Largest US crude oil export hub sold to Enbridge as part of $3bn deal

Enbridge Inc updates

Enbridge, the Canadian pipeline company, is betting on sustained strength in US energy production with a $3bn purchase of assets including a crude oil export terminal in Texas that is North America’s largest by volume.

The company will acquire the Ingleside Energy Center near the Port of Corpus Christi and stakes in several pipelines leading from inland oilfields to the Gulf of Mexico coast, as part of an all-cash deal for assets owned by private-equity backed Moda Midstream. 

The agreement comes even as US oil drillers pull back their output targets after a decade-long growth blitz, shifting their focus to profits over pumping more crude. The deal from Calgary-based Enbridge is predicated on continued strong exports.

“Over the last several years we’ve been building a strong position in the US Gulf coast through both natural gas and crude infrastructure,” said Al Monaco, Enbridge chief executive. “Our strategy is driven by the important role that low-cost, sustainable North America energy supply will play in meeting growing global demand.”

Most US crude oil exports were banned by law as recently as 2015. Shipments surged after Congress overturned the prohibition in response to rapidly rising production from shale regions such as the Permian Basin and Eagle Ford in Texas.

US crude oil exports have held up over the past 18 months despite a significant hit to production due to the pandemic. Enbridge said the deal would “significantly advance” its Gulf coast export plans. About a quarter of all US crude oil exports passed through Ingleside in 2020.

Enbridge’s shares were trading up around 1 per cent after the deal was announced.

Last year’s crash in oil prices accelerated US producers’ strategic pivot away from growth at all costs. US crude oil production currently averages about 11.3m barrels a day, far below its peak of almost 13m b/d just before the pandemic.

Still, US exports have held up relatively well with about 3.4m b/d of oil shipped out in June, compared with 3.6m b/d in March 2020. Analysts said that production growth from Texas would drive future export prospects. 

“The Permian is still poised to grow for the next decade, and with it export availability,” said Karim Fawaz, analyst at the consultancy IHS Markit.

The pipeline stakes acquired alongside the Ingleside export facility also gave Enbridge “clear integration benefits”, added Fawaz.

The deal could be the start of a new wave of consolidation in the so-called midstream part of the oil and gas business, which analysts have been predicting as prospects dim for building major new pipelines.

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