The independent storage business is on a roll, with capacity expanding fast to keep up with escalating demand, Martin Quinlan writes
SINGAPORE's independent storage capacity is increasing at the fastest rate since the independent operators set up there in the 1980s. During 2006, the petroleum storage capacity of the large operators increased by about 46%, according to Petroleum Economist's estimates, with three new terminals opening their doors. By the end of 2007, expansions and another new terminal are set to increase the total by a further 78%.
Tracking independent storage capacity is far from straightforward – the business is secretive and not all installed capacity is available for the independent trade. Another complication is that operators often sum their petroleum and chemicals capacity together – Vopak, for example, claims 1.9m cubic metres (cm) in Singapore on this basis, while Oiltanking claims 1.5m cm. The two businesses follow different dynamics, however.
With Vopak's chemicals capacity at Penjuru and Sakra excluded, the firm has 1.4078m cm of capacity mainly for petroleum – 1.0378m cm at Pulau Sebarok and 370,000 cm at its new Banyan terminal, on Jurong island, which started up in April. Excluding Oiltanking's chemicals capacity – a joint-venture terminal with Odfjell – the firm has 1.14m cm for petroleum, including its 180,000 cm joint-venture Power Seraya terminal. The firm's new terminal at Seraya Place, Jurong island, started operations in August with a capacity of 240,000 cm and is due to have an additional 185,000 cm completed in January 2007.
The third-largest storage operator is the Singapore trading firm, Kuo, which has owned the former-Tankstore terminal on Pulau Busing since 2001. Capacity is 0.941m cm.
Singapore gained a fourth large operator at the end of October, when Horizon Singapore Terminals (HST) – controlled by the UAE's Emirates National Oil Company (Enoc) – opened the doors at its newly built facility at Banyan. The firm says it started operations with 240,000 cm, brought another 240,000 cm into service in November, and added a further 240,000 cm at the end of that month. Another 230,000 cm is due to be available in June, giving a total capacity of 0.95m cm.
Capacity of the four operators totalled 4.2088m cm at year-end 2006, up from 2.8788m cm a year previously – a rise of 46%. Of the capacity under construction, the largest increment by far will come from another new terminal on Jurong. Hin Leong, a Singapore trading firm, is building a facility to be known as Universal Terminal, with a capacity of 2.3m cm – 1.3m cm for petroleum products and 1.0m cm for crude. Start-up is said to be on schedule for the end of 2007.
Besides Oiltanking's Seraya Place expansion and HST's fourth tranche of capacity, a 250,000 cm expansion is due for completion at Kuo's facility early this year. Meanwhile, Vopak is implementing an expansion at Pulau Sebarok, where it will add 216,000 cm at the end of 2007. The firm is also constructing 105,000 cm of capacity for biodiesel at Banyan, in addition to 60,000 cm of chemicals capacity there – raising combined capacity of the new terminal to 0.535m cm by the end of 2007.
The additions total 3.286m cm, raising Singapore's petroleum capacity by 78% to 7.4948m cm by the end of 2007. The increase since the construction boom started, early in 2006, will be 160%.
The rise in capacity brings with it a shift in the ownership of Singapore's independent tank space, from the specialist storage operators to trading companies. Hin Leong boasts of being a "homegrown" oil trader, while HST's owners – Enoc's Horizon, 52%, Kuwait's Independent Petroleum Group, 15%, South Korea's SK Energy, 15%, the Netherlands' Martank, 10%, and the UAE's Boreh, 8% – are involved in trading and will use some of the terminal's capacity. Kuo started the trend when it acquired Tankstore.
Hin Leong launched its plan to build its S$0.75bn ($485m) Universal facility in January 2006 and the following month was joined by PetroChina, which took a 35% interest. Hin Leong says Universal will be "an independent operator serving the needs of third-party customers" – but sources in Singapore say its two owners will be substantial users, both having strategies to expand from trading into regular supply.
According to Mohamed Merican, a Singapore-based consultant in the storage business, Hin Leong and PetroChina will be using all of Universal's crude capacity. He says Hin Leong ordered three very large crude carrier (VLCC) tankers from a Shanghai yard in July, combined capacity of which roughly equals the 1m cm of crude tankage.
Hin Leong claims Universal will be the first independent terminal in the region with two VLCC berths, to accommodate tankers of up to 320,000 dwt capacity – such vessels are used increasingly for fuel oil imports into Singapore, as well as for crude. There will be 73 tanks with capacities from 2,000 cm to 100,000 cm, and 12 berths in total.
HST also stresses that it operates as an independent third-party terminal, handling a full range of petroleum products and says it has had no difficulty in building up business. One executive claimed: "We are 100% booked for three years." (He was referring to the facility's full 0.95m cm capacity, to be reached in June.) The executive was not concerned about competition from Hin Leong's capacity: "Demand for storage will always be strong; I do not foresee an oversupply," he said.
The Singapore market is also served by floating storage facilities. Hong Kong-based Titan Petrochemical operates two vessels for fuel oil storage – both off Johor, Malaysia. Combined capacity is 270,000 cm. Trading companies have also taken capacity at the terminal being developed by KIC at Tanjung Pelepas port, in Johor.
Despite assurances about operating on an arms-length basis, the ascendancy of traders as owners of Singapore's independent storage capacity has led to some unease among users of tank-space. However, independent operators assure users of confidentiality, Singapore buzzes with information about products and volumes – and most say the market benefits from it.
Singapore's storage capacity will see another large increase if a government-sponsored plan for underground storage goes ahead. The plan calls for construction of storage for crude, condensates and products in rock caverns on Jurong island, with 1.47m cm to be available in 2009 under the first phase. Cost is put at over $0.6bn. Eventually, underground capacity could be much greater, although the plan envisages above-ground storage being redeveloped for other uses, as rock-cavern capacity increases. A private investor is being sought to operate the facility – Vopak and Enoc are said to have expressed interest.
With business expanding, the big storage operators are optimistic that Singapore's new capacity will not destabilise the market. Oiltanking's managing director in Singapore, Rutger van Thiel, said last month: "The market will absorb the new capacities provided no sudden disruptions occur." He cites the uptake of HSL's new capacity and is not concerned about the Universal terminal – which is "largely captive for Hin Leong and PetroChina", although "some capacities are available to the third-party market".
"There is strong demand for additional tanks in white and black products," van Thiel says. "Demand continues to exceed available tankage and we are fully booked." At the firm's Seraya Place terminal, "all 240,000 cm in operation since August is filled", he says. The 185,000 cm addition at Seraya Place, due to start accepting products on 1 January, is also fully contracted-out.
The surge of fuel oil flowing through Singapore is the main driver for the capacity expansion. Imports of fuel oil in 2005 totalled 30.4m tonnes, up from 28.7m tonnes the previous year – and, according to operators, growth accelerated in 2006. Exports of fuel oil in 2005 totalled 37.2m tonnes, of which 20.7m tonnes went out as bunker fuel and 16.5m tonnes as cargoes – the main destinations for the latter being China, Vietnam and Indonesia. (Singapore also burned about 4m tonnes of fuel oil and Orimulsion for electricity generation, giving a total requirement in 2005 of about 41.2m tonnes.)
According to Merican, nearly 70% of the inward flow of fuel oil is delivered into independent storage at Vopak, Oiltanking and Kuo – and the first cargo through HST's pipes was 40,000 tonnes of fuel oil. He says the economics of the trade are attractive: "Imports cost about $258 a tonne and bunkers sell for about $283/t." The $25/t margin provides a good profit, after storage at up to $3.50/cm – just under a tonne – per month. Bunkering is much more profitable than cargo exports, Merican says.
|Singapore fee indications
WITH demand for tank space bumping up against availability, fees have increased and are forecast to rise further in 2007. The independent storage operators claim there is not a direct connection between high levels of tank utilisation and fees – they say they seek out long-term customers, preferably with logistically driven operations, and such customers will have contracts running for a year or more. However, it is clear that, when tank-space is tight, fees for all users respond to the law of supply and demand.
High occupancy has also brought a widening range of fees. New users – typically traders from China or elsewhere – have to pay top rates to gain access to the facilities they need, while long-established high-volume users are in a better negotiating position.
No market dominance
Large users of tank-space are quick to point out that the independent storage operators do not, even now, have complete dominance of the market. For every cubic metre (cm) of tank capacity owned by the independent operators there is about 4 cm owned by Singapore's refiners and part of that is rented to the independent trade. There is also the floating storage available off Malaysia and competition from terminals elsewhere, although such facilities might lack the Singapore hub's attractions of size and logistics.
Another feature brought to the Singapore storage trade by high occupancy is the disappearance of the spot market for tank-capacity. With so little capacity available, virtually all rents are agreed on a long-term basis – although, as noted, the fee might have more in common with spot rates of the past.
Petroleum Economist's discussions with Singapore's storage operators and large users in November and December point to fees for low-flashpoint capacity of $3.20-3.30/cm per month and including one fill and discharge each month. A year previously, our assessment was $3.15/cm.
This range is an average for long-term users, but there were many reports of much higher fees being paid. One large operator said all recent deals for low-flashpoint capacity were at about $3.70/cm. An executive at a new facility said: "I do not have any tanks available, but if I did I would not accept anything less than $4.00/cm."
Capacity for middle distillates was renting for nearly as much. Our assessment is $3.10-$3.20/cm, firming a little from last year. Again, there are reports of significantly higher rates for deals completed recently – well-located capacity could be realising $3.45/cm or more. A large trader, which was buying many cargoes of 0.5% sulphur gasoil in the latter half of last year, is said to have taken capacity at $3.55/cm. (With sulphur limits being lowered in Asia, this product might be destined for Africa, or possibly desulphurised for the Asian market.)
Fees for fuel oil capacity have increased most significantly. A year previously, capacity was available for $2.50/cm, or up to $3.00/cm at the most advantageous terminals. Towards the end of 2006, however, our assessment is that fuel oil capacity was renting at $3.00-3.10/cm, while the terminals able to take large tankers could have been realising more.
Asked to forecast rates a year ahead, Singapore's storage operators were universally optimistic – in contrast to our survey of a year ago, when there was some concern that the capacity under construction could take the sparkle from the market. Forecasts for 2007 are for low-flashpoint capacity fetching up to $3.80/cm, while middle distillates capacity could be fetching up to $3.60/cm and fuel oil capacity could be renting for up to $3.40/cm. n