9 minute read
Terminal operations in turbulent times
WHERE TO NEXT?
MARKET • POLITICAL AND ECONOMIC UNCERTAINTIES, ALONGSIDE VOLATILE OIL PRICES, PRESENT A CHALLENGE TO OPERATORS OF BULK LIQUIDS TERMINALS AROUND THE WORLD
The key to success as an operator of bulk liquids storage terminals lies in having the right capacity available at the right location at the right time. That might sound straightforward, but terminals are high-ticket investment assets that require a long payback time. Even expanding an existing facility takes time and money, so operators need to have confidence that their efforts will reap a return.
That is hard enough during times of economic and political stability but the past few years have shown us that volatility and uncertainty are the new norms. Business as usual is no more. How can a terminal operator plan to have the right capacity in the right place when product trades are so unpredictable?
Some fortunate operators have found themselves in the right place over the past year, reporting occupancy rates of almost 100 per cent at some of their facilities. Others have found long-term commitments on the part of cargo owners to allow them to invest in additional capacity or new terminals with confidence. For many, though, it has been a time of trying to tweak their networks in order to take advantage of changing market demand.
FOLLOW THE LEADER The experience of Vopak, which operates the widest network of independent bulk liquids storage terminals in the world, shows how facility owners can adapt to changing conditions. In its third quarter 2019 report, for example, it notes that overall tank occupancy fell to 84 per cent from 86 per cent in the first three quarters of 2018. The decline was most marked in the Asia & Middle East division, with a smaller fall in Europe & Africa, while occupancy improved in the Americas (up from 90 per cent to 91 per cent) and in China & North Asia.
Having anticipated that there would be some significant changes in the global market for bulk liquids storage services, Vopak concluded a broad strategic review in February 2018. As part of that, it determined to concentrate on major industrial terminals that serve a large local oil or petrochemical hub, on LNG and other gas opportunities, and on chemical terminals serving a local market.
During 2019 Vopak continued to execute this strategy, divesting its shareholding in Vopak EOS in Tallinn, Estonia, and the Amsterdam and Hamburg terminals; it also reached agreement to sell the Algeciras terminal, although this had not been completed by the end of the year. In gas terminals, it opened the Ridley Island Propane Export Terminal (RIPET), a joint venture with AltaGas, in British Columbia, Canada, and acquired a 49 per cent stake in Sociedad Portuaria el Cayao, which operates Colombia’s only LNG import terminal, in Cartagena.
In terms of industrial facilities, Vopak was selected by the ExxonMobil/Sabic joint venture Gulf Coast Growth Ventures (GCGV), to design, build, own and operate a new terminal to serve a planned 1.8 mta ethane cracker complex in San Patricio county, Texas. GCGV says the petrochemical plant will produce ethylene from an ethane steam cracker, with derivative units producing monoethylene glycol and polyethylenes. The new terminal will handle all products moved by sea and has an anticipated tank capacity of 130,000 m³. Startup is scheduled by 2022.
This past November Vopak signed a deal to take a 51 per cent shareholding in a new industrial terminal designed to provide »
VOPAK HAS DIVESTED A NUMBER OF SMALLER,
storage and handling services for the chemical manufacturing plants in the Qinzhou Chemical Park, in south-west China, in partnership with Shanghai Huayi Group Investment Co and Guangxi Qinzhou Linhai Industrial Investment Co. The 290,000-m³ terminal is due to be commissioned in mid-2021.
Meanwhile, work was completed on the second phase of construction at the Pengerang terminal (PT2SB) in Malaysia, in which Vopak has a 26.5 per cent shareholding, taking capacity up to close to 1.5m m³.
SHIFT TO CHEMICALS These headline deals show only part of the picture, however. A look at the ongoing expansion and divestment activities at Vopak highlight the shift towards chemicals storage and, for the most part, away from oil products, although it has also continued to add capacity in this market in certain territories.
For example, in July last year Vopak announced a 33,000-m³ expansion of its Deer Park chemical terminal in Houston, due for completion in second quarter 2021; in November it announced a 55,000-m³ expansion of the Linkeroever terminal in Antwerp, again for chemicals, with mid-2021 commissioning, and a 40,000-m³ expansion of the Altamira terminal in Mexico, for secondhalf 2021 completion. A 20,000-m³ expansion of its terminal in Vietnam, to handle growing chemical trade, is also planned.
At the same time, there is to be a 105,000-m³ expansion of the terminal in Sydney, Australia to cope with growing demand for clean product and aviation fuel storage. Additional oil product tankage was brought onstream at the new Panama Atlantic terminal early in 2019 and there is more capacity for products due to be added in Mexico, Singapore, Indonesia and South Africa.
Vopak’s divestment activity introduces another salient factor in the global storage terminal sector: the continued appetite of global fund managers for terminal investment opportunities. The Algeciras, Hamburg and Amsterdam terminals were sold to First State Investments for some €670m – which will realise an exceptional gain of around €200m. First State is based in Australia and has more than $150bn under its management.
On 1 November 2019 IFM Investors, another Australia-based institutional investment manager, closed the acquisition of Buckeye Partners, with Jamie Cemm, executive director of IFM, saying at the time: “Buckeye represents a natural extension of IFM’s expertise in investing in, operating and growing essential midstream energy infrastructure in North America.”
IFM also owns Colonial Pipeline and Freeport LNG Development in North America, as well as a 50 per cent stake in the global VTTI bulk liquids terminal network, which it acquired from Buckeye Partners in November 2018. Owned by 27 pension funds, IFM manages more than $40bn of investments in the infrastructure sector, largely focused on airports, ports and roads.
At the end of 2019, two more major fund-related transactions were reported in the US. Firstly, Blackstone Infrastructure partners, along with Enagas and other fund managers from Singapore, South Korea and the UK, agreed the acquisition of all the shares in Tallgrass Energy that they did not already own on 17 December. The transaction, valued at some $3bn, is expected to close in the second quarter of this year.
The following day, Contanda LLC announced that institutional investors advised by JP Morgan Asset Management had completed the acquisition of Contanda from the EQT Infrastructure II fund. Contanda said at the time that the transition to new ownership would allow it to “continue to deliver on its key strategic business objective of doubling its bulk liquid terminal storage capability by 2022 while expanding into the bulk renewable and petrochemical markets and maintaining a leading market position in the refined products, renewable fuels, chemical, and agricultural commodity sectors”.
GO AMERICA North America represents a new growth market all of its own. The ongoing development and exploitation of tight oil and gas reserves has generated huge volumes of crude oil and NGLs, supporting massive growth in exports of crude oil, LNG, ethane and, increasingly, downstream derivatives, including ethylene. That has in turn led to investment in export-oriented marine terminals and in product handling and storage assets all along the supply chain.
For instance, when Contanda talks about doubling storage capacity within the next two years, its plans include two significant projects in the Houston area. Construction of the first 405,000-bbl phase of the »
VOPAK IS STILL INTERESTED IN DEVELOPING
multipurpose Jacintoport terminal began in third quarter 2018 and is expected to be complete in the second quarter of this year; build-out work could take total capacity up to some 3.8m bbl. Permitting is under way for the planned Greens Bayou terminal, with construction due to start this year. Contanda is also seeking permits to expand the Grays Harbor terminal in Washington for the storage of renewable diesel and biodiesel, while smaller projects were recently completed at the Stockton terminal in California and the Sioux City terminal in Iowa.
An indication of the size and pace of growth in exports of crude oil is given by Enterprise Products Partners, which continues to invest in its Houston-area assets. Third-quarter marine terminal throughput was 56 per cent higher than the same period 2018 at 987m b/d. In December, Enterprise and Enbridge Inc announced that they had executed a letter of intent to jointly develop a deepwater crude oil export facility located off Brazoria county, Texas. The Sea Port Oil Terminal (SPOT) will, subject to approvals and licensing, be able to load very large crude carriers (VLCCs) at up to 2m bbl per day. Enterprise has already secured a long-term agreement with Chevron USA for use of the SPOT facility.
Further development in the Houston area has come from Moda Midstream, which added 2.4m bbl of new storage capacity at the Moda Ingleside Energy Center (MIEC) in November 2019, along with further new tankage at its Taft terminal. Moda’s current projects amount to some 10m bbl of new capacity, of which half was expected to be onstream by the end of 2019, taking total capacity to some 7.0m bbl.
Moda is continuing to enhance capabilities at MIEC, which is expected to benefit from the Port of Corpus Christi Channel Improvement Project that will increase the depth of the channel from 47 feet to 54 feet. Moda is upgrading one berth to allow Suezmax tankers to moor and the project will also make it possible to handle VLCCs.
Speaking about the commissioning of the new capacity and ongoing projects, Moda’s president/CEO Bo McCall said: “We have received strong demand for additional storage and throughput commitments to support our next expansion phase that will be similar in size to what we are executing today and will be easily accommodated at MIEC’s 925-acre footprint and expansive waterfront. MIEC already has the highest marine loading rates and fastest turnaround times of any Gulf Coast crude oil terminal. We are continuing to invest in our waterfront to enhance our capabilities and ensure efficient, safe and reliable loading.”
Terminal operators in the US can at least be confident of access to cost-advantaged product that will find an eager market outside the nation’s borders, placing new demands on storage capacity. However, as the world moves uncertainly into 2020, with ongoing trade concerns and rising tension between the US and Iran threatening global oil trades, terminal operators elsewhere in the world will have to remain nimble and alert to changing demands.
CONTANDA’S NEW JACINTOPORT TERMINAL
