The voice of the storage terminal industry
North America Supplement 2016
STORAGE FOR THE MOST ACTIVE ENERGY MARKET Jefferson Energy Terminal have strong business foundations to expand further in the Gulf Coast
THE FORCE AWAKENS
The US is re-entering the global export market following the end of the crude export ban
NORTH AMERICA SUPPLEMENT
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NORTH AMERICA SUPPLEMENT 2016
CONTRIBUTORS
Contributors NORTH AMERICA SUPPLEMENT 2016
The voice of the storage terminal industry
North America Supplement 2016
STORAGE FOR THE MOST ACTIVE ENERGY MARKET Jefferson Energy Terminal have strong business foundations to expand further in the Gulf Coast
THE FORCE AWAKENS
The US is re-entering the global export market following the end of the crude export ban
NORTH AMERICA SUPPLEMENT
Front cover courtesy of Matrix Applied Technologies
PUBLISHER Margaret Dunn t: +44 (0)20 3551 5721 e: margaret@tankstoragemag.com
ONLINE & CONTENT EDITOR Jasmin McDermott t: +44 (0)20 8843 8159 e: jasmin@tankstoragemag.com
INTERNATIONAL SALES MANAGER David Kelly t: +44 (0)20 8843 8161 e: david@tankstoragemag.com
PORTFOLIO MARKETING MANAGER Amy Jordan t: +44 (0)20 8843 8837 e: amy@tankstoragemag.com
DATABASE MANAGER Jourdan Roze t: +44 (0)20 8843 8828 e: jourdan.roze@easyfairs.com
SUBSCRIPTION MANAGER Alison Church t: +44 (0)20 8843 8800 e: alison.church@easyfairs.com
MANAGING DIRECTOR Matt Benyon t: +44 (0)20 8843 8813 e: matt.benyon@easyfairs.com
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Tank Storage Magazine (ISSN 1750-841X) is published six times a year (in February, March, May, August, October and November) by Easyfairs UK Ltd, 2nd Floor, Regal House, 70 London Road, Twickenham, TW1 3QS, UK. The 2016 US Institutional subscription price is $243. Airfreight and mailing in the USA by Agent named Air Business, C/O Worldnet Shipping USA Inc., 155-11 146th Street, Jamaica, New York NY11434. Periodical postage pending at Jamaica NY 11431. Subscription records are maintained at Easyfairs UK Ltd, 2nd Floor, Regal House, 70 London Road, Twickenham, TW1 3QS, UK. Air Business Ltd is acting as our mailing agent.
NORTH AMERICA SUPPLEMENT 2016
Part of
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CONTENTS
• Erection & repair of aboveground storage tanks • Turnkey tank farm farm design & construction including site work, foundations & piping • Complete tank farm maintenance solutions • Alloy speciality including stainless steel, duplex & hasteloy • Tank engineering services for internal & external clients
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NORTH AMERICA SUPPLEMENT 2016
CONTENTS AND COMMENT
Contents News
Market analysis
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18
The future of crude by rail for America’s oil markets
21
The best of both worlds
North America terminal news
12 Tank terminal update: North America 15
Incident report
Terminal profiles
27 It’s all in the balance
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33
Oil supply and storage capacity continues to expand
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The force awakens – the impact of US crude oil exports
30 Shale: America’s energy revolution
Uncovering America’s hidden storage gem Centurion Midstream is harnessing the strategic and logistical advantages of the Delaware Basin through the development of a series of terminal assets
24 Midstream assets for the most active energy market The shale oil revolution, liberalisation of Mexico’s energy sector and an established demand market have provided Jefferson Energy Terminal with the foundations to expand further in the Gulf Coast
Technical features 40
Technical news
41 Blanketing tanks against the freeze 44 Advertisers’ index
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A year of change
T
he US energy market has experienced some pretty remarkable changes over the past couple years which has opened up a raft of opportunities for storage operators. Notably, the country has once again entered the global export market after Congress moved to lift the 40-year ban on US crude exports in December 2015. This historic move has created new trade routes as well as reinstating some oil ones and export infrastructure in the country will only improve as time goes on. The future is indeed looking bright for US crude exports as market forces are expected to stimulate exports of the light, sweet grades of crude while US refineries will prefer to import cheaper, heavier grades. It seems to be a win win all round. The low oil price has also seen the country become one of the biggest hoarders of oil in the face of high demand so happily, storage inventories have risen to record levels and utilisation rates across the board remain high. Coupled with the liberalisation of Mexico’s energy sector, which is currently 650,000 barrels per day short
NORTH AMERICA SUPPLEMENT 2016
of petrol and diesel, the need for storage in this established, yet dynamic market has never been greater. We speak to Centurion Terminals about how it is positioning itself to serve the Mexican market with three terminal assets within the Delaware Basin. Its Brownsville terminal will initially have 900,000 barrels of storage and can be expanded as required. Jefferson Energy Companies is also capitalising on its prime location in the US’ most active market with a series of expansion projects at its facility in the Port Arthur/Beaumont refining complex. We also provide analysis on the implications of the lifting of the crude export ban, the supply and demand market, the shale revolution, how US crude prices will impact storage going forward as well as an overview on terminal developments across North America. It is a great market to be in at the moment and we hope this supplement will give you an insight into these exciting developments. We hope you enjoy the read. With best wishes, Jasmin
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TERMINAL NEWS l NORTH AMERICA
Terminal news
All the latest storage news from North America
Merger creates North America’s largest oil and gas pipeline company A merger between Enbridge and Spectra Energy will create the largest energy infrastructure company in North America. The new company, Enbridge Inc, will be split with 57% owned by Enbridge shareholders and 43% by Spectra Energy shareholders. It will be one of the largest globally based on a pro-forma enterprise value of $127 billion. The all-stock transaction is valued at around $28 billion. Assets at the companies comprise crude oil, liquids and natural gas pipelines, storage terminal and midstream operations as well as
LOOP commissions extra crude storage capacity LOOP has commissioned three new above ground crude oil tanks at its Clovelly Hub in Louisiana. Each tank can accommodate more than 355,000 barrels of crude oil and they include electronic level controls, fire detection equipment, advanced security surveillance and around the clock operational monitoring. The tanks were brought into service almost three months ahead of schedule to meet market demands. The entire project, which started in April 2015, is slated to be complete by April 2017, and will comprise seven new tanks totalling 2.5 million barrels of capacity. The deepwater port complex was initially developed to facilitate the imports of crude oil to the US, but it has since grown to be an essential landing point for domestically produced energy.
renewable power generation. The company will be ‘positioned to provide integrated services and first and last mile connectivity to key supply basins and demand markets’. Al Monaco, president and CEO of Enbridge Inc, says: ‘Over the last two years, we have been focused on identifying opportunities that would extend and diversify our asset base and sources of growth beyond 2019. We are accomplishing that goal by combining with the
premier natural gas infrastructure company to create a true North American and global energy infrastructure leader. ‘We believe our combination of best-in-class assets, superior growth and strong commercial underpinning of our business will be unrivalled in our sector. Greg Ebel, president and CEO of Spectra Energy will become chairman of Enbridge after the transaction closes.
Canadian storage and pipeline projects delayed due to weak crude prices Several western Canadian oil storage and pipeline infrastructure projects have been delayed or put on indefinite hold due to the relatively weak crude prices. According to Genscape, as the price of oil began to drop throughout the second half of 2014 and most of 2015, companies that had announced major infrastructure projects between January 2011 and June 2014 put their projects on hold despite production increasing. Such companies include Enbridge and TransCanada. Oil transportation analyst Derek Wenning says that TransCanada said in a 2015 annual report filed with the SEC that the affect the price environment was having on 2015 could ‘impact the timing for the demand of transportation services and/or new liquids pipeline infrastructure’. The company has had multiple project delays in the past year.
TransCanada announced the TC Terminal and Heartland Pipeline projects in 2013. The terminal would comprise six crude storage tanks, increasing the overall capacity in the Alberta Heartland region by 1.9 million barrels. The pipeline, which would connect the terminal to Edmonton, Alberta and Hardisty, would have an estimated capacity of 900,000 barrels per day. The pipeline progress has been affected by regulatory permitting delays of the Keystone XL and Energy East projects. The company has since said that the projects would be delayed indefinitely, stating ‘the in-service date for the projects will be determined and aligned with industry conditions and customer’s requirements’.
Gibson to double tank storage capacity Two new 400,000 barrel crude oil storage tanks and pipeline infrastructure will be built at Gibson Energy’s Edmonton Terminal. This expansion, which complements the current 600,000 barrels of existing storage and the 300,000 barrel development project for Statoil, will bring total capacity to 1.7 million barrels. The new tanks, which are expected to be in-service by the second quarter of 2018, are underpinned by a long-term, take-or-pay contract with a large, integrated, investment grade customer. Steward Hanlon, Gibson’s president and CEO says: ‘This most recent storage tank contract reflects the competitiveness of Gibson’s merchant terminal offering at Edmonton, as well as the commitment of our customer to their longer term growth plans. ‘As we move through the third quarter, we continue to see modest improvements, as expected, within our logistics segment.’
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NORTH AMERICAN SUPPLEMENT 2016
TERMINAL NEWS l NORTH AMERICA
Suncor sells stake in bitumen storage development
Buckeye reports continued improved performance
Fort McKay First Nation has bought Suncor’s 34.3% interest in the East Tank Farm development, a bitumen storage, blending and cooling project.
Buckeye Partners’ global marine terminals segment contributed to the company’s improved performance, according to its second quarter financials.
The development is a Suncor-operated midstream asset current being constructed in the Wood Buffalo Region of Alberta. Under the terms of the participation agreement, Fort McKay First Nation will pay 34.3% of the actual capital cost of the development once it becomes operational, which is slated to be in the second quarter of 2017. It will also have connectivity to third party pipelines. The share of the actual capital cost of the development is anticipated to be approximately $350 million, which will be paid to Suncor when the transaction closes. It is expected to close in the second quarter. Suncor will be the operator of the development once operational. Chief Jim Boucher, of Fort McKay First Nation, says: ‘Fort McKay First Nation has been engaged in the oilsands business for over 30 years and we have the ability to build and maintain sustainable relationships with our neighbours.’
Its income from continuing operations was $144.5 million compared to $91.3 million in the same quarter in 2015. Adjusted EBITDA from continuing operations for the second quarter 2016 was $256.6 million compared to $206.5 million in the previous year. Clark Smith, chairman, president and CEO says: ‘All of our segments contributed to the improved performance over the year-ago quarter. The global marine terminals segment drove significant growth, primarily attributable to the incremental contribution from the completion of the buildout at our Buckeye Texas Partners joint venture, as well as strong demand for storage services across that segment’s legacy assets.
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TERMINAL NEWS l NORTH AMERICA
US crude exports increasing Since the restrictions removal on exporting US oil, the number of countries receiving US crude has increased. The EIA says that despite relatively small price spreads between international and domestic crude oils as well as falling US crude production and added cargo export costs, oil exports have occurred. According to data, US crude oil exports averaged 501,000 barrels per day in the first five months of 2016, 43,000 barrels per day more than the full-year 2015 daily average. Exports already increased significantly before the lifting of crude oil export restrictions, however these were mostly to Canada, which had been excluded from the previous restrictions. From 2000 to 2013, US exports rarely surpassed 100,000 barrels per day. Since the lifting of the restrictions in December 2015, US crude oil has been exported to 16 different countries. Besides Canada, the largest and most consistent export destination for the first five months of 2016 has been Curacao, in the Caribbean.
Inter Pipeline acquires Canadian NGL midstream business Inter Pipeline will acquire shares in The Williams Companies and Williams Partners Canadian NGL midstream business for $1.35 billion. Williams Canada pioneered the process of extracting NGL and olefin from offgas, a by-product of bitumen upgrading operations. The assets include two liquids extraction plants located near Fort McMurray, Alberta, a fractionator near Redwater, Alberta and a pipeline system that connects these facilities. The two extraction plants have the capacity to recover approximately 40,000 barrels per day of NGL and olefins from the upgrader offgas. The liquids mix is then separated into marketable products at the Redwater fractionator and sold across North America. Christian Bavle, Inter Pipeline’s president and CEO, says: ‘Consistent with our disciplined acquisition strategy, we are purchasing this unique and attractive business at a low period in the commodity cycle, and well below original cost.’
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TERMINAL NEWS l NORTH AMERICA
API report confirms pipeline safety
Valero acquires terminals business for $325 million
Pipelines continue to be one of the safest ways to transport energy across the US according to API and the Association OF Oil Pipe Lines.
Valero Energy Partners has acquired the Meraux and Three Rivers Terminal Services Business from a subsidiary of Valero Energy Corporation for $325 million.
The joint report states that despite a 13% increase over the last five years in miles of pipeline delivering crude oil, petroleum products and NGLs, pipeline incidents per mile larger than 500 barrels have declined by nearly a third. Additionally, incidents potentially impacting people or the environment outside of the operator’s facility are down 52% since 1999. The report details industry-wide pipeline safety principles, provides a transparent analysis of industry safety record, which includes where performance is improving and where challenges remain and outlines the efforts operators are making in advancing technologies and implementing approaches to inspecting, monitoring and managing pipeline safety programmes. API pipeline manager David Murk says: ‘This report shows the tremendous priority we place on pipeline safety, but as an industry we can always do more. By constantly evaluating our safety programmes and activities, learning from past experiences, and making timely and adequate adjustments, our industry will continue working towards its goal of zero incidents.’ To read the report in full, visit www.api.org.
The acquisition comprises terminals that support Valero’s Meraux and Three Rivers refineries. The Meraux infrastructure consist of 24 tanks with 3.9 million barrels of storage capacity for crude oil, intermediates and refined petroleum products. The Three Rivers assets consist of 62 tanks with 2.25 million barrels of storage capacity for crude oil, intermediates and refined petroleum products. The transaction is expected to close on September 1 and the business is expected to contribute $39 million of EBITDA. Once closed, Valero Energy Partners plans to enter into 10-year terminalling agreements with a subsidiary of Valero. They are expected to include minimum volume commitments covering approximately 85% of planned throughput. Joe Gorder, CEO of VLP’s general partner says: ‘We’re expanding our US Gulf Coast footprint and achieving our acquisition target for the year.’
NORTH AMERICAN SUPPLEMENT 2016
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TERMINAL NEWS l NORTH AMERICA
Flint Hills plans Wisconsin fuel terminal expansion
Arc Logistics’ financials up
The project at Flint Hills Resources will help meet demand for transportation fuels in central and northeastern parts of the state. In addition, the company is also nearing completion of an estimated $7 million expansion of its Junction City fuel terminal. Flint Hills currently supplies around one third of the petrol and diesel fuel used in Wisconsin. The expansion and improvement projects at Flint Hills’ Waupun and Junction City fuel terminals involve more than doubling the loading capacity of the current two-bay Waupun terminal, with the addition of three new bays, and
The company reports that its second quarter 2016 revenues, net income and adjusted EBITDA was $26.2 million, $6.3 million and $14.5 million respectively, which represents an increase of $19.1 million, $2.8 million and $10.6 million on its second quarter 2015 results. The revenues increase was related to securing new agreements in the Pennsylvania terminals acquisition and the Pawnee terminal acquisition as well as full-quarter operations at the Joliet terminal. Arc’s storage capacity was up by one million (15%) to 7.7 million barrels, relating to the Pennsylvania and Pawnee acquisition. Throughput activity also increased by 98.4 million barrels per day to 162.5 million barrels per day.
Construction work has started on a $20 million expansion of its Waupun fuel terminal in Wisconsin.
Arc Logistics Partners’ storage capacity and throughput rates were up in their second quarter financial results.
adding a fifth loading bay to Junction City. Together, the projects will give the companies the capability to supply at least an additional 27,000 barrels per day of product volume to central and northeastern Wisconsin markets. The Junction City project is underway with completion expected in the autumn. The Waupun project is expected to be completed in the fall of 2017. The terminals will remain in operation during construction. This is the company’s largest investment in its Wisconsin system since it upgraded its Milwaukee fuel terminal in 2005.
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TERMINAL NEWS l NORTH AMERICA
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TERMINAL NEWS l TANK TERMINAL UPDATE
Tank terminal update: North America TransMontaigne
Location:
Products: Capacity:
Investment:
Completion:
Construction/ expansion/ acquisition: Comment:
Pin Oak Holdings
Collins/Purvis, Mississippi Refined petroleum products Two million barrels $75 million Second quarter of 2017 The company has secured long-term terminaling agreements for the additional capacity. TransMontaigne is in the process of permitting five million barrels of additional capacity
LBC Tank Terminals, Magellan Midstream Partners, Seabrook Logistics
Location:
Products: Capacity:
Construction/ expansion/ acquisition:
Comment:
Houston Gulf Coast Crude oil, condensate 636,000 m3 and 111,000 m3 Seabrook Logistics will expand storage capacity by four million barrels as part of a letter of intent to expand its storage, marine capacity and pipeline infrastructure This extra storage will be connected to Magellan’s Houston crude oil distribution system with pipelines and an extra ship dock and two barge docks are also planned
Location:
Products: Capacity:
Completion:
Products:
Investment:
Completion:
Upton and Midland, Permian Basin Crude oil $70-$80 million Early 2017
Construction/ expansion/ acquisition:
The Greater Chickadee crude project will include 150 miles of pipeline to serve market outlets and other key hub centres in the Midland, Texas area
Comment:
The project also involves the building of multiple central tank batters and pump, ruck injection as well as storage assets
Products: Capacity
Investment:
Completion:
Beaumont, Texas Ethanol, liquid hydrocarbons 500,000 barrels $55 million Second half of 2017
Middle of 2017
Comment:
An EPC contract has been executed with Smith Tank & Steel
Magellan Midstream Partners
Location:
Products: Capacity:
Investment:
Completion:
Houston Ship Channel Petroleum, diesel fuel and renewable fuels One million barrels $335 million 2019
Construction/ expansion/ acquisition:
The marine terminal will be constructed over 200 acres of land with initial plans for one million barrels of storage and a new marine dock
Comment:
A pipeline between Magellan’s Galena Park terminal and the new terminal is being built and the facility could be expanded to include up to 10 million barrels of storage
Flint Hills Resources
Location:
Investment:
Construction/ expansion/ acquisition: Comment:
Waupun, Wisconsin $20 million The projects at its Waupun and Junction City fuel terminals double the loading capacity at Waupun with three new bays, and adding a fifth loading bay to Junction City The projects will allow the supply of an additional 27,000 barrels per day to central and northeastern Wisconsin markets
Valero Energy Partners
Location:
Products:
Investment:
Construction/ expansion/ acquisition:
The first phase of the project will involve the expansion of storage at the Jefferson facility, with the potential of up to one million barrels
Construction/ expansion/ acquisition:
Comment:
Future development plans include the ability to manage multiple liquid products for import and export
Comment:
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More than two million barrels
The tanks are being constructed to meet customer contracts and will be able to add additional product types as new contracts are executed
Green Plains, Jefferson Gulf Coast Energy Partners
Location:
Petrol, petrol blendstock, ethanol, VGO and fuel oil
Construction/ expansion/ acquisition:
Enlink Midstream, EnLink Midstream Partners
Location:
Mount Airy, Louisiana
Gulf Coast Crude oil, intermediates, refined petroleum products $325 million The acquisition of the Meraux and Three Rivers Terminal Services Business comprises a total of 86 tanks with a capacity of 6.15 million barrels The company plans to enter into 10-year terminalling agreements with a subsidiary of Valero
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NORTH AMERICA SUPPLEMENT 2016
INCIDENT REPORT
Incident report
A summary of the recent explosions, fires and leaks in the US tank storage industry 12/8/2016
Raleigh, North Carolina Petroperu
Liquid asphalt leaked from a tanker that flipped over while travelling up a ramp on the highway. The tanker entered the ramp and failed to reduce speed for the incline and curve of the ramp and skilled and turned over on the left side. The cargo spilled from a hole in the left side and top of the tanker. The driver was taken to hospital as a precaution.
12/8/2016
Nederland, Texas Sunco Logsitics
Seven workers were injured following a fire at a construction project at Sunoco Logistics crude oil terminal. Four of the seven employees of a contractor were critically injured in the flash fire involving a crude oil pipeline connection. The four were taken to burn centres in Houston, Galveston and Beaumont while the other three were treated for minor injuries and released. The US Occupational Safety and Health Administration launched an investigation into the fire, which is reported to have broken out as the workers were preparing to connect pipe to new crude storage tanks.
19/7/2016
Bay Long, Grand Isle
Harvest Pipeline Company 6/9/2016
Houston Ship Channel The Aframax River
A mile of the Houston Ship Channel was closed off after a tanker ruptured and spilled fuel oil into the channel. The US Coast Guard said that the tanker may have hit a submerged sewer line which caused a rupture in the hull, leading to a fire. It was not carrying any cargo but leaked its own fuel supply. The fire was quickly extinguished and no one was injured.
NORTH AMERICA SUPPLEMENT 2016
A pipeline was struck by a dredging company, resulting a spill of about 5,300 gallons of crude oil into the water. Media reports that it was caused by a contractor working on an environmental project after the larger BP oil spill. Absorbent material and skimmers to collect the oil and a containment boom was deployed. The US Coast Guard and Louisiana Department of Wildlife and Fisheries oversaw the response effort. An investigation was launched to determine the cause of the incident.
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PROFILE l XXXXXX XXXXXX
Photo: CTS Netherlands B.V.
Photo Credit: Smith Tank & Steel, Inc. Gonzales LA
Photo Credit: Cuff’s Industrial LLC
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17
MARKET ANALYSIS l CRUDE BY RAIL
THE FUTURE OF CRUDE BY RAIL FOR AMERICA’S OIL MARKETS
C
rude oil volumes transported by rail plummeted last year. Additionally, it was one of the worst years for rail accidents in the US. The fundamentals behind the first substantial decline since it took off in 2009 boil down to price, greater choice and demand. The crude by rail boom took off on the back of the shale revolution, where the biggest amounts of crude and shale formations could only be reached by train. An example of this is in North Dakota, the location of the Bakken formation. According to Bloomberg, by 2013, 71% of crude was transported by train and in 2015, it accounted for 80% of all oil train traffic in the US. However, the slew of recent pipeline projects in the past couple of years has added a new transport contender. Two pipeline projects in North Dakota have increased the amount of oil that can be transported by around 200,000 barrels a day. Additionally a new refinery that opened in 2015 has also reduced the need for rail transport. Since 2011, the combined pipeline and refinery capacity in North Dakota has doubled.
At the end of last year the US was in the midst of a glut of tank cars and lease rates declined as a result.
CHEAPER OPTIONS Another crucial factor is the fact that crude by rail is not as profitable as it once was. In the early days of the shale boom, large quantities of crude were effectively stuck in the middle of the country, and the only way to get them to the market was putting it on trucks and trains, which were expensive and slow. However, the opening of new crude oil pipelines and declining domestic production in the Midwest and Gulf Coast onshore regions have opened up the market. Analysis by the Energy Information Administration (EIA) shows that crude oil shipments by rail have been on a general decline since last summer due to the reasons above as well as narrowing price differences. Domestic crude oils priced in the Midwest and western Texas are no longer heavily discounted relative to imported crude oils priced in the North Sea. The narrower the spread between domestic and imported crude oils, the more likely coastal refiners will choose to run imported crudes rather than domestic supplies shipped by rail.
BRIGHT SPOT However, despite these evolving market dynamics there still remains a need and a place for rail transportation. Crude oil carried by rail from the Midwest to the East Coast remains the country’s largest crude-by-rail movement, with 45% of total crude oil moved by rail within the US in May 2016. The growth in crude-by-rail shipments to East Coast refineries has been made possible by expansions in the capacity to load and unload crude oil from trains. While some handle individual rails cars or manifest trains, other are building dedicated facilities for unit trains, which consist of 80 to 120 rail cars carrying crude oil. Also, rail terminals are now better equipped to load and unload unit trains. More than 30 loading terminals throughout the US can accommodate unit trains. Canada is also an interesting prospect for crude by rail shipments. Several oil sands projects open up the strong potential of using trains to transport this glut of oil following the denial of the Keystone XL pipeline project. So despite the decline in crude by rail shipments in parts of the US there is still, in the mid-term at least, a future for this form of transportation.
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NORTH AMERICA SUPPLEMENT 2016
PROFILE l CENTURION TERMINALS
UNCOVERING AMERICA’S HIDDEN STORAGE GEM Centurion Midstream is harnessing the strategic and logistical advantages of the Delaware Basin through the development of a series of terminal assets
S
traddling the US and Mexican border, Brownsville in Texas is perfectly placed to serve a recently de-regulated Mexican energy market and Centurion Midstream is capitalising on these new market dynamics. The company has ambitious plans to construct a series of terminal assets in three key locations, two in Delaware and one third in Brownsville, to serve the de-regulated markets of Mexico, which is 650,000 barrels short of petrol and diesel every day. In an interview with Tank Storage Magazine CEO Tom Ramsey explains: ‘The demand is definitely there and the deregulation of the Mexican energy market means that there will be a lot of competition going forward in the midstream and downstream industries. It is a very attractive market to move into.’ The company, which was created in 2013, plans to construct condensate storage, unit train transloading and condensate processing terminals in Brownsville, Orla and Pecos, Texas. Its Brownsville terminal will initially have 1.6 million barrels of storage on a 280 acre site at the Port of Brownsville. Uniquely, the availability of land means that the company can construct up to nine million barrels of storage as and when customer demand requires, with the opportunity for further expansion. Additionally, the terminal will have a splitter and reformer that can process condensate of up to 100,000 barrels per day of diesel, naphtha and low sulphur residual and 60,000 barrels per day of petroleum. Unlike other operations in Brownsville, the terminal also will have unit train receiving capacity and can store up to 600 rail cars on site. ‘The project has got a lot bigger than initially planned based on the fuel demand from Mexico and the demand for storage,’ says Ramsey. ‘Construction has already started at Brownsville, which is our primary site to build out, and the splitter towers and storage tanks are currently
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01 The terminal will have a splitter and reformer to process condensate
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02 It will serve the liberalised Mexican energy market, which is short of petroleum and diesel
being built. We hope to have the first phase operational by the third quarter in 2017. ‘We will look to build storage as customers require it and continue to build it over time as customers approach us. ‘Brownsville is primarily a storage and distribution centre. It is driven by congestion at the Port of Houston and Corpus Christi for ship transfer
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PROFILE l CENTURION TERMINALS
and people are now recognising that Brownsville does not suffer from this congestion.’ The other facilities at Orla and Pecos will serve as the origin terminals for condensate. The Orla terminal will have initial operational storage capacity of 300,000 barrels with batching capabilities. It will connect to Centurion’s rail transload terminal in Pecos via a 24-inch condensate pipeline and a 12-inch gas plant condensate pipeline as well as segregated condensate and gas plant condensate storage, unloading and pipeline to the Pecos terminal. The Pecos terminal features a fully intergrated unit train capable condensate transload terminal with up to 500,000 barrels of condensate storage. Both facilities have the option for storage and it is something that executives are considering. ‘The driving force behind all this is demand for fuel in Mexico. We will be the cheapest source of fuel into Mexico. ‘We have seen an uptake in demand for storage. There are some players in the region but they cannot expand further. ‘Brownsville is a real gem that no one has historically recognised. Given the proximity to Mexico it takes on a different demand market which Houston and Corpus Christi cannot compete with.’ Once all three facilities are constructed and operational the company has its sights firmly set on breaking into other energy markets including the Caribbean, central and south America. Ramsey adds: ‘We want to get the base business operational and running and then expand into other markets beyond Mexico.’
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BROWNSVILLE TERMINAL AT A GLANCE: The facility will have more than nine million barrels of total storage capacity in one million barrel phases It will also have a liquid cargo dock with multiple lines for inbound and outbound loading and offloading, four track rail ladders with each track having the capacity for 130 rail cars The condensate splitter and reformer are capable of producing up to 100,000 barrels a day of diesel, naphtha and petroleum
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MARKET ANALYSIS l STORAGE IN THE US
THE BEST OF BOTH WORLDS Despite low prices and the potential for competing storage activity from other countries, high global production and an end to the US export ban certainly favour US storage in general — and the Gulf region in particular. Vaughan O’Grady reports
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utput in the US may be slightly down on last year but globally there is still a lot of oil around, and storage building is continuing apace. New infrastructure to accommodate oversupply began when prices plummeted in 2014 and is continuing. PADD III (one of five Petroleum Administration for Defense Districts) in the Gulf Coast is the primary location of a significant number of these new infrastructure projects. ‘In the first half of 2016, approximately 14 million barrels of new storage capacity was brought on line,’ says Dylan White of market insight and intelligence company Genscape. PADD II in the Midwest, by contrast, has added closer to two million barrels. Carl Larry, director and principal consultant, oil and gas, at Frost & Sullivan, points out that the US market seems to be having it both ways as one of the largest consumers and producers of oil. ‘With oil prices this low, the US has been by far the biggest and best consumer of oil because demand’s been so high. This year we’re becoming one of the biggest hoarders of oil because the US – at least the refiners here – sees it as a good deal to get oil under $50. So our inventories have risen to record levels and now it’s a priority to make storage for all of this too.’
So our inventories have risen to record levels and now it’s a priority to make storage for this
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White explains that the continued contango structure of the market is leading to a number of market participants to keep barrels in storage. ‘It is leading to higher utilisation rates at these terminals. All of that is definitely leading to bigger demand for more storage,’ he adds. THE ROLE OF CANADA Canada’s shale revolution has inspired huge infrastructure projects, not least from Kinder Morgan, which has brought on more than five million barrels of storage capacity in Edmonton since 2013 to accommodate pipelines out of the region. However, hold-ups to the Keystone pipeline have arguably put a damper on a lot of other Canadian storage capacity projects that were under way, or at least planned. Mexico, though a major importer of heavy crude to the US, along with Canada and Venezuela, enjoys modest storage levels compared to the US. Larry says: ‘If Mexico can start to increase their crude oil production they are going to start looking for more storage areas also — so we see a good storage market down further south, in Mexico.’ STORAGE ACTION However, it’s clear where the major storage action is. Since the lifting of the export ban the Gulf offers somewhere that has access to domestic or international markets as well as storage for those wanting to wait to find a better value for their commodity. ‘The west Coast might be the second most obvious because of the ability to export it – and obviously their high demand use,’ suggests Larry. Another advantage of the Gulf is space – not least because the area also has a lot of salt deposits – natural storage caverns for crude. The biggest refining region in the nation is also the end point for a lot of crude regardless of where it is produced.
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MARKET ANALYSIS l STORAGE IN THE US
White says: ‘A lot of recent pipeline projects have come on line to provide greater interconnectivity between regions: all these pipelines have come up to be able bring crude directly from the Permian Basin to the refineries on the Gulf Coast. To help accommodate that a lot of storage is coming up on both ends of those pipelines.’ If the Gulf dominates activity, transportation and storage giant Enterprise Product Partners is arguably one of the biggest players, especially after its purchase of Oiltanking Partners last year. But, it is not alone. Midstream asset development company Fairway Energy has plans, says Larry ‘to build out perhaps eleven million barrels of storage in the Gulf Coast area between Texas and Louisiana’. In PADD II, meanwhile, Plains All American, which owns an extensive network of pipeline transportation, terminalling, storage and gathering assets, has been a strong player. Genscape also notes a lot of smaller construction projects by mid-stream companies working on pipelines to gather up all the production that is occurring in the region and bring them to various terminals to take them farther downstream. Crude seems to dominate activity. There is, however, a growing demand for niche (refined, blended) storage. Genscape’s Hillary Stevenson explains: ‘A lot of these infrastructure projects have to do with pipeline infrastructure expansion, so a lot of these pipelines are shipping different grades of crude and need to have grade-specific storage as well as blending storage. ‘You would have probably 10% to 20% of your capacity expansion allocated to some blending operations in order to make sure that your crude oil qualities are consistent and can be delivered against the contract.’ GROWING STORAGE ACTIVITY The clear impression of growing levels of activity is supported by Bruce Heine, director government and media affairs, Magellan Midstream Partners, who says the operator is continuing to expand our asset base on the Texas Gulf Coast. ‘Construction is nearing completion on our condensate splitter in Corpus Christi Texas. We recently announced that we will be building a new marine terminal in Pasadena Texas with one million barrels of storage and we will be adding additional crude oil storage at our facility in East Houston Texas.’ He continues: ‘Based on strong demand for crude oil storage in the Houston Gulf Coast region, we have launched projects to build a total of 2.7 million barrels of crude oil storage at East Houston with new tankage expected to begin coming online as early as October. ‘We are also considering options to expand our Seabrook Logistics (Houston area) joint venture facility. This project includes the construction of 700,000 barrels of storage and pipeline infrastructure to connect to a third-party pipeline for ultimate transport to a Houston area refinery.’ And there is more to come, thanks in part to the end of the export ban. Larry says: ‘Not only is the US looking at these cheap barrels we can buy and we can store, but producers know they can keep producing since we’ve lifted this export ban.’ Heine adds: ‘We do see opportunities along the Texas Gulf Coast for additional storage and distribution infrastructure for crude oil and refined petroleum products. We believe the elimination of the crude export restrictions will provide opportunities for new storage along the Gulf Coast.’ SHALE REVOLUTION The shale oil revolution has certainly had an effect, though not always the one you would expect. Its low sulphur content makes it good for some refineries and is pop-
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ular in the North American market for petrol. However, a lot of refineries in the US run heavier crudes, which may explain why Canadian imports are up from a million barrels a day in 2008 to three million barrels a day in 2015-2016. Brian Busch of Genscape expands on the reason it still makes sense for the US to export some crude even though, net, it has to import. ‘The US is producing so much really light, sweet crude – more than we want.’ Thus it goes to other regions that need it to fill up their towers and the US can import some medium sours. ‘The whole global refining infrastructure becomes much more efficient when we do that.’ STORAGE BOOM But other countries are beginning to notice the storage boom in the US. Larry has seen interest among some Middle East producers and says: ‘A lot of these countries have the space, which is really the number one priority. The materials and labour aren’t too expensive right now too, so I think it’s something that people are looking at and will prosper into the New Year.’ Even so, the storage future still remains bright for the US in particular. The days when consumers like China held sway are over for now. Producers can start banking crude for the future. But the US has the best of both worlds. ‘We have consumption and we have production, so it makes the Gulf of Mexico area really the most attractive area for storage,’ says Larry. There is also still a good deal of free space available. However, says Genscape’s Brian Busch advises: ‘We are still overproducing globally and if this continues the storage situation could become difficult.’ MAXIMISING ASSETS Still, as White says: ‘In terms of storage demand we’ve been in a strong contango for nearly two years now and expecting that to persist for at the very least six months. So with all these projects coming up we’re bringing more capacity online and I anticipate it will absolutely be put to use.’ Brian Busch supports this view. He adds: ‘Those are really the two things that drive the market on storage: are we in a contango market, where you can have economic people out there trading storage plays? Or are there logistical reasons close to production where you need storage because you’re not able to move it fast enough to the refining complexes?’ Most reasonably predictable eventualities have been factored in, it seems. Except for one. Who will be president in November? As Larry says: ‘If Clinton gets in I think the strength of NAFTA would definitely grow and we’d probably see more working together […] I will guarantee that if Donald Trump wins we will see an oil scare from the US – some kind of play where it will be more expensive to bring in imports rather than make them here.’
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PROFILE l JEFFERSON ENERGY COMPANIES
MIDSTREAM ASSETS FOR THE MOST ACTIVE ENERGY MARKET The shale oil revolution, liberalisation of Mexico’s energy sector and an established demand market have provided Jefferson Energy Terminal with the foundations to expand further in the Gulf Coast
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he US storage market has remained active and robust, thanks largely to the shale oil revolution, continued refinery expansion and the recent liberalisation of Mexico’s energy sector. Jefferson Energy Terminal is capitalising on its strategic position in the heart of one of the most active refining markets in the US and on the back of these favourable market conditions with a series of expansion projects at its facility in the Port Arthur-Beaumont refining complex. Tank storage has increased in PADD III in recent years by as much as 10% as a result of new petroleum production and expansion projects in refineries and chemical plants and the Beaumont-Port Arthur area has seen its fair share of this growth. The company believes that this trend will continue in the long term along with investment in North American oil production, In fact, over the course of 2016 so far, the company reports that it has leased 100% of its available storage and has agreements in place for existing terminal capacity. Such is the demand for midstream assets, Jefferson has embarked on two key expansion projects and is eyeing up another project to tap into the liberalised Mexican energy sector. The first project involves adding 500,000 barrels of storage with the construction of two 250,000 barrel heated storage tanks. They are being built for an international refiner with a local facility and will handle refinery intermediate feedstock. They will be connected to the terminal’s Aframax capable dock with the ability
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to transfer product at 25,000 barrels per hour. The new system is expected to be in service by mid-2017. COMPETITIVE ADVANTAGE The second, more substantial, project comprises building infrastructure assets for the Jefferson/ Green Plains joint venture. In an interview with Tank Storage Magazine Lawrence Waldron, chief commercial officer, says that this particular project highlights the operator’s expertise with intermodal services and assets. ‘The joint venture is constructing an intermodal export and domestic distribution hub. This project is an excellent example of our strong position where rail meets water. The Jefferson Energy Terminal site, which was selected by our partner Green Plains after an extensive search, provides a sustainable competitive advantage.’ The first phase of the project will leverage
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existing infrastructure at the terminal and includes 550,000 barrels of storage, with the potential to expand up to one million barrels. The initial tanks will be three 150,000 barrel working capacity tanks and one 100,000 barrel tank. Three of the tanks will be dedicated to export service. Waldron adds: ‘Customer interest in the project has been very strong. We are in the process of contracting capacity on the system in order to supply the market next year. ‘We anticipate the ethanol system to be fully subscribed when service starts in mid-2017.’ A LIBERALISED MARKET In addition to these expansion plans, Jefferson is also tapping into the liberalised Mexican energy markets, following historic reforms that allow for greater foreign investment in the country. As a result, the company has seen high levels of interest from refiners with operations
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PROFILE l JEFFERSON ENERGY COMPANIES
CRUDE BY RAIL The company’s crude by rail business continues to handle multiple varieties of undiluted and low dilution Canadian conventional and bitumen crudes being shipped for blending into high value crudes, products and feedstocks for Gulf Coast markets. In fact, this volume growth is forecasted to continue for the remainder of 2016 and into 2017-2018. These very heavy grades, which can only be delivered to the Gulf Coast from Canada by rail, are a good fit for refineries in Jefferson’s region. Additionally the much lighter crudes produced in the US have flooded the market, which has ‘lightened the crude slate’ that is available to US refiners. ‘The heavy Canadian barrels handled at our terminal are a perfect fit for refiners that need to increase feed to underutilised crackers and cokers. We have also seen these heavy barrels work very well in the fuel oil and broader black oil market.’
in the US to supply ULSD and petrol directly into Mexico. ‘Many parts of Mexico are undersupplied due to inadequate terminal and pipeline capacity’, says Waldron. ‘Shipping refined products by rail into these underserved regions allows for a quick and efficient solution to serve markets in need with a competitive product and service.’ As such, Jefferson is in development stage for a rail loading system at its Beaumont terminal to export refined products to this undersupplied market. The project will be situated on the Main Terminal site, a 243 acre parcel of land on the east bank of the Neches River within the Port of Beaumont. The site will be built out to approximately three million barrels of storage capacity and will comprise 25 tanks. There are also plans to develop additional docks and tank storage close to the site.
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01 Lawrence Waldron, Jefferson’s chief commerical officer 02 Jefferson’s barge dock can handle two 50,000 barrel unit trains simultaneously 03 Jefferson is a 243 acre site at the Port of Beaumont 04 The heated rail offloading system can discharge 120 car unit trains of undilluted heavy crude within 24 hours
JEFFERSON ENERGY COMPANIES AT A GLANCE Jefferson Energy Terminal has seven 100,000 barrel working capacity floating roof crude oil tanks with over 800,000 barrels of shell storage capacity and can be expanded to three million barrels in the future When fully developed the terminal will have the capacity to unload over 210,000 barrels per day of light and heavy crude oil through four rail car unloading systems The terminal is positioned in the centre of the 9.2 million barrels per day Gulf Coast, which contains the largest concentration of refineries in North America by capacity
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SHALE REVOLUTION Waldron explains that the primary catalyst for business has been the shale oil revolution. ‘The terminal was built to be the best at what it does – receiving unit train rail shipments. We are bullish that the growth trend continues as new Canadian production projects come online in 2017 and 2018 along with a stronger crude price environment.’ With its prime location in the attractive Gulf Coast, competition for storage is robust with scores of established and newer platers developing midstream projects. ‘We see that terminal location and access to complementary assets, such as rail, deep water docks and pipelines are critical to the success of a project,’ says Waldron. ‘The Jefferson Energy Terminal has been developed to leverage these critical features, which makes our facility very competitive in the market.’
FOR MORE INFORMATION www.jeffersonenergyco.com
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MARKET ANALYSIS l SUPPLY AND DEMAND BALANCES
IT’S ALL IN THE BALANCE Supply and demand interplays are starting to balance out as global production tightens, Energy Aspects’ Dominic Haywood considers how this will impact the US tank storage sector
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o successfully examine the impact of crude oil supply and demand balances in the US on the tank storage sector, it is important to understand the relationship between price, inventory and balances, and the numerous factors that can affect these, as well as the different market players who affect them.
storage holder paid for his tanks in the past may be completely different from the prevailing spot price for tankage today. However, the level of contango can be a useful indication of marginal storage costs in an oversupplied market. As the level of contango is correlated to the volume of inventory (which is a result of the supply and demand balance), there is a statistically quantifiable link between supply and demand balances, prices, and tank storage rates.
THE ENDLESS TUG-OF-WAR BETWEEN FUTURES AND PHYSICAL The best correlation we have identified HOW DOES THIS RELATE TO TANK STORAGE? between US liquids inventory and price is Clearly, the level of inventory sitting in tanks is Month 1 less Month 13 ICE Brent futures a major contributor to the cost of tank storage. (effectively a year-long carry) versus US total liqBut, pegging the precise cost of a storage tank uids stocks. The R-squared between these two is difficult. There are no quoted prices backed variables is 43%, which implies that inventory by liquid tank trading activity. Tanks are often movement explains around half of price movesecured on lengthy terms (many exceeding two ment. Given the monumental array of potential US total liquids inventory vs. ICE Brent structure (inverted) years in the US), meaning the price that the price influencing variables, this is a reasonably
IC E B r e n t M 1 -M 1 3 (L H S ), $ /b b l
8
U S t o t a l liq u id s t o c k s (R H S ), m b
2 ,1 0 0
4
2 ,0 0 0
0 1 ,9 0 0
(4) 1 ,8 0 0
(8 ) (1 2 )
Source: EIA, ICE, Energy Aspects
IDENTIFYING OIL RELATIONSHIPS The relationship between supply and demand balances, and inventory and price, is one of the few widely accepted truths of the oil market. Conventional economic thinking suggests that as inventory increases, so price decreases. A supply and demand balance is a simple metric that combines all of the contributors to inventory levels. So, if we can predict movements in supply and demand, then we can predict inventory, and if we can predict inventory then we can predict price. But is it quite that simple? Unfortunately not. The simple analysis above dangerously over simplifies what is an incredibly complex network of moving hydrocarbons. A small change in one element of the supply and demand balance (which comprises production, demand, imports, and exports), without a corresponding and offsetting change in another, can move prices far further than the implied inventory change would suggest. Similarly, large swings in oil prices are not necessarily predicated on discernable stock changes and instead can represent the markets expectation of a future event; which may or may not actually transpire. The wide range of players that exist in any futures market means many participants don’t really care about inventory changes – chart patterns,
economic data releases, or treasuries hedging plans may be far more important to them. So the incumbent thinking should be tested more rigorously. In doing so we are referring to curve structure as a proxy for price, rather than flat price futures contracts. Specifically, the level of contango or backwardation in ICE Brent futures. Secondly, when analysing inventory, we examine US total liquids stocks (i.e. petroleum products and crude oil, inclusive of Strategic Petroleum Reserve stocks). This inventory level is the highest frequency data point available and the most comprehensive, and shows the best relationship with price.
1 ,7 0 0
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US total liquids inventory vs. ICE Brent structure (inverted) Source: EIA, ICE, Energy Aspects
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Rising inventory changed the shape of the Brent curve Fluctuations in US liquids inventories are accompanied by corresponding movements in
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in ICE Brent spreads. Pic 2: Energy Aspects global balance, mb/d MARKET ANALYSIS l SUPPLY AND DEMAND BALANCES 2016 Q u a rt e rs 2017 Q u a rt e rs y /y c h a n g e good indicator. Quantifying the remaining 50% of price movement would require a more 2015 Q1 Q2 Q3 Q4 2016 Q1 Q2 Q3 Q4 2017 2016 2017 detailed multivariate analysis. D em and 9 4 .6 9 5 .1 9 5 .4 9 6 .3 9 6 .3 9 5 .8 9 6 .4 9 6 .5 9 7 .5 9 7 .4 9 6 .9 1 .2 1 .2 In physical markets – rather than futures OECD 4 6 .2 4 6 .6 4 5 .9 4 6 .6 4 6 .4 4 6 .3 4 6 .6 4 5 .5 4 6 .1 4 5 .9 4 6 .0 0 .1 (0 .3 ) – the relationship between contango and N o n -O E C D 4 8 .4 4 8 .5 4 9 .5 4 9 .7 4 9 .9 4 9 .4 4 9 .8 5 1 .0 5 1 .3 5 1 .5 5 0 .9 1 .1 1 .5 inventory is likely to be much stronger. This N o n -O P E C s u p p l y 5 7 .3 5 7 .3 5 6 .0 5 6 .2 5 6 .2 5 6 .4 5 5 .9 5 6 .0 5 6 .2 5 6 .1 5 6 .1 (0 .9 ) (0 .4 ) is because these markets essentially remove the financial froth and focus more on the N o n -O P E C e x c l N A 3 6 .6 3 6 .6 3 6 .4 3 6 .3 3 6 .1 3 6 .3 3 5 .7 3 6 .0 3 5 .7 3 5 .6 3 5 .8 (0 .3 ) (0 .6 ) N o r t h A m e r ic a 2 0 .7 2 0 .8 1 9 .7 1 9 .9 2 0 .0 2 0 .1 2 0 .2 2 0 .0 2 0 .5 2 0 .5 2 0 .3 (0 .6 ) 0 .2 actual balance of hydrocarbons in tanks. FS U 1 4 .0 1 4 .1 1 3 .9 1 3 .9 1 4 .0 1 4 .0 1 4 .3 1 4 .0 1 4 .0 1 4 .1 1 4 .1 0 .0 0 .1 Indeed, when storage capacity became tight in Cushing, Oklahoma earlier this year, the WTI O P E C N G L s /C o n d e n s a t e s 6 .8 6 .8 7 .0 7 .0 6 .9 6 .9 7 .0 7 .0 7 .2 7 .2 7 .1 0 .2 0 .2 cash roll (a physical differential between the C a ll o n O P E C c r u d e 3 0 .5 3 1 .0 3 2 .3 3 3 .1 3 3 .2 3 2 .4 3 3 .4 3 3 .5 3 4 .1 3 4 .1 3 3 .8 1 .9 1 .4 spot price and the price of oil for delivery one O P E C c ru d e 3 2 .2 3 2 .5 3 2 .7 3 3 .1 3 3 .1 3 2 .8 3 3 .0 3 3 .2 3 3 .5 3 3 .5 3 3 .3 0 .6 0 .5 month forward), blew out by over $1 per barrel S t o c k b u ild 1 .7 1 .5 0 .4 (0 .0 ) (0 .2 ) 0 .4 (0 .5 ) (0 .3 ) (0 .6 ) (0 .6 ) (0 .5 ) to $2.50, and movements in the cash roll are Source: Energy Aspects Energy Aspects global balance, mb/d often the most accurate indicator for stocks at Cushing in the corresponding month. This implied the cost of storage for just one per month). But US stocks have risen over the forward crude oil balance indicates a stock month was in the region of $2.50 per barrel, period, which appears counterintuitive given draw of around 20 mb in 2017. But, in the US, as tanks were full, and some operators even the generally accepted relationship between inventory surpluses to the five-year average ceased blending activities at the hub. Similar inventory and price. may be here to stay. developments have occurred in the North Sea, Clearly, the futures market is anticipating The market is now more reliant on domestic when on-land storage became so tight some lower volumes of oil heading into tanks across supplies and the associated reduction in physical players moved oil into tankers to store the next year or so. But, these stock draws are imports means refiners don’t have inventory on the water; a more expensive proposition, yet to materialise. Therefore, it is the expecta“on the water” for up to two months. This as alternative storage space was unavailable. tion of draws that is driving price action today, is an effective reduction in days of forward These physical market phenomena are as opposed to large identifiable ones. Indeed, cover, which has necessitated the build out of observable on a daily basis in the oil market; across Q2 2016 US total liquids inventory rose onshore tankage in order to compensate. but are difficult to track without an innate by 106.3 mb versus year ago levels, even knowledge of their individual storage ecodespite the $5.65 per barrel tightening in curve US PIPELINE NETWORK WILL SUPPORT DEMAND FOR nomics. structure. STORAGE FOR SOME TIME Similarly, the huge pipeline build-out in North RISING INVENTORY CHANGED THE SHAPE OF THE A BALANCING MARKET America over the last three years has massively BRENT CURVE Outside of the US, there have already been increased the volume of crude held in linefill, to Fluctuations in US liquids inventories are some signs of a move to a more balanced up to 30% of total US inventory. This is unlikely accompanied by corresponding movements in liquids market. to be drawn down and will instead continue to price. After trading in backwardation between Global liquids stock builds in Q3 2016 to rise as the midstream adds capacity. Similarly, 2011 and mid-2014, Brent spreads had dropped date are flat; implying the market is in balance. the massive volume of operational stock into a steep contango, of -$10.65 per barrel by But in order to rebalance the market, and required to operate these systems will continue January 2015 (implying a maximum marginal bring inventories down to historical norms, it to occupy tank space. cost of storage of 82 cent per barrel across must move to deficit (where demand exceeds The huge rise in crude oil blending in the US the period). But the move into contango first supply), thus prompting inventories to fall and, has necessitated segregated tankage. Larger occurred six months earlier, in August 2014. subsequently, prices to rise. As the futures volumes of different crudes are held in tank, in This was the first time the ICE Brent Month market is a domain for speculation, particiorder to have sufficient blendstock to use. 1 to 13 spread had traded in a contango on a pants are positioning themselves accordingly What this likely means is that whilst we will calendar month average basis in 41 consec– initiating positions in anticipation of the see a slow and continued rebalancing through utive months. In the six months prior to the rebalancing, in order to fully benefit from the 2017, as global inventories tighten in response August move to contango, US liquids stocks anticipated price increase. to lower production, the amount of oil held in rose by a monumental 76.2 million barrels Indeed, Energy Aspects’ global balance sugthe US is unlikely to fall by as much propor(mb). Between now and then, they have gests stocks will draw by 0.5 mb/d on average tionally, because of the working inventory added a further 250.4 mb in stocks. With simacross 2017. Although, there is a risk that conrequirement, operational stock, and line fill. ilar storage builds elsewhere across the globe, tinued Middle Eastern output at current levels This can mean that the relationship between ICE Brent Month 1 to 13 spreads have traded could put a dampener on balances; greatly US liquids inventory and Brent spreads in a consistent contango for 23 consecutive reducing the size of projected stockdraws. loosens, and instead inventories outside of the months. Whatever the balance projections show, for US, which are far more opaque, become the storage rates to meaningfully drop, actual key driving force. Indeed, they likely already EXPECTATION OF FALLING INVENTORY IS A KEY DRIVER hydrocarbons will need to be drained from are, and the markets focus on US inventory OF PRICE TODAY tanks – the expectation of such an event is is perhaps predicated on its timeliness and Expected changes in various elements of insufficient. In turn this should reduce storage granularity, rather than its role as a predictor global oil supply and demand balances are costs, and lead to a corresponding tightening of price. driving movements in prices today rather than in ICE Brent spreads. discernible US inventory drawdowns. Over Q2 2016, the average contango in ICE Brent THE FUTURE FOR STORAGE Month 1 to 13 futures has narrowed to -$3.32 Energy Aspects’ forward balances imply a FOR MORE INFORMATION per barrel, or 26 cents per barrel per month. 183 mb draw in global oil inventories; clearly This article was written by Dominic Haywood, This compares to an -$8.97 per barrel contango dramatically reducing demand for storage. crude oil analyst, Energy Aspects. across the same period a year ago (70 cents Some of this will happen in the US, where our www.energyaspects.com
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MARKET ANALYSIS l SHALE ENERGY
SHALE: AMERICA’S ENERGY REVOLUTION
T
he American energy revolution is a shale energy revolution. According to the US Department of Energy, ‘up to 95% of new wells drilled today are hydraulically fractured, accounting for more than 43% of total US oil production and 67% of natural gas production’. Without technological advances in hydraulic fracturing and horizontal drilling, which have unlocked previously inaccessible resources in shale formations, the US would not lead the world in oil and natural gas production. ENERGY LEADER Transfer of the world energy leadership mantle from Russia and Saudi Arabia to the US is a significant development with major economic and geopolitical implications. The influx of additional production has added stability to world markets, putting downward pressure on prices and reducing the impact of supply disruptions and unrest in less stable regions. In the US, the resulting energy security translates to major savings for families and businesses. Drivers saved about $550 last year in transportation fuel costs, and a study from IHS estimated that average US disposable household income was $1,337
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higher in 2015 given lower home energy costs and other savings brought about by unconventional development. Reduced power and materials costs for producers of steel, chemicals, refined fuels, plastics, fertilisers and numerous other products give American manufacturers a competitive edge. US industrial electricity costs are 30-50% lower than those of foreign competitors, according to a recent study from the Boston Consulting Group. American manufacturing costs are now 10 to 20% lower than those in Europe and could be 2% to 3% lower than China’s by 2018. Also, a major, overlooked, by-product of the fracking-driven energy resurgence is a significant reduction in greenhouse gas emissions. The US leads the world in the reduction of carbon emissions. Energy-related carbon dioxide emissions dropped 12% below 2005 levels last year, the Energy Information Administration (EIA) reports, ‘mostly because of changes in the electric power sector’ – specifically, ‘increased use of natural gas for electricity generation’. Energy-related carbon emissions for 2016 are projected to reach their lowest levels
since 1992. The abundance of clean-burning, affordable natural gas for power generation, and resulting emissions declines, would not be possible without fracking. MARKET GAME CHANGER From a geopolitical perspective, the expansion of US crude oil and LNG exports has the potential to be a game changer. An International Energy Agency (IEA) report projects the US will become the world’s third-largest LNG supplier in five years, behind Qatar and Australia. According to Bloomberg, Energy Aspects says global LNG export capacity will grow 45% by 2020, and the US share will surge to 14% – from virtually nothing. Costanza Jacazio, IEA senior analyst, says: ‘The US clearly changed the picture. It’s going basically from zero to the third-largest LNG capacity holder in the space of five years and it brings a new flexible dimension to the LNG market.’ One aspect of that flexibility is greater choice and, ultimately, security for allies, including eastern and central European nations, dependent on energy supplies from less stable regions or nations that have used energy resources as a political weapon.
NORTH AMERICA SUPPLEMENT 2016
MARKET ANALYSIS l SHALE ENERGY
IEA’s Fatih Birol explains that ‘the fact that US Atlantic [gas exports] can come at any moment, the fact that there is an alternative there ... is very important for Europe’ in cases involving ‘a major exporter of gas that wants to increase the prices’ or a ‘neighbour [that] doesn’t behave himself’. RELEASING US EXPORTS That moment has now arrived. Despite a lengthy bureaucratic process required to approve US LNG export facilities, the first LNG shipments were transported from Louisiana to Europe earlier in 2016. In another first, US LNG cargo passed through the newly expanded Panama Canal this summer, bound for Asia. The expanded canal is reported to reduce transit from Gulf Coast export terminals to Japan to 20 days, compared to the previous 31 to 34 days (moving either through the Suez Canal or around the southern tip of Africa, respectively). It also reduces travel time from the Gulf Coast to potential South American LNG markets. After Congress voted in December 2015 to lift the outdated, 40-year-old ban on crude oil exports, US producers now have new access to global crude markets. Since the ban was lifted, US crude has shipped to the UK, France, Germany, Italy, Switzerland, the Netherlands, Israel, China and Panama – further diversifying global supply options and providing an outlet for US producers. STORAGE CAPACITY GROWTH Growth in domestic storage capacity has also helped bolster the flexibility of US crude oil markets. The United States added 34 million barrels (6%) of working crude oil storage capacity from September 2015 to March 2016, the largest expansion of commercial crude oil storage capacity since EIA began tracking such data in 2011. According to EIA, the Midwest and Gulf Coast regions underwent the largest commercial crude oil storage capacity expansions since September 2015, adding 19 million barrels and 13 million barrels, respectively. Combined, these regions account for 82% of total US commercial crude oil storage capacity. In the Midwest, storage capacity at Cushing – the delivery point for the Nymex WTI futures contract – expanded by 1.5 million barrels. The expansion of crude oil storage capacity helped to accommodate the growth in US crude oil inventories, which increased in
NORTH AMERICA SUPPLEMENT 2016
24 of the 30 weeks from September to March, reaching 532 million barrels in June.1 MEETING WORLD ENERGY NEEDS Beyond fracking’s role in driving emissions reductions, the technology possesses environmental advantages as a production method. A 1999 Department of Energy report credits the combination of hydraulic fracturing and horizontal drilling with providing environmental benefits because ‘less wells are drilled, there is a smaller footprint, recovery is optimised, there is less produced water, less drilling waste, and - for hydraulic fracturing - protection of groundwater resources.’ And technology has only advanced since then. According to the EIA’s latest International
Energy Outlook, world energy consumption will increase 48% by 2040, largely due to expanding economic opportunities in developing nations, and 78% of global energy needs will be met by fossil fuels. Hydraulic fracturing will play an indispensable role in supplying US and global energy needs in the future. REFERENCES 1 http://www.eia.gov/todayinenergy/detail. cfm?id=26772 FOR MORE INFORMATION This article was written by Erik Milito, group director, upstream and industry operations at American Petroleum Institute.
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MARKET ANALYSIS l OIL PRICES
OIL SUPPLY AND STORAGE CAPACITY CONTINUES TO EXPAND The shale revolution continues to drives storage capacity expansion in the US despite market volatility from the fluctuating oil price
V
olatility remained intense for the oil market in 2016, with crude prices caught in the ebb and flow of hope and reality, and under increasing pressure from a continued expansion in a global oil supply glut. Bankruptcies of North American exploration and production companies accelerated while merger and acquisition activity was less robust as the forecast for the oil market remained muddled and the banking industry reined in their support. Low oil prices did incentivise greater demand in parts of the world, namely for petrol in the US, with implied petrol demand registering a 9.815 million barrels per day (bpd) record high weekly rate in mid-June, and remains on pace to set an all-time high in 2016. Data from the Energy Information Administration (EIA) shows implied petrol demand in 2016 through the end of August averaged 9.458 million bpd, 308,000 bpd or 3.4% more than during the same period in 2015. DEMAND GROWTH DYNAMICS Demand growth has been lopsided globally however, with a year-on-year expansion in China slowing and strong annual growth in India’s consumption rate hit a soft patch in mid-2016. Although annual global oil demand growth is projected at 1.5 million bpd this year, a sluggish expansion by the world economy impaired an even higher consumption rate. In the US, the slow growth recovery since the Great Recession entered its seventh year, with the Commerce Department’s Bureau of Economic Analysis reporting annualised gross domestic product growth at a slender 1.1% in the second quarter after annualised GDP growth of 0.8% in the first quarter and 0.9% in the fourth quarter 2015. The slow expansion restrained demand for diesel fuel in the US where it is primarily consumed in industrial and commercial segments of the economy. EIA data bears this out, with implied demand for distillate fuels, which include diesel and heating oil, down 189,000 bpd or 4.8% cumulatively
NORTH AMERICA SUPPLEMENT 2016
from January 1 through late August versus the comparable year-ago period. US distillate inventory rose to a five-year high of 166 million bbl in early January, holding below the 2009-2011 nearly 30-year high of 176 million bbl, when distillate supply increased amid recession. A no show winter in 2015-2016 added to the downward pressure on distillate demand, and prompted US refiners to shift their yield to greater gasoline production early in the first quarter that pushed US gasoline inventory to a 36-year high in mid-February at 259 million bbl. Adding to the supply growth in oil products, petrol output at US refineries repeatedly reached weekly record highs of more than 10 million bpd in 2016, with the higher processing rate achieved following capacity expansions at refineries that totaled roughly 350,000 bpd in 2015 to begin 2016 at 18.3 million bpd. Climbing capacity at US refineries, which increased 972,000 bpd or 5.6% from the start of 2012 and continued to grow in 2016, is a byproduct of the abundance of crude oil generated by the shale revolution.
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MARKET ANALYSIS l OIL PRICES
SHALE PRODUCTION Initially driving US crude production to a better than 40-year high, costly shale oil production was seen by many in the oil industry, especially members of OPEC, as a temporary sensation that would unravel with a low crude price. After peaking on the weekly chart in June 2015 at more than 9.6 million bpd, US crude production steadily declined for a year to reach an 8.4 million bpd 26-month low on July 1. US commercial crude inventory crossed the 500 million bbl mark in January for the first time since 1982, and continued to expand through the end of April when it reached the highest point since the 1920s at 543.4 million bbl. From May through mid-July, crude inventory was steadily drawn down to 519.5 million bbl as refiners processed more of the raw material, with the US refinery run rate holding above 90% utilisation from June 1 through the end of August. The higher processing rate simply transferred some of the excess crude supply into petrol storage tanks, with US petrol inventory building through late July when it typically is drawn down amid peak driving demand. The supply bubble in crude was shifting downstream to refined products, and not just in the US. The International Energy Agency noted this dynamic in their oil market report in August, with oil inventory held by the 34-country members that comprise the Organisation for Economic Cooperation and Development setting an all-time high in June at 3.093 billion bbl. PRICE DYNAMICS West Texas Intermediate futures traded on the New York Mercantile Exchange fell below the psychological $30 bbl benchmark in January for the first time since 2003, and traded at a 13-year low of $26.05 bbl in February. Greater price pressure was exerted upon the US crude benchmark compared with Brent crude futures traded on the IntercontinentalExchange, which fell to a $27.10 better than 12-year low in January, but avoided the second plunge below $30 bbl in February. Record high supply at Cushing, Oklahoma, the delivery location for the WTI contract, was again widening the WTI discount against Brent after reaching parity several times in December 2015 and January. The steep discount WTI held to Brent that began in September 2010 in the early days of the shale revolution and peaked at nearly $28 bbl in October 2011 was briefly erased after the United States in December ended restrictions on crude exports that had been in place since the 1970s. The end of western sanctions on Iranian crude exports in January also narrowed the spread between the US and world benchmarks. Yet, growing supply at Cushing, which reached a record high of 68.3 million bbl in May, again weighed on WTI. STORAGE CAPACITY Storage capacity at Cushing has been dynamic, with the buildout in shell capacity for crude surging by 56.5% in the five years ended in March to
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90.361 million bbl according to the EIA, an increase of 32.6 million bbl. This continues to expand. A buildout in crude shell capacity was also experienced in PADD 2 outside of Cushing, and in PADDs 3 and 4, with capacity expansions of 38 million bbl, 91.5 million bbl and 9.3 million bbl, respectively, over the same five-year period. Total US shell storage capacity for crude grew 171.3 million bbl or 31.6% during the five years ended in March and continues to expand. Likewise, storage capacity for refined products continues to increase, with the industry also adding or expanding export facilities with additional tankage highlighted by natural gas liquids in Texas and Philadelphia. Yet, despite bloated supply levels, US petrol imports in 2016 were above the five-year average every week apart from three from mid-April through late August. This was due to a combination of greater global refining capacity and surplus supply, a strong US dollar, and limited storage capacity in Europe that pushed more barrels to US shores. Floating storage has again been deployed despite its high cost. Nearest delivered Brent and WTI futures crossed over the $50 bbl psychological benchmark in 2016 for the first time in late May, reaching highs on June 9 at $52.86 bbl and $51.67, respectively, in response to supply disruptions in Canada and Nigeria. Wildfires in Alberta shut-in more than 1 million bpd of oil production in May and a new militant group in Nigeria, the Niger Delta Avengers, targeted oil and gas facilities that caused 750,000 bpd in crude production disruptions that month--the most in more than seven years. The upside didn’t last, with pressure on crude prices resuming in July, as the wildfires in Canada subsided and production resumed while the Nigerian government reached an agreement with NDA. Meanwhile, competition among global oil producers was intense, with the IEA reporting crude production by OPEC reaching an eight-year high in July and Saudi Arabia an all-time high. At the same time, US shale producers were reactivating rigs in response to the May-June rally, having sharply reduced operating costs. There was growing realisation that low-priced induced demand and slashed drilling budgets were not enough to cut down the mountain of supply as quickly as many hoped, and WTI and Brent sunk into a bear market in early August. Market sentiment was dour, and bankruptcies continued to climb. In their oil patch bankruptcy monitor, Haynes and Boone reported the 90th bankruptcy filing of North American exploration and production companies since the start of 2015 to the end of July that involved $66.5 billion in cumulative secured and unsecured debt. Forty-eight of those filings were made in 2016, with lawyers from the firm expecting more bankruptcy filings this year. The bear market didn’t last long however, with talk of coordinated action by OPEC and Russia to stabilize the oil market in August triggering a rally by crude, with Brent briefly topping $50 bbl. Speculation for a grand agreement between OPEC and nonOPEC producers emerged multiple times in 2016, highlighted by the “Doha initiative” in February and April. Yet a number of discussions have been reported among key OPEC members that suggest an agreement could still be reached in 2016, although an accord unlikely to quickly soak up the world’s surplus barrels. Reports also suggest a more cautious OPEC, looking for a higher world oil price, but not too high that would again bring US shale producers back into the fields. The revolution brought about by US shale producers continues.
FOR MORE INFORMATION This article was written by Brian L. Milne, energy editor with Schneider Electric. www.schneider-electric.com
NORTH AMERICA SUPPLEMENT 2016
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387
303 507 504
EUROPE
439
Terminal Name
Country
322 323 324 325 326 327 328 329 330 331 332 333 334 335 336 337 338 339 340 341 342 343 344 345 346 347 348
Societe du Pipe-Line Sud-Europeen (SPSE) France Compagnie de Distribution des Hydrocarbures S.A.S. France Rubis Terminal SA (Stockbrest) France Raffinerie du Midi (Coignieres) France Entrepot Petrolier de Port la Nouvelle SAS (EPPLN I) France Rubis Terminal SA (Dunkirk) France Dépôt Pétrolier de la Côte d’Opale (DPCO) France Société Française Donges Metz (SFDM, Orveau) France Entrepôts pétroliers de la Gironde SAS (EPG) France LBC Bayonne France Rubis Terminal SA (Rouen) France CIM S.N.C. (Grigny) France CCMP (Nanterre) France CCMP (Pauillac) France LBC Marseille France Sea-Tank Rouen S.A.S. France Rubis Terminal SA (Strasbourg, SES D1) France CIM S.N.C. (Antifer) France LBC Le Havre France Dépôt de Pétrole Côtier (DPC Saint-Pol-sur-Mer) France Black Sea Terminal, LLC Georgia Channel Energy Poti Port JSC Georgia Batumi Oil Terminal Ltd. Georgia Unitank Holding GmbH & Co. KG (Raunheim) Germany Petrotank (Lünen) Germany Oiltanking Deutschland GmbH & Co. KG (Berlin) Germany TransTank GmbH (Gelsenkirchen) Germany
Port
Website
Marseille Fos www.spse.fr Marseille www.lyondellbasell.com Brest www.rubis-terminal.com Coignieres www.raffinerie-du-midi.fr Port la Nouvelle www.total.com Dunkerque www.rubis-terminal.com Dunkerque www.total.com Orveau Bordeaux Bayonne www.lbctt.com Rouen www.rubis-terminal.com Grigny www.cim-ccmp.com Nanterre www.cim-ccmp.com Bordeaux www.cim-ccmp.com Marseille Fos www.lbctt.com Rouen www.sea-tankterminal.com Strasbourg www.rubis-terminal.com Le Havre www.cim-ccmp.com Le Havre www.lbctt.com Dunkerque www.raffinerie-du-midi.fr Kulevi www.kulevioilterminal.com Poti petrocasenergy.com Batumi www.batumioilterminal.com Raunheim www.unitank.de Lünen www.petrotank.de Berlin www.oiltanking.com Gelsenkirchen www.transtank.de
Total Cap. (m³) No. Tanks
Products
Access
2,260,000 122,600 131,000 152,000 130,610 476,000 1,800,000 214,000 136,100 124,000 658,000 117,593 115,000 395,600 118,000 107,000 304,000 640,000 104,000 130,000 320,000 120,000 612,900 171,000 150,000 357,169 244,000
CO PP PP PP PP PP, CP, VO, OP CO, PP PP PP CO, PP, CP, VO, OP PP, CP, OP PP PP PP PP, CP, VO, B, OP PP, CP, VO, OP PP, B CO, PP PP, CP, VO, OP PP CO, PP, CP, LPG PP CO, PP, NGL PP PP, B PP PP
S, P RD, P S, RD RD, P S, RL, RD S, B, RL, RD, P S, RL, RD, P RD S, RD S, RL, RD S, B, RL, RD, P RD, P RD, P S, RD, P S, B, RL, RD, P S, B, RL, RD B, RL, RD, P S, P S, B, RL, RD S, RD, P S, RL, P S, RL S, RL, RD, P B, RD, P B, RD B, RL, RD B, RL, RD, P
40 11 22 13 20 125 70 11 12 28 139 30 10 24 82 28 33 6 93 10 16 8 142 15 12 30 65
22
303 507 511
439 514
554 558
519
549
288 284
561 564
287
289
505
8 12 12
556
9 9 12
401 402 403 408 407 406
464 503 498 487
491
481 482 473 448 449
469
499 477 486 495 476 500 480
483 496 470
462
494
484
405
443 446 447 444 445
386
441
442
384 385 383
546
545
410
485
380
382
466
454
464 503
533
450 451
500 480
505
483 496 470
462
484
405
443
438 436 435 353 354 369 356 434 433 432 430 419 355 420 431 359 371 374 429 426 424 428 418 440 370 417 437 427 423 422 366 552 557 559 415 411 347 425 421 416 555 565 277 367 379 560 563 412 414 413 365 362 358 258 259 260 261 348 327 328 257 357 372 349 363 263 308 341 262 264 265 266 352376 345 378 368 321 332 268 364 319 267 269 270 271 351 340 273 313 339 274 275 276 361 337 272 350 520 521 522 523 325 324 333 334 315 375 360 529 530 524 525 329 338 528 527 526 373 312 311 377 459 390 392 397 460 314 280 279 278 398 393 389 316 320 310 388 335 399 396 317 318 331 330 320 395 391 394 322 323 336 471 472 309 488 493 479 326 497 400 463 467 474 475 491 478 490 492 469 485 481 482 473 494 466 468
499 477 486 495 476
289
404
408 407 406
551 553
446 447 441
444 445
442
384 385 383
386
546
452
410
543
381
531 537
541
461
501 409
7
381
199
17 6
197
63
456
198 27
52
70
76
18 68
20 112 121 54 39
502
110
75 106 116 117
91 92 94 107
118
101 113 71 25 41 45
178 169
96 47
28 72 80
281
17
544 536 535 540 534 5 541 538
382
380
489
539 532 409
448 449
287
401 402 403
510
342 343 344
501
7
288 284
515
458
544 536 535 540 534 542 541 538
541
461
457 291 293 294 453 455 292 297 295 296 298 299
547
452
478 490 492
468
450 451
404
549
562 550
2 2
307
285 286 290 283
548
561 564
11 11 11 3 28 13 12 15 10 12
302 305
510
438 436 435 353 354 369 356 562 434 433 432 430 419 355 420 431 359 371 374 550 429 426 424 428 418 440 370 417 437 427 423 422 366 552 557 559 415 411 347 425 421 416 555 565 277 367 379 560 563 412 414 413 365 362 358 258 259 260 261 348 327 328 257 357 372 349 363 263 308 341 262 264 265 266 352376 345 378 368 321 332 268 364 319 267 269 270 271 351 340 273 313 339 274 275 276 361 337 272 350 520 521 522 523 325 324 333 334 315 375 360 529 530 524 525 329 338 528 527 526 373 312 311 377 459 390 392 397 460 314 280 279 278 398 393 389 316 320 310 388 335 399 396 317 318 331 330 320 395 391 394 322 323 336 471 472 309 488 493 479 326 497 400 463 467 474 475
Each listing includes: Terminal Name Terminal Country Terminal Port Terminal Website Total Cap. (m³) Number of Tanks Products stored Access Draft Max (m)
307
302 305
518
509
282
457 291 293 294 453 455 292 297 295 296 298 299
515
551 553
465
306
518
509
282 285 286 290 283
548
304 300
508
513 512
516 517
506
306
300
508
513 512
516 517 519
487
504
514
554 558
11
498
301
304
Draft Max (m)
465
556
511
506
170 175 168 171 172
44
568
567
570 569 571
New 2016/17 Tank Storage map – FREE to all Tank Storage Magazine subscribers 133
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146
135
137 153
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79 82
97 99
62 127
163
104
60 74
151 145
134 140
15
98 120
24 33 109
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90 95
64 88
149
138 150
141 144 152
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173 174 176
129 131 29 26 65 119 126 132 48 38 58 100 69 102 32 34 57 21 37 46 89 132 35 49 87 114 84 111 66 67 126 19 73 85 115 36 42 43 53 77 78 93 103 122 50 55 61 108 123 86 131
574 576 578 581 582 583 586 588 589 590 592 593 575 572 577 579 585 587 591
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MARKET ANALYSIS l CRUDE EXPORTS
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THE FORCE AWAKENS – THE IMPACT OF US CRUDE OIL EXPORTS 454
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Heading: Market analysis | Crude exports
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The force awakens – the impact of US crude oil exports
With the removal of crude oil restriction, market forces are expected to stimulate more exports of US grades of crude as the country re-enters the global export market
568
567
570 569 571
With the remove of crude oil export restrictions, market forces are expected to In December 2015 Congress passed a bill to lift the 40-year ban on US crude oil exports. Soon after the stimulate more exports of US crude as the country re-enters the global export market President signed it into law, Enterprise Products Partners loaded the first cargo. 133 566
165
164
162 161
The impact of this change on the oil and shipping industry has been far-reaching and created various 574 576 578 581 582 583 586 588 new trade routes as well as re-instated some old ones. More profound changes are likely for the future 589 590 592 593 191 also narrowed the spread between the WTI and Brent n December 2015 Congress passed a oil prices, but 575 572 192 as the oil export infrastructure in the US improves, foreign markets for US crude are further developed 577 579 585 145 573 40-year ban on US crude oil bill to lift the benchmarks. The151spread almost disappeared completely towards the end 587 591 142 147 148 and (most importantly) domestic production will start to increase again. exports. Soon after the President signed it of 2015 because infrastructure bottlenecks that prevented US shale oil 134 140 146 into law, Enterprise Products Partners loaded to reach refiners in North America in a cost effective manner were being 135 Crude price impact the first cargo. resolved. 137 153 139 149 The impact of this change on the oil and Prior to the lifting of the crude oil export ban, increasing volumes of The lifting of the crude oil export ban has had a significant impact on oil prices, in particular the Brent15 138 150 shipping industry has been far-reaching and US oil were being shipped to refiners in Canada, who had been exempt WTI spread. As the production of US shale oil increased dramatically in the period from 2011 through 141 144 created various new trade routes as well as from the ban. Most of the oil destined for Canada was Eagle Ford crude 152 143 2014, spurred on by ever-increasing world crude oil prices, the spread between the price of domestic re-instated some old ones. More profound shipped from the US Gulf to Canada’s East Coast in Aframax sized WTI and Brent expanded rapidly (see picture 1). In January 2014, the differential between these two changes are likely for the future as the oil crude oil tankers. marker crudes exceeded $15 per barrel. Crude oil prices peaked well above $100 per barrel for Brent in export infrastructure in the US improves, the summer of 2014, before global overproduction started to erode prices. At their November 2014 foreign markets for US crude are further 136 developed and (most importantly) domestic 2 production will start to increase again.
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CRUDE PRICE IMPACT The lifting of the crude oil export ban has had a significant impact on oil prices, in particular the Brent-WTI spread. As the production of US shale oil increased dramatically in the period from 2011 through 2014, spurred on by ever-increasing world crude oil prices, the spread between the price of domestic WTI and Brent expanded rapidly (see picture 1). In January 2014, the differential between these two marker crudes exceeded $15 per barrel. Crude oil prices peaked well above $100 per barrel for Brent in the summer of 2014, before global overproduction started to erode 4 prices. At their November 2014 meeting, the OPEC countries decided that they would not cut production to 16 support oil prices. This accelerated the overall decline in crude
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Chart 1 (Brent-WTI Spread): Source: Bloomberg
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MARKET ANALYSIS l CRUDE EXPORTS
Each Aframax tanker carried some 600 – 700,000 barrels. At its peak, Canada imported more than 650,000 barrels per day (b/d) from the US. Not all of this was moved by tankers. Canadian refiners also used crude by rail and pipelines. During 2014, US crude oil exports also included modest amounts of Canadian barrels. Some 30,000 b/d of Canadian-produced barrels were moved through the US to the Gulf Coast and then re-exported to countries like Switzerland, Spain, Italy and Singapore. Ironically, the volume of US crude oil exports initially declined after the ban was lifted. The reduction of the Brent-WTI spread made it more attractive for Canadian refiners to buy foreign light sweet crude rather than similar grades from the US. However, while sales to Canada declined, US crude oil exports to other countries gradually picked up and in recent months total volumes have surpassed previous highs. EXPORT DYNAMICS In a note published on August 16, 2016, the US Energy Information Administration (EIA) listed the main destinations of US crude oil exports in 2016. Canada takes about 50% of the crude exports and therefore remains by far the largest importer of US crude oil. Number two on the list is Curacao with an average volume of 54,000 b/d. Third is the Netherlands (39,000 b/d), while Japan comes in fourth (17,000 b/d). Smaller volumes are going to to Italy, France, the United Kingdom, the Bahamas and China, among others. The exports to Curacao are particularly interesting. The main supplier of US crude oil to Curacao is BP, which concluded a term contract with Petroleos de Venezuela (PDVSA), the state-owned oil company of Venezuela. PDVSA operates a refinery as well as crude and petroleum storage facilities on the island, where light grades imported from the US are blended with heavy Venezuelan grades, which are then exported to PDVSA’s customers. The movements from the US Gulf to Curacao are predominantly done on Aframax tankers. When evaluating US crude exports as a whole, it is clear that the vessel of choice is the Aframax tanker. Vessel employment data from Lloyds Intelligence’s APEX service shows that Aframaxes and Suezmaxes are the predominant vessel classes used for crude oil exports in 2016, with 64% of the volume moving on Aframaxes and 28% on Suezmaxes, with the remaining 8% transported on other vessel classes. The reason for the dominance of the Aframax and Suezmax tankers in the export trades is the current port infrastructure in the US. Most of the oil terminals in the US are located in the Gulf area, where ports are generally draft restricted. The restriction of US export infrastructure to medium sized tankers makes US crude oil less competitive in long-haul destinations such as in Asia as transportation costs in dollars per barrel are significantly higher
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Prior to the lifting of the crude oil export ban, increasing volumes of US oil were being shipped to refiners in Canada, who had been exempt from the ban. Most of the oil destined for Canada was Eagle Ford crude shipped from the US Gulf to Canada’s East Coast in Aframax sized crude oil tankers.
Chart 2 (US Crude Oil Exports): Source: EIA
Each Aframax tanker carried some 600 – 700,000 barrels. At its peak, Canada imported almost 600,000 barrels per day (b/d) from the US. Not all of this was moved by tankers. Canadian refiners also used for Aframax and Suezmax tankers than for Very Large Crude Carriers (VLCCs), which can carry two million barrels each (versus 650,000 barcrude by rail and pipelines. During 2014, US crude oil exports also included modest amounts of Canadian rels for Aframaxes and one million barrels for Suezmaxes). barrels. Some 30,000 b/d of Canadian-produced barrels were moved through the US to the Gulf Coast and then re-exported to countries like Switzerland, Spain, Italy and Singapore. FUTURE DEVELOPMENTS Ironically, the volume of US crude oil exports initially declined after the ban was lifted. The reduction of The exception is the Louisiana Offshore Oil Port (LOOP), which is capable the Brent-WTI spread made it more attractive for Canadian refiners to buy foreign light sweet crude of handling any size vessel (including 500,000 tonne Ultra Large Crude Carriers). However, LOOP is an import terminal and does not currently rather than similar grades from the US. However, while sales to Canada declined, US crude oil exports to have the capability to export crude. If its infrastructure is upgraded and other countries gradually picked up and in recent months total volumes have surpassed previous highs. LOOP is converted to enable both imports and exports, US crude would Export dynamics become more marketable worldwide. At the moment, it appears that the transformation of LOOP is at the drawing board stage only, but it has the potential to transform LOOP into a large international trading hub. Another development that could have an impact on the potential for US crude oil exports is the recent opening of the new expanded Panama Canal locks. The new locks can accommodate Aframax and (light-loaded) Suezmax tankers and would theoretically reduce the travel time of US crude to Asia. However, it is more likely that crude oil moving through the expanded Panama Canal will be destined for the US west coast, rather than make the long-haul trip to Asia. OPENING NEW MARKETS An interesting side-effect of the repeal of the crude oil export ban and the reduction of the Brent-WTI spread is that it has brought back west Africa to US crude oil trade. US imports of light sweet crude from Nigeria were as high as 1.3 million barrels ten years ago and this was primarily a Suezmax trade. As a result of the dramatic increase in domestic shale oil production since 2010, US imports from Nigeria almost disappeared in 2014-2015. However, as the Brent-WTI spread has narrowed, west African imports have resumed. In the first half of 2016, crude oil imports from Nigeria averaged well over 200,000 b/d. This is still a far cry from the levels of 2006, but a steep increase from last year. Going forward, we expect a bright future for US crude oil exports. As soon as oil prices recover, US tight oil production will resume its growth and with crude oil export restrictions removed, market forces are expected to stimulate exports of the light sweet US grades, while the sophisticated refiners in the US that have upgrade capacity will prefer to import cheaper heavier grades. The combination of higher imports and exports of crude oil will benefit the international tanker market.
FOR MORE INFORMATION This article was written by Erik Broekhuizen, head of tanker research and consulting for Poten and Partners. ebroekhuizen@poten.com.
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TECHNICAL NEWS
Technical news
All the latest terminal technical news from North America
Fort Vale unveils new version of Safeload coupler A new version of Fort Vale’s Safeload API bottom loading coupler, featuring an aluminium handle, has been launched exclusively for the US petroleum transfer market. The new handle reduces the mechanical effort required to open and close the popper during service, making the Safeload API coupler easy and comfortable to operate. It has a grab handle to make it quicker to manoeuvre the coupler onto the tank adapter and a non-slip ball for extra safety during actuation. The handle is lightweight and is an option across the entire Safeload API range, including a semi-automatic, a high-pressure and a manual version. The company says that the coupler ‘offers simple but effective design benefits that improve safety and keep maintenance requirements minimal’. Extended triggers cover
more than 60% of the adapter circumference, improving connection and reducing wear on the adapter. Also, a splined spindle offers greater engagement and strength to the handle and internal components than traditional pins. Euan Fisher, business development manager for petroleum products says: ‘One client has over 150 couplers in daily service and has had zero maintenance issues after seven year constant heavy use. ‘Scott Reiber, the manager of Holly Terminal, Spokane, Washington is happy to go on record saying: ‘I have been in the industry for almost 20 years and working on loading racks for over 18 and I can honestly say that the Fort Vale coupler is the best API coupler we have ever used’.’ The company’s semi-automatic API has been thoroughly tested, in line with international standards and subjected to an endurance test programme of 250,000cycles, which is 10 times the number of cycles called for. The coupler has been tested in conditions that replicate the rigors of daily service. The company has also brought to the US market the Safeload loading arm system. The key component of this is the balance mechanism, which is manufactured in
stainless steel instead of traditional cast steel with a coated finish. The base swivel assembly incorporates a 3-seal and dual needle/dual ball race bearing combination for maximum axial and radial strength and performance. Additional features include a swivel-stop device and an integral earth system present on all loading arm swivels and unique to the Safeload design.
Lightning Master’s products receive UL stamp of approval Underwriter Laboratories (UL) has listed Lightning Master’s stainless steel lightning protection products as adhering to UL 96A. UL is an independent American safety consulting and certification company concerning safety solutions in working environment. It provides safety-related certifications, validation, testing, inspection, auditing, advising and training services. Lightning Master’s products had to meet very specific,
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rigorous safety standards and requirements which are nationally and internationally recognised. The listed products are to be installed in accordance with the standard for safety for installation requirements for lightning protection systems, UL 96A for use with Class II, modified lightning protection systems.
The listed products include: streamer retarding air terminals, U-bolts, base plates, cable bonding lugs, saddle bases, swivel bases, bonding clamps and cable splices. Demand for lightning protection is increase as a result of the global increase of sensitive electronic equipment and greater awareness
of structural protection. Bruce Kaiser, chairman and CEO of Lightning Master, says: ‘We are pleased that our stainless steel products have received the UL stamp of approval. This approval is another example of our commitment to the safety of our clients’ facilities and their personnel.’
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TECHNICAL FEATURES l TANK PROTECTION
BLANKETING TANKS AGAINST THE FREEZE When it comes to tank storage and piping systems it is always best to prepare well in advance for the colder, winter months and have a freeze protection plan in place
E
ven the most durable and well-con01 Exterior heat blankets can be structed tanks cannot handle cold condiremoved when tions without some extra protection. they are not required This begs the question as to what can be done to protect tanks and piping from freezing 02 The most common and to preserve efficiency in cold weather. dilemma in piping There’s certainly more than one solution out systems during there, but they can be ranked into categories cold weather is malfunctioning of good, better, and best. valves, When storing liquids in large tanks, some manifolds and instrumentation operators might employ a circulation system to keep the fluid churning and moving. This 03 The blankets helps to prevent freezing during extreme save a significant amount of time and temperatures. expense While this solution can be somewhat effective, it has its limitations. Circulation systems usually come pre-installed, so if there are pre-existing tanks that need protection, circulation systems may not be able to work with them. If one does work, they are not always the cheapest route. What’s more, a circulation system won’t be enough to maintain efficiency during extreme cold. Additionally, it only works custom heating solutions. These heating with liquid storage – there is no such solution solutions will maintain the ideal temperature for gas tanks. for the tanks in question and instrumentation. Heating devices and operations constructed Some of these custom heating solutions are on an ad hoc basis by operators are even easily installed, exterior heat blankets that can less efficient and feasible. When a tank and/ be removed when they are not required. or piping system need to be warm to operate The amount of time and expense these well, operators have to do something when industrial heat blankets save is significant. A cold weather hits. But shrouding tanks in good example comes from plastics manufacmake-shift enclosures and using space heaters turing company Enduraplas. to pump hot air into the space surrounding Enduraplas’ manufacturing process involves them is not a time-effective or cost-efficient the use of large propane tanks, which they solution. pigtail together with piping to form one large Instead, the best option for protecting tanks tank. Joining the tanks provides continuity and piping systems is to use safe and efficient for the manufacturing process by eliminating
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the need for refills. However, cold weather hampered the efficiency of Enduraplas’ tanks significantly. The company found that they were losing significant pressure in their tanks when the temperature dropped below freezing. The pressure in the tanks fell low enough that the pigtail application stopped working altogether. Cold weather will diminish tank pressure considerably. This is due to the way molecular density reacts to temperature change—a fundamental matter of physics. When the needle drops, so does the pressure in fluids and gases (Water in its liquid form is the only exception). Keeping fluid levels high enough in
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TECHNICAL FEATURES l TANK PROTECTION
02
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a propane tank is hard and that is why propane tanks are often refilled prematurely through the winter. However in Enduraplas’ case, refills were unlikely to have helped. Instead, the company needed to keep the tanks at ideal temperature. They decided to use the Powerblanket custom tank heaters. Enduraplas’ marketing manager (we need to name this person) says: Powerblanket’s propane heaters worked so well that we actually only ended up having to wrap one tank per pigtail. ‘The blankets maintained a high enough pressure that the propane transferred to the next tank without any problem.’ In Enduraplas’ case, a custom-designed heat blanket not only prevented freezing but also increased efficiency. This is also the case for the storage of temperature-sensitive liquids that are not compressed gases. Wherever there is a need to maintain or regulate flow rates, extraction rates, pressure, or viscosity, custom tank heaters can ensure that operations are not disrupted by the cold. PIPING IN COLD WEATHER Moving gases and liquids between locations has its own set of challenges when faced with the effects of cold weather. A tank’s pressure high enough with a custom tank heater, there shouldn’t be any problem with pressure in the piping system. The most common dilemma in piping systems during cold weather is malfunctioning valves, manifolds, and instrumentation. Valves and instrumentation left out in the cold can work less than efficiently, and in extreme cases, can even fail. If a valve or instrumenta-
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tion fails, so can the whole system. This can cause a lot of downtime, expense, and hazard. However, even if the weather is not bitterly cold, valves and instrumentation can still run into problems when dealing with a gas pipeline. The formation of hydrates in a gas pipeline can occur even in temperature ranges above freezing. A hydrate is a solid, crystalline compound that forms when water molecules chemically bond to another compound under high pressure and low temperatures and this includes natural gases of any form. The formation of hydrates will inevitably occur near freezing temperature ranges. This means that the piping system does not have to be in an extremely cold climate to run into problems. Hydrate maintenance is therefore important for any gas line otherwise they can completely halt piping system operations. The primary areas of concern for hydrate accumulation happen at transition points such as valves and instrumentation. When it comes to preventing the accumulation of hydrates in
valves and instrumentation, custom heat blankets can also be useful. In contrast to boxed units or heat trace, valve and instrumentation heaters are easy to transport, remove, and store when they are not required. PREVENTING FROZEN PIPES AND VALVES Among the leaders in industrial heating solutions for tank storage and piping is Powerblanket. Powerblanket offers an innovative, easy-to-install solution that provides insulation and temperature regulation for tanks, manifolds, valves, instrumentation, and a myriad of other industrial applications. Powerblanket valve heaters, pipe warmers, and instrumentation heaters, protect these systems from ever freezing initially, while maintaining ideal temperature ranges for equipment.
FOR MORE INFORMATION www.powerblanket.com
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@KellyCryderman ICYMI: Suncor sells oil storage stake to Fort McKay First Nation #firstnations $su #ymm #oilsands
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@Lee_Saks #China | new crude storage facility opened at Dongjiakou port. storage capacity 7.5mm bbls. industry sources via reuters #OOTT #OIL
@WCELaw Major #oilspill response improvements planned for #BC – but only if #KinderMorgan pipeline approved
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@oilgas_refmktg #CITGO Citgo plans to appeal $120 million ruling in 2004 oil spill.
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