FEATURE ARTICLE, JUNE 2005

SOUTHEAST TEXAS JACKPOT
How will Port Arthur handle the second wave of billion-dollar industrial development to hit the area?
Haley Shuler

The city of Port Arthur has proven itself a major player in southeast Texas’ industrial hub, despite its population of less than 58,000. With more than $3 billion in industrial development since 1997, and with three $1 billion liquefied natural gas (LNG) terminals proposed for the area, this small port town is causing big-time waves as industrial development ripples into the economy.

ExxonMobil plans an LNG terminal north of Sabine Pass in Port Arthur.

According to Steve Buser, president/CEO of Partnership of Southeast Texas (POST), an economic development organization for the region around Port Arthur, federal studies done in the 1990s show that the United States is facing a severe shortage of natural gas and must look for ways to import the critical fuel. Bringing gas in by ship from other areas of the world where it is plentiful and cheap is the preferred solution, notes Buser.

Cooled to roughly minus 260 degrees at normal air pressure, this natural gas becomes liquefied natural gas and is reduced in size about 600 times, making it easier to ship, according to The Center for Liquified Natural Gas. It is the same natural gas that more than 60 million Americans use to heat and cool their homes, only in a liquid form.

The First Investments

The new investments, approaching $3 billion, come on the heels of a massive $3.5 billion industrial investment in the city that began in 1997 and is just winding down. In 1997, Port Arthur was the center of $2 billion in investments that upgraded two of the city’s oil refineries to be able to compete in the modern petrochemical economy. And several other companies have invested a total of more than $1 billion on their respective properties since 1997.

According to POST, in 1997 ATOFINA Petrochemicals of Houston, a subsidiary of the France-based oil company TOTAL, teamed with German-based BASF to form BASF Fina Petrochemicals. The joint venture began construction on the world’s largest steam cracker, which uses steam to split crude oil into propylene, ethylene and other chemical products. Construction costs for the Port Arthur plant weighed in at $1 billion. The refinery had been the least integrated refinery on the Gulf Coast — it made fuels but had no ability to produce molecules that fuel the giant plastic and rubber industries.

Around the same time, Old Greenwich, Connecticut-based Premcor converted from refining east Texas crude to refining Mexican crude, which is more readily available and cheaper, but higher in sulfur content. The company re-fitted its refinery, spending more than $900 million in upgrades. The investment paid off handsomely, with Premcor tripling its profits in the last quarter of 2004.

Since 1997, several companies have upgraded their facilities: Motiva paid $100 million to upgrade its lube unit, Praxair built a $100 million hydrogen unit at Motiva’s Port Arthur refinery and  ATOFINA and BASF spent $250 million each on a butadiene extraction unit and an olefins conversion unit. Several other companies announced investments: Chevron Orange allocated $100 million for new lines; BASF Baytown spent $1.4 billion in investments including a co-gen unit and a Toluene di-isocyanate unit; and ExxonMobil spent $350 million in Beaumont on a co-gen unit and utilities improvements.

Current Investments

The current round of Port Arthur investments is fueled by a demand for natural gas that has made it more expensive in the United States than almost anywhere else in the world. Demand for natural gas is growing because it is an environmentally friendly choice for dozens of new electric generation facilities and industrial expansions. On top of that, the normal demand for natural gas for homes and businesses is adding to the price increase. In the early 1990s, natural gas was sold for $1.50 to $1.90 per thousand cubic feet, but the current price averages between $6 and $7 per thousand cubic feet.

“We can’t sustain industry with prices like that and that means we’re going to have to bring natural gas in from far away places, just like we do oil,” Buser adds. “We’ll have to build one or two of these LNG terminals per year for the next 10 years just to keep up with demand. In 20 years, we will be importing natural gas in quantities similar to the amount of oil we import today.”

Although other areas of the country have been proposed for LNG terminals, no area has received the attention that Port Arthur has.

To keep up with the rising demand, San Diego-based Sempra LNG and Irving, Texas-based ExxonMobil have proposed LNG terminals in an area called Sabine Pass in Port Arthur. Sempra plans to develop a $600 million LNG receiving terminal capable of processing 1.5 billion cubic feet of natural gas per day. If approved, the facility will be constructed on part of a 3,000-acre parcel located along the Port Arthur Ship Canal that Sempra has owned since 1989. The Port Arthur LNG project will feature three 160,000-cubic-meter, full-containment storage tanks and two unloading berths. The facility will allow for future expansion to accommodate three additional storage tanks and facilities, and process up to 3 billion cubic feet of natural gas per day. According to POST, the project will mean an additional 1,000 construction jobs and 50 permanent jobs. The Port Arthur LNG project is expected to begin construction in 2006, with start-up slated for 2009.

At the end of 2003, ExxonMobil rolled out plans for a $600 million LNG terminal called Golden Pass LNG, to be located on Sabine-Neches Waterway just north of Sabine Pass in Port Arthur. The project will have an initial import capacity of 1 billion cubic feet per day, and was designed for an expansion to 2 billion cubic feet per day. The terminal will contain a berthing structure and unloading facilities for double-hulled LNG ships, up to five LNG full-containment storage tanks with an approximate capacity of 155,000 cubic meters each, vaporization equipment, and associated pipeline facilities and equipment. The project also includes a $200 million proposed Golden Pass Pipeline that will extend 77 miles and is planned to be operational in 2008 or 2009, coinciding with the start-up of the Golden Pass LNG receiving terminal. The project will call for up to 600 workers during peak construction and will take about 3 years to build.

Cheniere Energy recently received its permit to develop a $600 million to $700 million LNG facility called Sabine Pass LNG, which will be situated on 570 acres along the Sabine Pass Channel in Cameron Parish, Louisiana, roughly 3 miles from Port Arthur. It will operate as a tolling facility, meaning companies will sign long-term terminal use agreements that will give LNG sellers access to the U.S. market and U.S. natural gas buyers access to the global supplies of LNG. This project also includes the $150 million Cheniere Sabine Pass Pipeline, which will run 16 miles from the Sabine Pass LNG terminal to Johnson Bayou and transport 2.6 billion cubic feet of natural gas per day. The facility will have two docks capable of handling 200,000-plus-cubic-meter capacity ships, and three storage tanks of 160,000 cubic meters each.

Permitting an LNG facility, which takes about 18 months, is led by the Federal Energy Regulatory Commission (FERC), the U.S. Coast Guard and other federal and state regulatory agencies. “The FERC is moving along at a rather quick pace and they recognize the importance of these types of projects coming online, not only to meet the natural gas needs of our community, but to meet the needs of the nation,” Rutherford says.

The influx of workers for the construction of these new facilities is coming from Port Arthur as well as outlying areas. “With a population of less than 58,000, Port Arthur just can’t provide all of the employees needed,” says Rutherford. “In our community, we try to ensure that the highest percentage of local people can be hired. We work very closely with the companies to help ensure that they hire and use as many local companies as they can to meet their needs as subcontractors.”

Much of the maintenance being done on existing facilities, which at one point was done in-house, is now contracted out, placing the ball in the hands of local contractors. “We put together vendor conferences, receptions, trade training and workshops so that the companies know what and who are available locally, and in reverse, to increase the opportunity for local companies to know the needs of the companies developing in Port Arthur and possibly adjust their products and services accordingly,” says Rutherford.

Despite its small population, Port Arthur is a major area for construction workers and industrial construction companies. “In Texas and in the United States, about $7 out of every $100 that people make is earned in construction, with that number rising only slightly in major metro areas where notable growth is occurring,” says Buser. “In Southeast Texas, in the ‘Golden Triangle’ area comprised of Hart, Jefferson and Orange counties — which includes Port Arthur — $13 out of every $100 is earned in construction.”

Cause and Effect

The question remains: What happens to a community of less than 58,000 when almost $3 billion is invested, not once, but twice, within a 10-year span? “We have excellent infrastructure in place,” says Steve Fitzgibbons, Port Arthur City Manager. “We have a new water plant and we are improving our sewer. We also have seven fire stations.”

The first $3 billion investment spurred the development of two Wal-Mart Supercenters within 4 miles of each other, which is big news considering Port Arthur’s population. The Home Depot, Lowe’s Home Improvement Warehouse, Target and a 10-screen theater have popped up along highways 69 and 347, the two big north-south routes into and out of Port Arthur. “There is a tremendous amount of growth along these routes, and it hasn’t abated at all,” Buser says.

The first wave of industrial development has just started producing residential spin-off, including apartment complexes. But, Buser notes that since Port Arthur has the lowest cost of living in Texas in terms of housing, “Soon the market will be saturated after this intense investing.”

Single-family home construction has begun to follow suit with other spin-off development. “We have 200 houses being built a year when we used to have two or three a year — that translates into employment,” Fitzgibbons says. “We have a history of being a major energy city, and with the spin-off from the refineries, people understand that this expansion and development will help create jobs.”

“Companies developing in Port Arthur have tremendous investments here, so as they expand their facilities it’s a continued investment in what they already have,” says Rutherford.

Port Arthur will continue to improve and see growth. The investments that the companies have already made will help to ensure they continue to put more projects in the area.

Buser notes, “As we start importing more and more natural gas, it will bring the prices down to a level that can support the petrochemical industry along the Gulf Coast.” That will mean new investments to one of the most capital-intensive industries in the United States and an industry whose spillover effects support more jobs in the community than almost any other. 

 “It’s not an exaggeration to say that a lot of cities along the Gulf Coast are holding their breath — the success of these LNG terminals in Port Arthur is important to the economy of many Gulf Coast communities,” Fitzgibbons says. 

 And that may be the biggest effect of the small port city, which in 10 years will see more investment than many countries. The effects will spill from its city limits to its neighbors.

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