in capacity; a typical cavern holds 10 million barrels and cylindrical in shape with a diameter of 200 feet and a height of 2,000 feet. One storage cavern is large enough for Chicago’s Willis Tower to fit inside with room to spare. The Reserve contains 62 of these huge underground caverns.

[thackney]

Salt caverns are carved out of underground salt domes by a process called “solution mining.” Essentially, the process involves drilling a well into a salt formation, then injecting massive amounts of fresh water. The water dissolves the salt. In creating the SPR caverns, the dissolved salt was removed as brine and either reinjected into disposal wells or more commonly, piped several miles offshore into the Gulf of Mexico. By carefully controlling the freshwater injection process, salt caverns of very precise dimensions can be created. For every barrel of crude oil to be stored in the SPR’s salt caverns, it took 7 barrels of water to create the storage space.

Besides being the lowest cost way to store oil for long periods of time, the use of deep salt caverns is also one of the most environmentally secure. At depths ranging from 2000 to 4000 feet, the salt walls of the storage caverns are “self-healing.” The extreme geologic pressures make the salt walls rock hard, and should any cracks develop in the walls, they would be almost instantly closed.

An added benefit of deep salt cavern storage is the natural temperature difference between the top of the caverns and the bottom, a distance of around 2,000 feet. The temperature differential keeps the crude oil continuously circulating in the caverns, maintaining the oil at a consistent quality.

[Straight Vermonter]

Thanks!

[Sequoyah101]

It looks like salad days for you guys downstream right now. From my upstream perspective it is usually salad days for you though I’m sure that perspective is seen through rose colored glasses where you are concerned.

I terribly misread the tea leaves this time. I thought that we would be coming back into balance by now and that we would be seeing solid 70s with brightening prospects but not a surge. I figured the firming would take place about now and that the increase would be moderated by the end of summer driving season and the turn-arounds in refineries of winter.

I did not see the Saudis increasing production so much. Didn’t think they had the capacity. I also figured the Iranian picture was already factored in. The only thing I got right or close was consumption and I underestimated the growth of that.

Some of the bigger players... corporations... I work with see firming next year in the summer season making this a nearly two year bottom. With oil, that is too far out. Too much can happen we just don’t know about. It is a geopolitical and fundamentals driven commodity with long term development factors. Geopolitical trumps all.

The bigger players are now starting to batten down the hatches. I’m seeing it in manufacturing and service companies and hearing it in the operator side. We will see slaughter in the upstream by fall if things don’t improve as they feel the need to entrench of for a very long winter when they finish the first draft of the planning cycle this next month.

I simply do not see how operators are keeping any of the drill ships running. It is not just the cost it is the horrendous level of trouble costs from what I think is unnecessary complexity coupled with rapidly declining experience levels and manpower cut backs.

They say it is always darkest before the dawn but it has to quit getting darker first.

[Sequoyah101]

What is the next layer down from this gif?

[bert]

thanks for that excellent explanation

[thackney]

What is the next layer down from this gif?

. . . . .

Sorry, I don’t understand the question

[painter]

Very interesting. Thanks for the info.