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2012 Independent Storage Survey: US fundamentals shaky for oil storage

Storage operators in the US have seen their speculative and, now, logistical businesses trimmed – but some are benefiting from rising US exports

Independent oil storage operators in the US are having to adjust to more difficult times. In 2011 their speculative storage dried-up as refined product prices moved into backwardation – futures prices lower than prompt, eliminating the attraction for speculative stock-holding and persuading marketers to trim their commercial stocks to the minimum. Then in 2012 they were faced with another decline in products consumption, cutting the volumes moving through their terminals.

Logistical business – flows through tanks – has been less favourable since US refined products consumption peaked in 2005, at 20.802 million barrels a day (b/d) according to Energy Information Administration (EIA) statistics. Year-on-year declines saw consumption lose 9.8% by 2009. The following year showed an upturn but 2011 saw another decline. Figures for the first nine months of 2012 say the decline continues: consumption averaged 18.594m b/d, against 18.964m b/d in the first nine months of 2011.

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Capacity growth driven by refining trends

Meanwhile, there have been increases in storage capacity, depressing overall utilisation rates. According to EIA data, US storage capacity in bulk terminals for petroleum products, including natural gas liquids (NGLs) and fuel ethanol, stood at 926.2m barrels in March – but showed an overall utilisation rate of only 36%.

The data say utilisation rates extended from 22% for NGLs capacity to 58% for fuel ethanol. Utilisation rates for high-volume products were: motor gasoline 46%, distillate fuel oil 43%, jet fuel and kerosene 45%, and residual fuel oil 44%. Additionally the US has 638.5 million barrels of storage capacity at refineries, which the EIA says was utilised at 54%.

The most encouraging statistics, particularly for storage operators on the US Gulf coast, are for US exports of refined products. Exports started increasing sharply in the middle of the last decade, in 2011 reaching 2.939m b/d – an increase of 27.2% over 2010, and more than double the flow of 2007. The expansion continues: in the first nine months of 2012 the US exported 3.005m b/d of refined products.

The largest single destination is Mexico, which took 570,000 b/d of US products in 2011 of which nearly half was gasoline. Over 40% of 2011 exports flowed to destinations in central and southern America. Accordingly, terminals along the US Gulf coast benefited strongly. Also benefiting the independent terminals is the proliferation of components needed to make gasoline to reformulated and conventional specifications, including ethanol and, for export markets, other oxygenates.

Growing capacity

Some companies are still adding capacity. Kinder Morgan, the largest US pipeline and terminal operator, says it is "experiencing strong demand for liquids storage capacity" and is investing $880m in three projects. Two are on the Houston Ship Channel – at Battleground Oil Specialty Terminal (Bostco) the first phase of an expansion project will add 6.6m barrels of capacity for residual fuels by third-quarter 2013, and at Galena Park capacity is being constructed for use by BP. At Edmonton terminal in Alberta, Canada, 3.6m barrels of capacity for "merchant and system" use is due to be completed in December 2013. 

But, with most US terminal operators ruing the absence of contangoes – futures prices higher than prompt, providing an incentive for holding products – the talk is of expansion projects being deferred. Andrew Lipow of Lipow Oil Associates, a downstream consultancy, says: "There has been a slowdown in additions of tankage, in response to reductions in inventories worldwide and price backwardation". Traders are reluctant to renew leases for tankage, Lipow says, leading to downward pressure on fees.

US fee indications

Independent storage fees at the main US centres have come under pressure for the second year running. With futures prices no longer providing support for speculative storage, and the decline in consumption trimming system volumes, the call on storage capacity has declined.

There are reports of traders handing back booked capacity, despite contract commitments, and others have not renewed at term-end. But demand continues at a healthy level at some locations, particularly along the US Gulf coast. It is said that capacity being constructed by Kinder Morgan at Bostco, on the Houston Ship Channel, is fully signed-up – although, with location being pivotal in independent storage, the business might have been won from other terminals.

Petroleum Economist’s discussions with terminal operators and large users in November point to clean products capacity in the US Gulf coast area attracting fees of $0.50-0.70 a barrel a month (equivalent to $3.15-4.40 a cubic metre). The range is the same as that of a year previously, but it appears that new agreements and renewals are at the lower figure.

In New York Harbor, before recent hurricane disruptions, fees for clean products were at a maximum of $0.70/b. There were indications that large and long-term users could secure clean products capacity for a little over $0.60/b.

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