ARA oil-storage business takes a hit as conditions become difficult
Although flows of oil through the big ARA ports have shown some growth, business conditions in independent storage have become more difficult
Western Europe’s Amsterdam-Rotterdam-Antwerp (ARA) oil hub has seen a small increase in oil movements, driven particularly by the long-distance trade in refined products. Accordingly, utilisation of storage capacity at the main ARA independent terminals has been fairly strong, but fees have come under pressure from a combination of new capacity, squeezed trading margins and backwardation – futures prices lower than prompt – in oil-product prices.
Over the first nine months of 2011, compared with the same period last year, movements of crude and refined products through ARA were up by 1.2% to 178.8 million tonnes (see Table 1). The overall rise masks a significant decline in movements through Rotterdam, while Amsterdam and (particularly) Antwerp showed sharp increases.
The divergence is a consequence of different roles. While Rotterdam’s strength is in importing crude and products, and supplying refined products though the waterways to inland Europe, Amsterdam and Antwerp are focusing increasingly on long-distance exports. Antwerp’s large increase in throughputs is mainly a result of much larger volumes of refined oil products flowing in and out of its installations – an increase of 31.3% to 23.2 million tonnes in the first nine months of 2011.
The big storage operators cite growing geographical imbalances between supply and demand for refined products as the driver for long-term growth in the logistical side of their business. Vopak, which dominates Rotterdam storage, says the need to transport oil products will grow "to a large extent independently of the more speculative trading environment". Long-distance trade in products is expected to increase as new refining capacity is built in Asia, while the major oil companies, with their increasing focus on upstream operations, become willing to sell or close refineries in Europe (PE 5/11 p6).
The ARA terminals have also developed specialised roles in products supply, bringing in consignments from various sources, blending to specification and load-building for export. Rotterdam exports large volumes of heavy fuel oil to Asia, while Amsterdam exports gasoline to the US, Africa and Asia.
Energy Information Administration statistics show that, over the peak gasoline months of April to August, an average 99,600 barrels a day (b/d) of finished motor gasoline and blending components flowed from the Netherlands to the US. Belgium exported 4,200 b/d to the US over the same period (see Figure 1). Most of the product supplied now is to Rbob specification – reformulated gasoline blendstock for oxygen blending, to which the ethanol oxygenate is added in the US.
With independent storage occupancy rates high – 95% is indicated for the main terminals in Rotterdam – expansion projects are in progress. In October, the Port of Rotterdam Authority chose a Russian-Dutch venture to build and operate a new terminal at Europoort, on the only remaining large site with deep-water access.
The new terminal, Tank-terminal Europoort West (TEW), will be developed by Shtandart, a 75:25 venture between Russia’s Summa and VTTI (owned 50:50 by Vitol and Malaysia’s Misc). The facility will provide 3.0 million cubic metres (cm) of capacity for crude and products, at a cost of up to $1 billion. Construction is due to start in 2013, with first oil deliveries targeted for 2015.
Russia’s ambitions for Urals crude are behind the new terminal. With regular deliveries throughout the year from Primorsk on the Baltic coast to Europoort – in ice-breaking shuttle tankers – together with open-access to the new hub, the aim is to create a wider trading platform for Urals. Russia hopes this will reduce the price differential between Urals and Brent Blend (see Figure 2), while year-round availability should boost sales to refineries at Rotterdam and elsewhere. Crudes from other Baltic ports might be accommodated later. According to the port authority, 30% of the oil moving through Rotterdam is already of Russian origin.
New capacity is also being developed at Amsterdam. Vopak’s Westpoort terminal opened in October – a year behind schedule – with an initial capacity of 620,000 cm, which is due to reach 1.19 million cm in third-quarter 2012. Westpoort offers storage and specification-blending for gasoline, gasoil and diesel streams. Vopak says a large part of the terminal’s capacity was rented out before start up.
Another new terminal at Amsterdam is due to start operating this month. The Hydrocarbons Hotel facility at Amerikahaven, being built by a joint venture between the UK’s Harvest Energy, part of the Blue Ocean trading company, and the Netherlands’ North Sea group, will provide 140,000 cm of capacity. The terminal will mainly be used for gasoline blending, with components imported and finished gasoline exported. Biofuels are seen as a second line of business.
Oiltanking’s 1.576 million cm Amsterdam terminal, also at Westpoort, leads in the gasoline business. The company says exports to Africa and Asia have increased as volumes going to the US have dipped – to the point that west Africa is now the most important destination for its gasoline. Europe’s gasoline surplus, and the adoption of the EU’s EN 228 specification for gasoline by many countries worldwide, have given Amsterdam’s operators a strong position in the business. Unfinished gasoline and gasoline components come in through the waterways from the ARA-area refineries, and by sea from elsewhere, and are blended to specification and load-built for export.
Diesel travels in the opposite direction, flowing to Amsterdam and Rotterdam from Russia and the US. Much of the Russian product does not meet the EU specification and must be desulphurised and blended, before its onward journey in barges.
Also flowing in, from South America and elsewhere, are bio-components for gasoline and diesel – but few terminal operators enthuse about the business. Volumes tend to be small and the different components generally have to be kept separately, taking up a disproportionate volume of tank-space. Worse, many terminal operators have stories to tell about off-specification deliveries, rejected by the intended user, or suppliers defaulting on financial terms.
The bio-components business is immature in its structure, with numerous small suppliers – but it is due for rapid growth to meet the EU target of renewable fuels accounting for 10% of gasoline and diesel sales by 2020. Uncertainties over bio-component regulations in the EU and US have led some suppliers to cut their storage bookings. An EU certification scheme for bio-diesel components was implemented this year and has provided some security, but questions over subsidies and possible new legislation remain.
ARA fee indications
Independent storage fees in the Amsterdam-Rotterdam-Antwerp (ARA) area have – as foreseen in our survey last year – come under pressure in 2011. While storage capacity in the area has increased, trading margins for long-distance exports and margins for gasoline-blending have been trimmed. Backwardation in product prices – futures prices lower than prompt – has cut speculative storage.
The manager of an Amsterdam terminal said: "It is a changed market – we have moved from a pure sellers’ market in the old days, to a much more competitive environment." Although he claimed tank occupancy is still "virtually 100%", he said "we are having to negotiate hard when contracts come up for renewal".
One sign of the changed market is sub-letting by holders of capacity rights. There are reports of gasoline capacity in Amsterdam and Antwerp being let-out by large trading companies at €3.00 ($4.07) a cubic metre (cm) a month for short periods, or 10-15% below the likely contract rate. The big traders used their strong cash positions in earlier years to book capacity far ahead or even build their own, but now they must find other users to keep utilisation up.
In competitive times, terminal operators emphasise location and service. ARA operations benefit from the concentration on trade, but "B and C locations are seeing their non-logistical business dry-up", one manager said, referring particularly to Scandinavian terminals.
On the basis of discussions with independent terminal operators and large users in November, Petroleum Economist’s assessment is that ARA capacity for low-flashpoint products is renting in the range of €3.25-3.50/cm. Vopak was said to have been asking €3.75/cm for capacity in its new Amsterdam terminal, but traders said space could be secured at €3.50/cm or less. As noted, short-term sub-let capacity could be available at about €3.00/cm. Rotterdam capacity is likely to be attracting €3.50/cm, or a little more, although even Rotterdam operators have had to lower their sights from a year ago.
Middle-distillates capacity is assessed as renting at about €3.00/cm, although some Rotterdam terminals are said to be doing better. Incoming diesel often needs desulphurising and blending to meet the EU specification, so terminals with facilities for these operations can command higher fees for the storage part of the package.
Fuel-oil capacity is assessed as renting at €3.75-4.25/cm in Rotterdam, with users of terminals capable of loading tankers of very large crude carrier size paying at the top of the range, particularly under contracts signed early in the year. At Antwerp, fuel-oil capacity is assessed as renting at fees in the range of €2.75-3.00/cm, and there are reports of lower fees at terminals more distant. Fees are a month and include one fill and discharge.