The Importance of Maritime Commerce and Law to Texas
For a variety of reasons, maritime commerce and its governing law are incredibly important to Texas. Let’s consider a few reasons why:
If Texas was its own country (some think that it already is), it would rank as the ninth-largest economy in the world with a GDP of roughly $1.9 trillion. The ports of Texas are an indispensable driver of that economy generating 25% of its GDP while moving more than 600 million tons of foreign and domestic cargo and generating $450 billion in economic value and $7.8 billion in state and local taxes annually. Three Texas ports rank in the top five in total tonnage in the United States: Houston (first), Beaumont (fourth) and Corpus Christi (fifth). The Houston Ship Channel is the busiest waterway in the nation servicing eight public and nearly 200 private terminals while supporting more than 3 million U.S. jobs. In March 2021, Port Houston reported its largest monthly container volume of nearly 300,000 20-foot equivalent units (TEUs). Meanwhile, the Port of Beaumont is the No. 1 strategic military outload port in the nation, and Port Corpus Christi set a new record in June 2021 for the volume of cargo transported in the first six months of 2021 with huge increases in LNG and agricultural commodity exports, not to mention its voluminous crude oil and petroleum product movements. And still Texas has two other major ports, Freeport, which ranks 15th nationally in foreign tonnage handled with more than 900 vessel calls per year and burgeoning multi-modal facility expansion plans, and Brownsville, which serves more than 230 industrial companies, including construction of offshore drilling rigs, ship repair and dismantling, bulk petroleum terminals, grain handling and more.
You may not realize it but nearly every day tankers regularly transfer crude oil and refined products in the Gulf of Mexico via ship-to-ship (STS) transfers, which are carried out while the behemoth vessels are underway side-by-side much like U.S. navy warships carry out underway-replenishment operations. Lightering operations typically involve the transfer of 350,000 to 375,000 barrels of product. A study performed in 2014 estimated that approximately 279 lightering operations occurred that year, which amounts to about 100 million barrels of product transferred offshore between tankers.
Due to the shale oil boom in the Permian Basin, private companies have proposed constructing as many as eight offshore oil-export terminals ranging from Brownsville to southeastern Louisiana, though energy analysts expect only two or three will eventually be built. One proposed by Enterprise Products Partners is moving through the regulatory approval process and would be built about 30 miles off Freeport. Two other projects are competing for a location off Corpus Christi.
Numerous liquified natural gas (LNG) trains, which are a liquified natural gas plant’s liquefaction and purification facilities, are being built in Texas and southwestern Louisiana to carry LNG overseas. In addition to its Sabine Pass liquified gas export facility, Cheniere recently achieved substantial completion of its third LNG train in Corpus Christi, Freeport LNG is developing four near Port Freeport, and two other export projects have been approved for Brownsville (Annova with six trains and Texas LNG with two). These LNG exports will be carried by LNG carriers primarily to Asian and European markets.
Couple all of the above activity with ongoing offshore oil production in the Gulf of Mexico producing more than 2.3 million barrels of oil equivalent per day, and whose lease sales have generated more than $1 trillion from offshore leasing since 2017, along with the prospect of developing renewable energy resources including solar and offshore wind facilities in the Gulf of Mexico, all of which are or will be serviced by offshore supply vessels (OSVs) and crewboats, and you can see that maritime commerce to and from Texas is vibrant and complex.
Overarching this myriad activity is U.S. maritime law, which governs the movement of ships in and out of Texas ports, between tankers offshore, and to and from offshore installations in the Gulf of Mexico, including deepwater ports, and applies contractually to numerous vessel charters and bills of lading. Of course, Texas law plays a part when it is implicated contractually or when an environmental casualty occurs, and maritime contracts governed by foreign law, primarily English, also significantly affect parties’ rights and remedies.
With the above backdrop, this column will address important and interesting legal questions that confront the maritime industry in and off Texas, including:
- How do you determine what constitutes a maritime contract under recent Fifth Circuit precedent?
- When is an indemnity clause enforceable under maritime and Texas law and what are the differences between these regimes?
- What do laytime, laydays, laycan, demurrage and deviation mean, and how do they apply in charter parties and contracts of sale?
- How does the Jones Act apply to the carriage of goods in the Gulf of Mexico, and what are the implications of violating it?
- What are magic-pipe cases, and what civil and criminal liability standards apply to oil pollution incidents under maritime and Texas law?
- What is the Texas Chicken, and where does it fit in with the rules that govern the conduct of merchant ships within the narrow confines of the Houston Ship Channel?
- What are Incoterms and how do they relate to the transfer of risk of loss and title?
- What are the implications of providing a safe berth, always afloat under recent Supreme Court precedent?
- What constitutes a marine casualty, and what are the reporting requirements for same and implications for violating them?
- What air pollution emissions requirements currently apply to merchant vessels in U.S. and Texas waters, and what is in the offing?
- What standards apply to prevent invasive species from entering Texas waters through vessel ballast water discharges?
- What are the liability risks of lightering operations off Texas and what standards govern them?
- How do arbitration clauses affect rights, remedies and claims under maritime law?
Occasionally, we’ll also address the origins and meanings of quirky maritime legal terms like charterparty, deadfreight, general average, allision, cabotage and COFRs. We’ll also try to address any maritime legal questions you may have, so do please send us your questions.
Hope we’ve piqued your curiosity. Look forward to your visit next month.
"The Importance of Maritime Commerce and Law to Texas," by Keith B. Letourneau was published in The Texas Lawyer on September 9, 2021.
Reprinted with permission from the September 9, 2021, edition of The Texas Lawyer © 2021 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.