Gulf Coast crude storage is at record levels and looks set to continue growing as new pipeline capacity opens up later this year from Cushing and the Permian Basin. At Magellan’s Analyst Day presentation last week (April 9, 2014) the company said that demand for crude storage at all locations remains strong with average utilization of 97 percent plus. OilTanking say their Houston crude storage is 99.1 percent contracted. Today we ponder where Gulf Coast crude stocks are located.
This blog is the third in a series looking at surging crude inventories on the Gulf Coast since the start of 2014. In Texas Bound and Flyin’ – Part 1 we described the ongoing drain of crude oil from the Cushing, OK Midwest trading and pipeline hub. Stocks at Cushing have fallen by over 13 MMBbl to under 28 MMBbl since the end of January in part because the new TransCanada Cushing Marketlink pipeline coming online to Nederland, Port Arthur. The crude exodus has also been encouraged by backwardation in the futures market (declining prices in forward months) as well as a surplus of outbound pipeline capacity at Cushing versus inbound supplies. In Texas Bound and Flyin’ – Part 2 we learned how as Cushing stocks fell Gulf Coast stocks increased by 36 MMBbl to 202 MMBbl since the end of January. That’s a record for crude stocks at the Gulf Coast since the Energy Information Administration (EIA) started collecting data in 1990. Alongside new, repurposed and reversed pipelines bringing crude to the Gulf Coast we noted increased inland and coastal waterborne movements as well as a build-out of crude by rail unload terminals – all adding to the flood of crude headed to Gulf Coast refineries. The ban on crude oil exports is exacerbating the situation. In this episode we look at the makeup of crude storage capacity in the Gulf Coast region.
This analysis coincides with the release of RBN Energy’s latest drill down report “I’m Waiting For the Crude – Gulf Coast Crude Terminals and Storage”. This RBN Drill-Down Report examines the impact of these new flows, discusses the need for new crude handling facilities and provides a survey of the terminal infrastructure expansions underway to accommodate the transition to a much more integrated and flexible Gulf Coast crude oil market. The report is available for download exclusively to RBN Backstage Pass subscribers. For more information on the report click the link in the ad below.
Comments
So the 64M question is what happens if storage space runs out on the Gulf Coast, which appears possible if not likely? Logic would suggest that the entire system would back up and well production would need to be ratcheted down. This would negatively impact everyone in the supply chain, who are counting upon full production of everything they produce. E&P's all have agressive drilling plans in place for 2014.
Sandy, it would be interesting for you to speculate who would be most jeopardized by such an event. Seems to me that the most expensive crude would be first impacted, namely the crude arriving by railcar from the Bakken and Canada. But then there are contracts to consider..... Loosening export restrictions is a political hot potato in an election year, especially when the dems are already fearful of losing the Senate. Maybe Obama needs to fall on the sword here, since he is a lame duck (very lame, at that).
If crude is already backing up what will happen in May when Seaway II starts moving crude South? RBN should survey the refiners to see what their plans are. The patriotic thing to do is cut off the supply of imported crude ASAP. After all. isn't the goal to get us to oil independence?? The first oil we should shut off is from Venezuela.
In reply to crude back-up by john sturm
John,
I agree that imports should be the first to suffer, and Venezuela would be a great candidate. But, I believe Venezuela produces "heavier" crude which the refineries need, while the problem child is domestically-produced light crude. Apparently, the refineries require a re-do to process light crude. And I guess all that confirms Sandy's response that "It's complicated"!
Very exciting and challenging times to be in the O&G business.
Sandy,
Are we extrapolating current trends to imply that we could reach an oversupplied market in the Gulf or are we saying it's currently oversupplied? And oversupplied generally or just with light barrels?
If PADD III has 200 MMbbl of working storage capacity, and current levels are at 137MM, aren't we near normal utilization levels for this time of year? So much has changed since Janurary that we can't assume this will remain the case, but at least right now, it appears we are far from a Cushing-type scenario (88% peak in Mar 2011).
In reply to Sandy, by James Benadum
There are a lot of unknowns in this equation. The crude inventory is at record levels for PADD 3 so we can assume we are beyond "normal" inventory levels. It is true that on paper available working storage capacity suggests that there is still slack in the system to meet current needs. The harder question is whether any slack in the system is located where it is needed or too far away to be useful ? The Cushing situation was far easier to interpret and involved a less complex distribution system.
There is significant new tankage in Corpus Christie / Ingleside area, both online and soon to be online. And inside the EF fairway there is new tankage at Gardendale / Sealy / Cuero / Oakville.
I suspect that some significant portion of USG "crude oil" inventory is actually condensate (including some bbls in the gray zone of "light crude" ). And these bbls are going to both conventional refining sector, Canadian diluent market, and Padd3 pet-chem demand. So, the Days Consumption calculation being commonly applied is overly bearish.
Since we posted this blog, LOOP contacted us to set us straight on the capacity of their underground storage caverns. We had stated that there were constraints with the brine water that placed a practical restriction on cavern storage at 35 MMBbl of crude versus the "nameplate capacity" of 52 MMBbl. LOOP assures us that the full underground storage can be used if needed and is not constrained by brine water considerations. They also told us that the latest cavern capacity survey shows that they can actually store as much as 60 MMBbl of crude underground in additon to 9 MMBbl of above ground tankage.
These additional volumes at LOOP do not alter the basic premise of our analysis - that Houston and Port Arthur/Beaumont region storage capacity is filling up rapidly with crude. LOOP still has storage capacity and can supply refiners on the eastern side of the Gulf region. However, in the absence of an east to west link before Shell builds the Westward Ho pipeline in 2015, LOOP is not able to stage barrels into refineries in Houston or Port Arthur/Beaumont.
In reply to LOOP Cavern Capacity by Sandy Fielden
Sandy,
In the temporary absence of the E-W pipeline, could barges be a solution to transport crude to the west? One person's problem becomes another's opportunity!