Decline in Global Demand Leaves Oil Companies Searching for Storage

The sudden decline in demand amid the COVID-19 pandemic is bringing new challenges for oil companies, says GlobalData, a data and analytics company. Distant storage locations increase costs as transportation fees get factored in with storage fees. The limitations of storing light crude alongside heavy crude, add further difficulties for these companies.

Haseeb Ahmed, oil and gas analyst at GlobalData, comments, “North America is battling a severe shortage of storage capacity. The U.S. Energy department is leasing spare Strategic Petroleum Reserve (SPR) capacity to private companies. However, with U.S. crude inventories surging, it may be only a matter of time, before the country runs out of storage space.”

Meanwhile, the Asia Pacific region is dealing with inflated storage costs that have become nearly 40% higher due to excessive demand. Despite higher prices, companies such as SK Energy and Nayara Energy have taken on lease SPR spaces from their respective countries to store crude.

Further, Saudi Arabia is filling its large spare storage capacity with domestic production. In the wake of demand destruction and dearth of storage space, Saudi Aramco, the Kingdom’s oil giant, has offered up to 90-day deferred payment options for its crude deliveries to European oil refiners.

In Europe, maintenance activities at storage terminals are being delayed in Germany, Italy, and France. Expanded capacity of storage terminals is likely to be delayed as the activities are hindered due to a shortage of workers. Tankers anchored at ports are serving as floating storages to store surplus crude volumes.

Ahmed concludes: “The brighter side of this chaotic situation can be the likelihood of operators thinking on the lines of building enough storage spaces to tackle such unforeseen challenges. This may pave a way for increased investment in storage projects from private and foreign entities—particularly in nations that lack enough storage space. While India is one such example, developing four additional SPRs, countries such as Japan and South Korea may follow, especially when it comes to building emergency reserves.”

SOURCE: The Weekly Propane Newsletter, May 14, 2020. Weekly Propane Newsletter subscribers receive all the latest posted and spot prices from major terminals and refineries around the U.S. delivered to inboxes every week. Receive a center spread of posted prices with hundreds of postings updated each week, along with market analysis, insightful commentary, and much more not found elsewhere.