Port-Centric Energy Production and Transformation

Port-Centric Energy Production and Transformation

Ports are effective locations for energy production or transformation industries such as power or petrochemical plants. The main reason behind this locational behavior is that the material inputs of the energy industry are bulk products prone to economies of scale (petroleum, coal), for which the use of maritime shipping is the most efficient. Still, there are two fundamental choices concerning the port-centric location of energy industries:

  • Upstream cluster. The production or transformation of energy resources is done at a port close to the main material source. The main advantage involves lower procurement transportation costs through a direct connection to energy extraction areas by rail or pipeline corridors. Large energy producers try to build energy transformation facilities to capture additional value along energy supply chains and supply their domestic markets. A risk is a dependency on one energy supply source, implying that if the source is compromised (exhaustion or change in market prices), the cluster could lose its relevance.
  • Downstream cluster. The production or transformation of energy resources is done at a port close to the main market. The main advantage involves choosing the origins of procurement alternatives since energy resources can be brought in from any location, offering a scalable maritime service. This allows flexibility in the procurement and a direct outlet to major consumption markets.

The locational preference is downstream clustering of energy production and transformation, as it confers more procurement flexibility. Ports such as Rotterdam, Ulsan, Houston, and Tianjin are importing energy products, mainly petroleum, from a large array of sources. However, there are several upstream clusters in energy-exporting countries such as Saudi Arabia, Iran, Venezuela, and Nigeria. Options for intermediary locations can also be attractive, such as Singapore, one of the world’s largest oil refining clusters, taking advantage of its halfway position between the Middle East and major Asian consumption markets.