You are viewing:

ArchivedContent

Information released online from January 20, 2009 to January 20, 2017.
Note: Content in this archive site is not updated, and links may not function. External links to other Internet sites should not be construed as an endorsement of the views contained therein.

printable banner

U.S. Department of State - Great Seal

U.S. Department of State

Diplomacy in Action

Commerce and Investment Updates on the Port of Corpus Christi

John LaRue, Executive Director, Port Corpus Christi; and Tommy Kurtz, Vice President of Business and Strategic Development, Corpus Christi Regional Economic Development Corporation
New York, NY
May 5, 2016




Date: 05/05/2016 Location: New York, NY Description: Briefers discuss foreign direct investments worth $20 billion from global markets including China, Austria, Italy, and Mexico in and around the Port of Corpus Christi - State Dept Image

1:00 P.M. EDT

NEW YORK FOREIGN PRESS CENTER, 799 UNITED NATIONS PLAZA, 10TH FLOOR

MODERATOR: So good afternoon. Thank you all for joining us today. We’re really pleased to welcome John La Rue, the executive director of the Port of Corpus Christi, with us, and Tommy Kurtz – excuse me – who is the vice president of the Corpus Christi Regional Economic Development Corporation.

Today’s briefing is on the record. So after our speakers make remarks, we’ll open the floor for questions. And we just ask that you state your name and your media affiliation before you do. And the transcript will be available on our website and – later today or early tomorrow. And with that, I’m going to turn it over.

MR LA RUE: Okay. Should we just for them maybe go around the table so everybody knows who all of us – so I’m John La Rue, executive director with the Port Authority, Corpus Christi.

MR KURTZ: Tommy Kurtz, vice president of business development interaction for the EDC.

QUESTION: Emily Martinez, vice president, EDC.

QUESTION: Ali Abaday, Taraf newspaper from Turkey.

QUESTION: Gabriel Mellqvist, Swedish newspaper, business newspaper.

QUESTION: I am Deokhan Kim from Chosun daily newspaper of South Korea.

MR LA RUE: Okay, well, thank you. All right, we’ll get started. And I assume you’re seeing behind me --

MR KURTZ: Yes, same thing we’re seeing there. Right, yeah.

MR LA RUE: -- what I’m seeing up there so I don’t have to snap my neck around every time.

Okay. What we’ll do is we’ll go through these rather quickly. If I’m talking too fast, if you don’t understand, please stop me, tell me that. And then we’ll leave plenty of time for questions. I think that would be better than just – if we start asking questions on each slide, we’ll never get to the end of the slides, so we’ll go through them and then your questions.

So this is a picture of Corpus Christi, and Corpus Christi is located on the Texas coast about halfway between Houston and the Mexican border, which is Brownsville, and also about two hours from San Antonio. So if you wanted to envision a triangle, that would be pretty much it. It’s about – you can see the population there, and the unemployment rate is in fairly good shape at 5.6 percent.

The economy – do you want to do this part? This is more yours. I’m doing it and I’m thinking, well, this isn’t mine. There’s a ship in the background. That’s about it. The rest of it’s yours.

MR KURTZ: Well, yeah, we’re – so we’re considered the regional trade center, obviously, because of the Port of Corpus Christi and about two and a half hours north of Mexico. We’ve had a job growth of about between 1 and 2 percent over the last 10 years per year, and so that’s – and we’ll talk about some of those projects of what’s caused that, some of our industrial growth. Next slide.

And you have all this in your presentation, but basically kind of a breakdown of our industry mix, which is a mix of – a combination of industrial, also logistics and maritime, obviously, because of the port. We’re also home to a major base where they repair helicopters for the military and then a strong – we have two universities – one community college, one Texas A&M Corpus Christi – and also major tourism because we obviously have beaches and recreationally fishing in the area. So it’s a diverse mix of industries in our region, like I said, which is about half a million people. Next slide.

And so – and John will address this, but – about the port.

MR LA RUE: Yeah.

MR KURTZ: I’ll do kind of quick details about it. But it is the fourth largest port in the U.S. and a major deep water port and growing in the Gulf of Mexico. Next slide.

And one of the selling points also of our area of South Texas where we’re located is that we’re in an attainment area compared to a lot of other Gulf Coast ports, meaning that if you’re a company that’s looking at locating, we’re in an attainment area where the – your emissions are not going to be subject to having to buy additional credits like Houston or Beaumont or Baton Rouge, for example, for a major industrial project, which makes us very, very attractive for new industrial plants, including some of the direct – foreign direct investment we’ve had recently. Next slide.

And Texas is – we’re a major state that’s attracting a lot of industries and a lot of corporate headquarters. We have no corporate income tax. We have a margins tax which is very, very low and no personal income tax, which has been very successful. And so – and there’s – our property taxes are comparable to other parts of the country, not excessive, but that’s kind of what the majority of locals generate their revenues. So basically and generally, a very low-tax state compared to other states around the U.S. Next slide.

And our organization was just named one of the top economic development groups in Texas, and the port was just named one of the top ports by Southern Business Development Magazine. And so we’re recognized as an area that’s up and coming and growing and a good place to locate.

So that should be – yeah, and then lastly, we do offer various incentives for companies at the local level – a dedicated economic development tax – and provide tax abatements on projects. So next slide.

And that’s our end, then we’ll move to John’s.

MR LA RUE: Okay. So that’s our mission and vision. We just did a strategic plan two years ago and for a long time, like most ports, we’re always looking for new business and new enterprises, so we were – the buzzword for ports is diversification, trying to find other industries, other things you can do. And for years we looked at doing containers and automobiles and other specialty products, and what – when we went through the strategic plan, what we found was we’re really an energy port. That’s what we’ve – other than – we were actually founded for agriculture in 1926. We were founded and Corpus Christi is still a major growing area for cotton, so we ship a lot of cotton to Europe, to Central and South America, and to Asia. So a lot of the cotton that goes over there comes back to the United States in the clothes we wear, but it starts in South Texas.

But energy is our basis, and by energy we just don’t mean oil. We’ll show you we do a lot of – we’re the largest wind energy import/export port in the United States. We do a lot of industry related to natural gas because we have a lot of natural gas, so we have become – foreign direct investments are increasing dramatically of companies coming in looking to have a place where they have a steady, stable supply of natural gas. So we’re seeing industry locate in our area because of that. So it’s much more than what – when we say energy, to a lot of people they think refineries, taking crude and making it into gasoline or diesel, other products. That is a big part of our business, but it’s – it’s not the only part and it’s changed very rapidly in the last five years.

This just goes through some of the diversification. We’re spending a lot of capital on new investments, on new docks, rail, and infrastructure. We have about $1 billion in a 10-year capital program, and that’s a lot for us. About eight years ago, our capital investment in a year was probably between 18 and 20 million, so you can see we’re ramping up quite a bit.

Some of the statistics – fifth largest port, as I said – not containers, but that’s by tonnage. So we do move a lot of products, a lot of liquid bulk, a lot of dry bulk. We don’t get any revenue from taxpayers in our region. Our revenues come from our users. So we charge when people tie up at our docks, use our docks. They pay a fee for the ship and they pay a fee for the cargo that’s unloaded. And that’s a standard process throughout the world. In any of your ports, if you went and talked to the port directors at your ports, they would tell you the same thing. That’s how they collect the revenue that they use to invest back in their port.

We also own our own railroad system inside the port, almost about 40 kilometers of rail.

For ports, the lifeline of a port is the ship channel. And the problem with ship channels is worldwide nobody can see them, but it’s our highway but it’s underwater. So ship channels, there’s a ship channel here in New York Harbor. Nobody sees it. It’s out there underwater. But it has to be maintained, and just as we have highways that have to be improved and restructured, it has to be deepened. So we’re in the process of doing a deep – a channel improvement project where we’re going to deepen from 45 to 52 feet, and that’s about $USD 325 million. We pay half of that; the U.S. Government pays the other half. That’s a program the U.S. Government’s had for probably 200 years. Since the early 19th century the U.S. Government has maintained ship channels throughout the country.

These are some – besides doing the public investment, we have a lot of private investment, companies that come in and actually invest their own dollars. Sometimes we will lease them publicly owned land and they will build their facilities on that, and then we’ll share in the revenues that we get. So these are examples of three companies. These companies are what are called in the United States midstream companies. So you have – in the oil industry you have upstream, midstream, and downstream. So the upstream are the people who are drilling, so they’re in the field. That’s the oil derricks and all the – everything you see. And then the midstream are people that take that product and transport it, so they’re really a transportation company. In another industry they’d be a trucking company or a railroad, but they move it. They may have a pipeline or they may have trucks. They will have terminal storage where they store the oil and then they will ship it out. They technically may never own the oil or the product, but they are an integral part of it. So these are three companies that are what you would call midstream companies, but you can see the investment they have made in our port.

We’ll go into a couple – I mentioned foreign direct investment. This is one of the companies, a major company that has come in to our port. It’s an Italian PET manufacturer. That’s – PET is this stuff. So they make the material that – they don’t make the bottle, they make the raw material and ship it to the bottle makers. So they are building the world’s largest PET/PTA plant on our ship channel. That’s our ship channel to the right and you can see the development of their plant. It’s actually 1.3 billion now. They just upped it by another 200 million for some additional storage capacity. And they will be – they will complete that project at the end of the year and they will start manufacturing. They ship a lot of their product by rail. They don’t use the ship channel as much as some others, so we ended up having to build a lot of rail storage capacity for them. And when I mentioned how we collect revenue on the water side, we will do the same thing with rail. We built them a rail storage facility, so they will pay us by the rail car as they move product in and out, and they’ll move 15- to 18,000 rail cars a day – 40 rail cars in, 40 rail cars out every single day. So it’s a lot of new business for us and a different business on the rail side. It’ll almost double our rail capacity, our rail movements, in a particular year.

We’re also looking at building – I talked about we’re not a container port, but we are looking at building a new multipurpose dock and that would handle all kinds of products. You can see wind turbines, the blades sitting there. This is a schematic. This is not there yet. I wish it were. And you can see the potential for containers. We’d also move bulk materials. We have – we’ll show you later – a Chinese oil and gas pipe company that is building a plant to manufacture oil and gas pipe that’s a mile from this site, so they would be able to move their finished product, the oil and gas pipe that they will sell in Central and South America, through this facility. So we’re doing the design on this dock right now. We hope to have it done within the next three to six months, and then we’re looking for partners to help us build it.

One of the major facilities – the largest project that’s ever been constructed in South Texas, and pretty close anywhere in Texas, is an LNG plant, liquefied natural gas. This is Cheniere. Cheniere’s already built one of these on the Texas-Louisiana border and this is their second one. It’s under construction right now. And what they do is they build these huge freezers – that’s the only way to describe it – where they take natural gas and freeze it, liquefy it, and then they ship it in ships all over the world.

So it will be going – they’ve already sold 75 – 70 percent of the capacity of this. They will build – the freezers that they build are called trains. They’re not railroad trains, but in their industry they call them trains. They will build three of those. The first will be finished in 2018, so they will start shipping product out in the next two and a half years. They’ve already sold – as I mentioned, a lot of it’s being bought by Spain, a lot of it’s being sold in Europe.

So they are looking – we’ll talk later about the Panama Canal, but the canal will allow U.S. LNG to be sold in Asia, so we expect to see Asian countries, whether it’s Korea, Japan, Taiwan, China, be able to buy LNG from the United States. And the canal will open in six weeks. The new canal’s dedication will take place – I think it’s June 26th. So this is a huge project, $10 to $13 billion in one plant on one site. To give you an example, the canal has just been expanded and it took, like, five to six years and the price of that was about $6 billion. So building this plant has doubled the price of expanding the Panama Canal.

That’s the Tianjin Pipe Company from Tianjin, China. Tianjin is a large city to the east of Beijing and serves as the – one of the main ports in China, for northern China. It’s probably about the fifth or sixth largest port in the world, but Tianjin, their economic development authority, you wish you had their money.

MR KURTZ: Yeah, don’t we all.

MR LA RUE: Their economic development authority actually owns – I’ve been there – owns a city inside of Tianjin, a new city that they built. It’s got its own soccer stadium. It’s about 60,000 feet – 60,000 people. It’s got a financial district that has just about every bank in the world on it. Has hotels and restaurants and residential development. And they also own – they’re the majority owner of the Tianjin Pipe Company. So this plant is – that’s a million square feet under roof there. They will be ready by the end of this year to start production of a seamless pipe for the oil and gas industry in the – in North America and in South America; we’ll be their major market. Obviously, they’ll cover Asia from their plant in Tianjin.

Occidental Petroleum is one of the major petroleum companies in the United States. They have a subsidiary that does chemicals – Oxy Chemical – and they have a longstanding plant in Corpus Christi that they’re now expanding, where they’re building an ethylene cracker, and that’s what’s under construction there. That will be open next year this time. The cost of that, again, is about a billion dollars, I think is the total price. And one of the things we’ve seen there is they’re partnering with what is a competitor from Mexico – it’s a company called Mexichem – and they do the same business but they’ve decided instead of building two of these, they’re just going to build one; they’ll share – they’re sharing their technology, they’re going to share what’s produced. So Mexichem owns 45 percent of this and it’s a good thing for our region and we’re looking forward to their opening next year.

Occidental Petroleum, the parent of OxyChem, also has a facility in Corpus Christi, and this is a very unique facility. This was a U.S. naval base, and the U.S. Government starting in the ’90s started closing military facilities, and they had a process called BRAC, B-R-A-C, which stands for --

MR KURTZ: Base Realignment (inaudible) --

MR LA RUE: -- Base Realignment and Closure Commission, and they set up a special commission that was national leaders, both civilian and defense, to decide what bases in all of the branches of military should be closed. This was actually the newest base in the Navy; it was built in 1989, but it was one they decided to close. So that decision was made in 2005. About 2009, we, the port, got the base and we got the base because when the base was built, it was built on port land, and we sold it to the U.S. Navy, to the federal government, but we had a reversion clause that if they decided they weren’t going to keep it as a base it came back to us.

So we got the base back. We turned around and sold it to Oxy Petroleum, and they’re building a facility right now to handle oil export. The U.S. now, as of December 26, 27, can export oil. We had a prohibition in the U.S. on exporting oil since the 1970s. So that has been lifted and now this facility will be used to export oil. They also are using it to export what are called LPGs, liquefied petroleum gases, and that’s like butane and propane. A lot of countries use those for cooking and for other things, so a lot of the ships are starting to arrive and leave our port with that as an export. So this facility will be up and running probably in the next 90 days.

I won’t go through that. That’s just for you for statistics, but you can see how --

MODERATOR: We can just send it to them.

MR LA RUE: Yeah, we’ll send --

MR KURTZ: Yeah, we’re going to send them a full – yeah.

MR LA RUE: We’ll give you – we’ll send you a copy of that, but it’s just got how our – what our projections are for the future. We still – while oil in the U.S. right now, production is down considerably because of the price of oil, we still see other things that continue to grow. And the byproducts from oil, whether it’s gasoline or diesel or other things, the refined products are still going to be increasing.

I mentioned wind energy before, and that’s a sample of what we project this year. Last year we had – if you click that again there may be some – no, didn’t come up.

MODERATOR: No, I don’t think so.

MR LA RUE: Okay. Anyway, we had – I think it was 74 vessels that came in carrying wind components. We have exported some – probably about 15 percent of that is export of wind components and blades that are built here in the U.S. But basically, they are imported from Asia, from Europe, from South America.

This just shows the outbound crude, and you can see the number of barrels, and it’s staggering. When you look at 2010, in the year of 2010, we exported 275,000 barrels, and that’s roughly one small oil tanker – very small. In 2015, we – when I say “export,” it didn’t go offshore; it went to other U.S. ports because it wasn’t legal till the end of ’15. But in 2015, we exported 213 million barrels. So you can see the change in just four years that’s impacted our port and impacted the United States on being able to use our own oil instead of having to import oil – a significant change.

The first crude export went out of our port on New Year’s Eve and went to --

MR KURTZ: Italy.

MR LA RUE: -- Rotterdam.

MR KURTZ: Eventually, yeah.

MR LA RUE: Yeah, it was supposed to go to Trieste, Italy and ended up somehow in Rotterdam. I guess they got lost and – (laughter) --

MR KURTZ: Got a better deal.

MR LA RUE: -- made a turn, got a better deal, and went to Rotterdam.

I mentioned the Panama Canal, and a lot of focus that you’ll see in the press and from talking to port people is on the containerized movements that will go through because there’s so much flow of containers from Asia to the West Coast of the United States. There’s quite a bit now coming from more Southern Asia and India and other places going through the Suez and coming to the East Coast of the United States, but it’s really been focused on containers, and really some of the first impacts will be on some of the bulk commodities where the canal will make a significant difference for – we mentioned LNG with Cheniere, and the LNG fleet – right now, only about 15 to 20 percent of the LNG fleet can get through the existing Panama Canal, but the new canal that will be opened in eight weeks or less will take 85 percent of the capacity. So U.S. LNG and LPG, those butane and propane exports, will be much more competitive to Asia than they are today. Same with crude oil and the same with grain and dry bulk commodities.

So those will have an immediate impact, where the containerized may take a while. They have to build the ships. The U.S. market has to be able to handle those ships and handle the volumes. And you still have a lot of that cargo moving by rail across the U.S. So today, if a ship from Korea comes in, if a Hanjin ship comes into LA or Long Beach and unloads, it’s put on a train – Burlington Northern, Santa Fe or UP train in LA, Long Beach, and it ends up in two days in Chicago or in Kansas City or Memphis or Dallas. And so there’s already a system. So it’s going to be a very competitive system with the Panama Canal. The railroads aren’t just going to roll over and hand them this cargo.

We already showed you the bridge. This is going over the ship channel. That – construction on that is just starting right now. It’s been approved. It’s almost a billion dollars, and it will raise the height of the clearance – that goes over our ship channel. Right now the height is 138 feet, which is not high enough. That bridge will take it to 205 feet, so we’ll have plenty. That bridge is supposed to last 100 years and there are probably – I forget how old the Brooklyn Bridge is here, but it’s probably more than 100 years old. So bridges can last that long if you take care of them, but we have a very, very humid, very – not acidic, very salt --

QUESTION: Salt.

QUESTION: Salt.

MR LA RUE: A lot of salt, a lot of wind. Before, the bridge that’s there was steel, and they had a lot of problems with rust and with maintaining it and painting it. This bridge is going to be cement and concrete, so it’s supposed to be a hundred-year bridge.

MODERATOR: I think this is the last one, so --

MR LA RUE: That’s it?

MODERATOR: Yep.

MR LA RUE: Okay, we are open for questions.

QUESTION: Can you – Gabriel Mellqvist, obviously. Can you tell me a little bit more about the Panama Canal? When – what’s the timeframe? When do you expect to see this kind of impact?

MR LA RUE: The canal will actually – the opening of the canal is, I think, June 26th. It’s supposed to be – I think there are going to be 30 heads of state there, most of the major players in the world shipping industry. So I mean, you could see – Cheniere already has – the LNG company in Corpus Christi already has a facility on the Sabine River, which is the Louisiana-Texas border. And they’ve already shipped about seven shipments of LNG, principally to Europe, I think one to South America. So you could see an LNG tanker going from Texas to Asia this summer. So the impact will be right away and significant. Grain vessels – right now, because of the strong dollar, U.S. grain is at a disadvantage over some other countries, especially going into Asia. So you could see larger grain shipments because they’ll be more competitive.

The canal is wider and deeper, so it means ships can handle more product on the same ship. When you charter a ship, you pay the same – you pay a daily – usually – I mean, you may charter it for a year, but it’s usually based on like a daily rate. It may be $50,000 a day; depending on the ship and the time, 100. It could be less. So – but the ship owner doesn’t care if you put nothing in the ship or if you fill it to the top. They get the same amount of money. So the more you can put in it, the more revenue you can get, the better off you’re going to be.

QUESTION: And you mentioned that you’re expanding your own canal now – I mean your own – not the – canal is not the word, but --

MR LA RUE: Our channel, yes. Ship channel.

QUESTION: Exactly.

MR LA RUE: Fifty-two feet.

QUESTION: Is that connected to the Panama (inaudible)? I mean --

MR LA RUE: It will make us – the canal – the new Panama Canal will be 51 feet and we’ll be 52, so anything that can go through the canal we’ll be able to handle at our port. We actually didn’t start it that way. It makes it look like we were really smart. (Laughter.) But we started that project – to show you how long it takes in the U.S. to get a channel project, we started the feasibility on that project in the early 1990s. So over 20 years ago we started work. We got it approved by the U.S. Congress. It literally has to go to the U.S. Congress and be voted on and signed by the President for a channel to be deepened, so that happened in 2007.

So eight years ago we got that approval, but then you have to go get the money from Congress. So you can imagine in Washington now with budget impasses it’s difficult to do. So we’ve started it. We’ve spent about – the total cost is 325 million of what’s left. We already have spent 70 million, so we’re trying to get a little bit every year. But it’ll take us, I would say, probably more than 10 years to do the whole length of our channel – to dredge it.

Yes.

QUESTION: (Inaudible.) One of the slides – the barrels – in 2010 --

MR LA RUE: Yes.

QUESTION: -- very few.

MR LA RUE: Yes.

QUESTION: 2011 almost --

MR LA RUE: Yeah, there it is.

QUESTION: 2011 almost --

MR LA RUE: Ten times.

QUESTION: Ten times.

MR LA RUE: Yeah.

QUESTION: And this is for United States use their own oil --

MR LA RUE: Correct.

MR KURTZ: Right, yeah.

QUESTION: And do you expect anything like that in near future, more than 10 times?

MR LA RUE: No. The 2015 – we won’t do in 2016 the number that you see there for 2015, because the price of oil is so low that the drilling in Texas has been reduced. That’s one of the reasons the price has started to go up a little bit, because the U.S. isn’t producing as much. But once the price stabilizes – and the experts say it’ll probably be about this time next year that the price will get back above maybe between $55 and 60 – that we will then see more drilling start again.

The advantage we’ll have this time versus 2015 is the market has expanded, because up in – up until 2015 we could only move that product to another U.S. port. Now we can sell it anywhere in the world. So your market has improved dramatically of where those companies can market and sell the crude oil that they have. And that’s – that I think will be a big change in a positive way.

QUESTION: But nobody can (inaudible) the export of crude oil. Will it affect (inaudible)?

MR LA RUE: I couldn’t hear what you said.

MR KURTZ: What bond? I’m sorry. Bond?

QUESTION: Alexey Osipov from Komsomolskaya Pravda. Now you can export crude oil everywhere.

MR LA RUE: Right, yes.

QUESTION: But nobody can predict that, for example, tomorrow or next two year the White House will issue the new --

MR LA RUE: A ban? No, it would – well, it could happen again. I think that’s --

QUESTION: Will it affect --

MR LA RUE: It would take some – I just don’t see that happening. The White House could not do it. It would have to go through Congress, so it would have to be a law. It would have to be passed and signed by the President. And obviously you can’t predict, but I would say the chances of that are very slim, because there’s a lot of states and a lot of areas that benefit from being able to export oil. And once we’ve gotten past that, going back to where we were I think will be very difficult.

When that came in was because of in the ‘70s the Arab oil embargo, when the price here just went through the roof. So in a response at that time, Congress passed and the President signed a – in effect it was like a way to try to protect U.S. oil so we could keep it all here. I think most people recognize it probably outlived its usefulness in not letting the U.S. compete worldwide. But until we get the price back to a more sustainable level for drilling and for moving the product, we won’t see a lot of export of oil in the U.S. It just – there’s just – you can’t compete worldwide when you’ve got to still ship it those distances.

MR KURTZ: We’re ready in case it does, though.

MR LA RUE: Oh, we’re – yeah, yeah. (Laughter.)

QUESTION: Drilling is different from fracking?

MR LA RUE: Pardon?

QUESTION: Fracking.

MR LA RUE: Fracking.

QUESTION: Yeah.

MR LA RUE: Yes.

QUESTION: Different? Can you give me the portion of fracking oil, oil from the shale?

MR LA RUE: Most of this is from areas where fracking exists. There’s two major areas that serve our port for the type of oil we’re talking about. One is called Eagle Ford, and that’s an area between Corpus Christi and San Antonio, and it runs from almost up towards Houston all the way into Mexico. And it’s a huge deposit; it’s both natural gas and oil. So that’s where a lot of this – that’s where all of that oil you see in 2015 came from: fracking in that area.

We also now have the ability to get oil from another area called the Permian Basin, which is out towards Midland and Odessa, which is kind of northwest Texas. It’s probably by car an eight or nine-hour drive from Corpus Christi, to give you some sense of how far away it is. And that oil is – not to get – there are different grades of oil. So there’s oil – like the oil from Venezuela is very heavy, and they call it sour – very thick – and requires a lot of work. You end up having to do more. But the oil from Eagle Ford is among the lightest that there is. It’s called condensate. You just have to do a few things to it and you can use it as diesel. And then the oil from Permian is kind of in between, and so in some ways the Permian oil is more in demand than the Eagle Ford oil that’s closer to us. So --

QUESTION: Can I follow up on that?

MR KURTZ: Sure.

MR LA RUE: Sure.

QUESTION: Just technical – is it allowed to export condensate as well? That’s --

MR LA RUE: Yes. And you could always export refined products.

MR KURTZ: Right, it’s just raw crude.

MR LA RUE: So the U.S. could take crude at a refinery in Corpus Christi – and we have three refineries; one owned by Coke, one by Valero, and one by Citgo, which is Venezuela Pedevesa – and they can refine a product and have diesel fuel or gasoline, and they could always export that anywhere in the world, because once it’s refined it’s not considered crude.

MR KURTZ: That was, I guess, part of the impetus anyway, because really, condensate was being --

MR LA RUE: Yeah.

MR KURTZ: -- sent out anyway. So it was an – and the different grades, and so that – so that’s why – part of why the raw crude ban was lifted also, because it was – you had variations on that. So it’s like splitting hairs.

QUESTION: So this is essentially a graph of the fracking movement?

MR LA RUE: That really shows what fracking did, yes. Because all of that, from 2013 where it’s – you really see it in 2012 starting to ramp up. We just didn’t have the capacity at the port, either the terminal handling, the storage facilities, or the – on the docks to be able to move the amount of oil that was starting to come out of the ground. But you can see in 2013, ’14, ’15, we kind of caught up, we made investment, the private companies made investment in – especially in – you need the storage capacity. You need tanks to be able to hold the oil you’re moving there, to be able to move it out. And we needed the pipeline system to be able to come from those areas to move the oil. Moving it by truck is very inefficient.

Yes.

QUESTION: Big transportation hub is always – let’s say some problems with nature. Do you have any kind of green program or (inaudible)?

MR LA RUE: Mm-hmm.

QUESTION: (Inaudible.)

MR LA RUE: Yeah. We do. We’re – I mean, obviously, we’re under – like everybody in every port in the United States, under federal and whatever state they’re in as far as meeting environmental standards, air quality, water quality, releases. So we have that from the federal government and also from our state government. We also do a program internally, what’s called an EMS program – initials E-M-S, environmental management system, which is a system that U.S. ports have put into place to make themselves more environmentally friendly. So we do that at our own facilities and we require our contractors to do that on-site to make sure we’re not leaving anything behind.

And you’re right, in the past, if you go back probably 40 or 50 years, things were a lot different and weren’t really checked the way they should be. But today, it’s – I mean, if we have a spill of a gallon – one gallon, that you – you go buy a gallon of turpentine at a store and spill it in your driveway or your garage, we have to report that. We have to clean it up. So it’s very strict, but it should be. Because before it wasn’t, and if you don’t do that, that can run into the ground and it can leech into the ship channel, and then it’s in the water. So we don’t want that; we live there.

MR KURTZ: And there’s a pretty good harmony between the port industry and the environmental groups also, mainly because we’re – with Padre Island, Mustang Island, you have a complete ecosystem with the beaches and the turtles and the – we’re a bird sanctuary in Corpus Christi, one of the birdiest cities in the United States. So the ecosystem has to kind of be balanced. There’s been a real effort over the last – as John was saying, really 30 or 40 years. And then on the air side, as I’ve mentioned – I think before you had come in – we’re in attainment status. So from air quality, we’re one of the better ports in attainment – one or two – along the Gulf Coast in attainment for air emissions, too. So – I’m sorry --

QUESTION: Following, you said your national habitat, also your beach – and if something happen – two big ships crash, natural disaster, like Gulf Mexico – do you have some emergency plan for that?

MR LA RUE: Yes.

MR KURTZ: Yes.

QUESTION: For to protect the environment?

MR LA RUE: We’ve had one or two – nothing like the BP – I mean, nobody’s had anything like that other than – in the United States, the Exxon Valdez in Alaska, but there have been a couple incidents in the past three years in Houston where ships ran into barges. It seems most of the time when there are accidents, it involves barges breaking loose. Barges will go in a string, so a push boat might have four barges and they’re more difficult to control and sometimes things happen, so there have been accidents.

Cleanup is immediate and it – there’s nothing put on it as far as cost. We had a minor spill about 10 years ago with some crude that – a hose broke and went into our ship channel. Luckily, our ship channel, if you can find that one, is a closed-end channel. So where the refineries and where the docks are, it’s a dead end. It’s manmade. It’s not a river or it’s not part of the bay. So if we had a major spill, we can boom off at the entrance and stop it from getting into the bay. And what we had to do in that case was we put – when you have a spill like that, you put booms around – yeah, that’ll show it.

So where it says – the one on the far left, inner harbor, 52 feet, you can see at the – that that ends, and that’s literally an end. That was manmade. So from where it says Corpus Christi all the way to where that – that’s the channel where most of the industry is. So if we had an incident – it’s only about 600 feet across there – we would just shut it and close it with booms. And when we have had them in the past, you boom around the ship so that none of the oil or the product can escape, and then you clean it up, you syphon it off, you soak it up, you use detergents and other things to, in effect, break up the oil and be able to suck it up with – it’s like a vacuum. You really pick it up with that.

Just to show you how far you go, when that happened in that case, even though it was fairly minor, every ship that came in and went past that point had to go through a cleaning process when it left for about a week. So every ship had to be – it was like a car wash. We literally set it up so the hull had to be washed and that had to be boomed off and all of that collected. So it’s fairly intense when you have a spill and expensive, but – (laughter) – when you do that, it’s really – I hate to say it like that, but money is not an object. You just – whatever it’s going to cost, you have to do it, because if you don’t, you’ve kind of broken the contract that we have with the community that we’re going to operate these type of facilities that have those risks, but if there’s an incident, we’re going to take care of it and we’re going to clean it up right away. So we can’t say, “Well, we’ll take our time on that,” or “It costs too much.” We have to do it right away.

QUESTION: Could you tell me a little bit about the dynamics of competition with other ports in the U.S.?

MR LA RUE: Yeah, we compete on some – like the wind turbines are a point where we would compete, and competition usually centers – obviously, cost is always one but it’s not always the sole driver. Some port may be cheaper on their costs for loading and unloading, but a key factor today is moving the product from the port to wherever it’s going. So the inland cost is really a driver for a lot of the – of what we’re seeing, and that’s where, in some cases, we hope we have an advantage. We’ve got a lot of product in the U.S. moved by rail and we’re very fortunate. We have three railroads in the United States. The rail system is – there’s really two railroads east of the Mississippi and there’s three west of the Mississippi and then there’s a couple in Canada that actually come into the U.S., have entry points into the U.S.

So it’s not a very large field for competition, but having three is phenomenal. If you’re a port and you only have one, you’re really at a loss because that railroad can say, well, I’m going to charge you this, and if you don’t like it, too bad. You really have no control over it. So we’re very fortunate and that’s where, on the wind turbine, we are very effective because they move that product by rail. And having three railroads that can compete to move the product – and it almost all goes inland. We have a couple windfarms in our South Texas area, but once they’re built up, they’re built up and we don’t see anymore.

But a lot of it moves inland to areas in the Midwest and in the far west to Oregon and Washington on the West Coast. So it’s a very competitive market, and that’s one. A lot of the other things that we talked about from a port point of view – once we build the infrastructure, it’s – I don’t want to say it’s not – the competition doesn’t continue, but these companies that we’re talking about are very capital-intensive. So they come in and they’re spending, as you saw, a billion dollars. Well, they’re not going to – they’re not going anywhere. They’ve spent that money. They’re going to be there for a long time. Where you get more of the competition you’re talking about are where you’re moving containers, because the container lines will come into a port but they may only sign a five- or seven-year lease on a facility, or maybe even a 20-year lease, but they usually have an opportunity to get out if they don’t like it. So they can move around from port to port, and they put a lot of pressure on the ports to be more competitive, to reduce their costs, to make incentives on inland – the inland transportation cost. So it’s – the biggest competition point for ports in the Gulf is the depth of the channel. So if you have a deeper channel, like we’re talking about, you can then handle more cargo immediately. You don’t have to do anything else, because that same ship that’s coming in today in our port, with a 45-foot draft – so that’s the maximum they can take – that ship can probably take, if it’s what called the Suezmax ship, to go through the Suez, can probably take 55 feet. So if we have 52 feet, they can add seven more feet of cargo and they’re not paying any more. Their cost is fixed with that ship, and they’ve got seven feet of additional cargo. If it’s oil, that’s – might be – depending on the size of the ship, might be 100,000 barrels. So that’s a significant advantage if we can get to 52 feet.

QUESTION: What do you think about the Nicaragua Canal? Is it possible?

MR. LA RUE: I think it’s possible, but it’s – the cost, I think, is going to be the issue. That’s a significant cost. I forget – is it 10 to 12 billion?

QUESTION: Yeah.

MR. LA RUE: It’s huge. I mean, the Panama Canal expansion was about 5 to 6 billion, so you’re starting – and then you’re still competing with the Panama Canal and with the U.S. railroads. So maybe for the long term. I don't think we’ll see it in the near term.

QUESTION: Out of curiosity, if it comes to true, is it good for Texas, Texan economy? Or maybe not?

MR. LA RUE: That’s a good question. Is it good? Well, it would be more competition, so it would probably lower the cost for cargos moving in the Gulf. It would probably make Gulf of Mexico port vessels and products more competitive to Asia, to and from Asia. I would think it would. Because you have two canals almost side by side, so they’re going to get in a price war, and that’s going to drive the cost down. And that means you’re – we would be the beneficiary, because we’re not paying that cost. The winners would be the shipping lines who could reduce what they have to pay to the Panama Canal.

QUESTION: But the Nicaragua Canal is constructed by the Chinese?

MR. LA RUE: A Chinese businessman.

QUESTION: And actually U.S. control the – can control the Panama Canal?

MR. LA RUE: No. U.S. doesn’t control the canal anymore. We did, until 1999.

QUESTION: Yeah, independently operated. Yeah. But the potential power have – has out – I think U.S. has potential power to control the Panama Canal?

MR. LA RUE: I don't think so anymore.

QUESTION: Yeah.

MR. LA RUE: No, I don't think that – I mean, Panama is really taking control of the canal, and the U.S. – I don't see it, not at all. I think the canal is completely independent and is – Panama is running it as a – they’re running it as a business. To be honest, when the U.S. had it, it was run as a government entity. It was run by the U.S. Army, by our Corps of Engineers, who are the same people who I mentioned who dredge our channels. They were responsible for running what was – it wasn’t just the canal; it was a whole zone. It was called the Canal Zone and it was a – I mean, it was – if you went there – I went there when it was still in U.S. hands, and it was like a U.S. city. There were schools and housing and everything you could imagine, just like in the U.S. So when we left, we literally packed up and left. There’s very little U.S. presence there.

QUESTION: Yeah. I agree with you. Is there any Chinese? (Laughter.) But --

MR. LA RUE: I don't know about the Nicaragua Canal?

QUESTION: I just guess – I think that China tried to have a power – has a power – the ship line, yeah, through the --

MR. LA RUE: The first ship is a Chinese --

QUESTION: -- in – yeah.

MR. LA RUE: First ship is a Chinese container vessel, COSCO. They had a lottery to draw to see whose ship would go through first, and COSCO was the winner.

QUESTION: Okay.

MR LA RUE: So it will be – they’ll be the first one when all the, I guess, fireworks and ribbons and everything goes off. It’ll be quite an event.

QUESTION: One last question and then I’ll be quiet.

MR. LA RUE: Yes. It’s okay.

QUESTION: Do you know how much of the traffic in your port is domestic and how much is international?

MR. LA RUE: Most of our traffic is international. It – the domestic did increase dramatically because of the oil, because all that crude on that barrel chart had to go to other U.S. ports. So it increased significantly. Before that, it was – most of our traffic was crude oil coming in, grain and other products, the refined products going out. But the majority was international. It still – it’s probably today maybe 40 percent domestic, which is probably – in 2009 or ‘10 it was probably 10 percent. So it’s ramped up significantly. But I think we’ll – I think that’s maybe reached a plateau and now we’ll see – especially with the export ban, we’ll see more cargo, more crude cargo and refined products being exported.

MODERATOR: If there are no more questions, I think that concludes today’s briefing, the formal part of the briefing. And I know these gentlemen are here to answer some questions if you have --

MR. LA RUE: Yeah, if you have anything specific.

MODERATOR: -- any more in the next few minutes. But with that, thank you very much for coming today. We really appreciate it.

MR. LA RUE: You’re welcome. Thank you for this opportunity. I appreciate your all coming. If you have any follow-up, we’ll be glad to answer it.

# # #