Houston’s three-time elected Mayor Annise Parker came out of the oil patch and knows the value of the Port to both the city and the State’s economic fortunes. Steel pipes being unloaded from a breakbulk carrier at the Port of Houston, TX
Mayor Annise Parker places the Port of Houston among that city’s top assets when attracting foreign direct investment and petroleum and gas-related business. While Houston may be all about oil, when it comes to its seaport, break bulk is big. “We’re America’s largest tonnage port,” Mayor Parker emphasizes.
Key to that business is how the port developed years ago after the horrific hurricane that hit Galveston in 1900. “Rail lines were put in place to move cargo away from Galveston and toward Houston and the center of the nation,” Mayor Parker explains. “This made Houston one of the first major intermodal hubs in the nation.”
Mayor Parker describes the Port of Houston today as “where the ships meet the railroads.” And while container freight is important to her city’s seaport, she emphasizes the importance of its break bulk business.
“There are active wharves moving break bulk, and surrounding the port are miles of refineries,” she describes.
Oil & Gas Industry Encounters “Headwinds”
Much of the Port of Houston’s business is related to Texas’s oil and gas industry.
Stan Swigart, Market Development manager of the Trade Development and Marketing Division at the Port of Houston Authority reveals that between January and February 2015, general cargo short tons totaled 1,392,507.
“This volume represents a 33% increase from January through February 2014,” he reveals.
But a slowdown could be on the way. While in the 1980s the oil and gas industry made up 80% of Houston’s economy, today Mayor Parker pegs the sector as representing 40%.
Today’s lower gas prices are resulting in the slower growth predications for Houston. Last year the city’s growth hovered around 5%. For the next year or so, however, it’s predicted to grow only 2.5%. Yet Mayor Parker insists Houston is not moving into a recession.
Port officials indicate that the top break bulk commodities handled by the port are primarily steel products (tubular goods, rolls, sheet metal).
Houston particularly saw a flurry of foreign steel pipe manufacturers locate in Houston and surrounding towns and cities in 2013. Among them were Axis Pipe and Tube, a subsidiary of Mexican steel product company Prolamsa Group; Russian pipe company OMK Tube; Tenaris, a Luxembourg-based steel pipe company that has its North American headquarters in Houston, and Borusan Mannesmann, a Turkish steel pipe manufacturer.
Last year Axis Pipe completed construction of its new $120 million pipe plant in Bryan, north of Houston. At the time of its ground breaking, Franciso Garza, vice president and general manager for Axis Pipe and Tube as well as Prolamsa Group, commented that the company would be producing 300,000 tons per year of ER-W pipe and tube basically for the oil and gas industry.
Concurrently, the International Energy Agency (IEA) predicted that the United States could become the world’s biggest oil producer by 2020.
In early 2013, Turkish steel product company Borusan Mannesmann broke ground in Baytown, Texas, east of Houston on its first U.S. manufacturing plant. The $148 million facility produces tubing for the oil and gas industry. The company chose to locate near Houston because Houston is the hub of the pipe business in the United States.
“From Houston, we have access to all of the major oilfields and all of the shale plays,” reported Buddy Brewer, CEO of the US operations. “We have easy access to plentiful natural gas, reasonable electricity, and rail and barge service. It is the ideal location.”
In February 2013, OMK began production at its first US pipe manufacturing facility in Houston. The Houston plant represented $100 million in foreign direct investment from the Russian manufacturer. The investment was made in response to rising demand for oil country tubular goods (OCTG), especially by strong demand in North America’s shale plays.
The pipe mill sits on a 75-acre property with access to rail, and is three miles from its sister company, Tubular Solutions Inc., which processes and finishes pipe tubes into OCTG. The pipe mill is designed to produce about 200,000 tons/year of OCTG. API certification is expected by early April 2013. Pipe from the facility services OCTG markets across the United States.
But pipe manufacturers that located in and around the Houston region are showing a slowdown. Tenaris, a leading supplier of tubes and related services for the world’s energy industry and certain other industrial applications, reported that it is cutting jobs in Houston at its Texas Arai facility that is part of the Maverick Tube Corp. business that Tenaris acquired in 2006. Those job cuts are expected to be permanent due to the temporary suspension of operations at Tenaris’ welded tubes mill in Conroe. The cause of the temporary suspension: unfairly traded imports of oil country tubular goods from South Korea and the oil slump.
Tenaris announced in early 2013 that it was building a $1.5 billion steel pipe manufacturing facility near Bay City, Texas, that would employ 600 workers and produce 600,000 tons of pipes annually. A few months after that it announced plans to invest $70 million to build a sucker rods mill alongside the welded tubes mill in Conroe.
There are other signs of cracks in the pipe business surrounding Houston. In January, U.S. Steel Corp announced that it was shutting down two more oil and natural gas pipe plants (one in Houston and the other in Lorain, Ohio) and lay off 756 workers – the result of the global collapse in oil prices,
Analysts in the field, however, remark that while lower oil prices are discouraging drilling, they see this as a “temporary headwind.”
For now, however, pipe manufacturers have been facing competition from foreign competitors whom they accused dumping pipes in US markets at unfair prices – a case which they recently won. On top of that, U.S. Steel is battling a decline in iron ore prices that hit a four-year low late last year and which is helping its competitors.
Figures from the American Iron and Steel Institute show imported steel’s market share was 28% as of Nov. 30, compared with 22% in December 2013. Imports of oil country tubular rose 7.8% in November, and an estimated 21.9% for 2014 to 4 million tons. Tumazos Very Independent Research of Holmdel, NJ, reports the market for oil and gas pipe in 2015 may be only half of what it was in 2013 and 2014 if oil stays near $50.
Slow Down Expected
Port of Houston officials comment that they expect demand for imported steel pipe will begin to slow down as shale gas exploration cools down.
“The contributor for the Texas market [for break bulk growth] is the expansion of the petrochemical industry and boom in shale gas exploration,” comments Swigart. “A global contributor to the rise in break bulk shipping is the growth of the offshore drilling sector.”
For that reason, everyone is keeping a keen eye on oil and gas prices.
“We are watching with great interest the national debate about the export of oil and gas,” says Mayor Parker. “Low oil prices are great if you are making plastics or any range of chemicals that has a petroleum-based feed stock. Consequently, it is important to Houston and Southeast Texas and Louisiana to export oil and gas.”
Swigart notes that the number of offshore oilfields is increasing, especially off the coast of developing countries in Africa, South America and Southeast Asia. This could create export opportunities for Texas manufacturers, such as pipes.
A plus for the business, Mayor Parker points out that the Port of Houston manages a foreign trade zone that includes many privately owned and port-owned sites located throughout Houston and Harris County.
“Houston is also the fastest growing manufacturing region in the United States,” she adds. “We have a lot of cheap land and available labor.”
She also notes that Houston is increasingly becoming the port of entry for South America. “We do more business for the country of Mexico than all of the Mexican ports combined,” she commented. “Goods come into the Port of Houston, are put on rail and trucks and are shipped down to Mexico.”
Swigart emphasizes how the Port is also the logical gateway to the heartland of the US Midwest. “We offer quicker transit of cargo than many other ports,” she says.
But the Port faces challenges. “We are not a naturally deepwater port,” she says. “We have a fairly shallow bay, so we are a dredge port. We have to constantly maintain our depths.”
Port Improvements
To better serve the needs of break-bulk cargoes such as steel pipe and project cargo, as well as roll-on roll-off ships and carriers, the Port of Houston is undergoing Upper Turning Basin Capital improvement projects over the next four years. This includes an investment of more than $66 million.
“These projects are primarily intended to increase laydown and marshaling areas by removing unused transit sheds,” remarks Swigart. “Eighteen acres of laydown area is being added adjacent to Wharf 32 to expand our heavy load area at Wharf 32 at a cost of $17 million.”
In addition, the port will expand its heavy lift capability at Wharf 32 with an additional 800-ton crawler crane.
