The famous Field of Dreams misquote “If you build it, they will come” certainly has proved true for the midstream companies that added a record 18.7 MMbbl of crude oil storage capacity in PADD 2 in late 2015 and early 2016. During that six-month period, crude inventories in PADD 2 blasted 24.4 MMbbl higher to a record 155.6 MMbbl. And while PADD 2 oil stockpiles have been shrinking somewhat in recent weeks, they remain above 150 MMbbl—a mark the PADD had never seen before this year. Storage levels have been particularly high at the Cushing, OK storage and distribution hub within PADD 2. Why is so much crude being socked away? Today, we continue our look at the new storage capacity being added in the U.S., and at why demand for storage has been so high.
For you diehard Field of Dreams fans, we should note that Ray Kinsella actually hears a disembodied voice whispering, "If you build it, he will come." But hey, let’s not quibble. The concept still works. Because a lot of crude oil storage has been built for a number of reasons, including blending opportunities, the need to replace de-facto storage from overseas imports, and the potential for taking advantage of market pricing in contango (where future prices are higher than today; see Skipping the Crude Contango). As we said in Episode 1, 34.3 MMbbl of new “working storage capacity” for crude oil became operational at U.S. refineries, tank farms and underground storage caverns between October 1, 2015 and March 31, 2016, according to the Energy Information Administration’s (EIA) latest twice-yearly report on crude storage capacity and capacity utilization (“Working and Net Available Shell Capacity,” released May 31).
Working storage capacity is defined by EIA as the difference between the bottom of a tank or cavern and the maximum safe fill line—in other words, a fair representation of what a storage facility could reasonably hold. The new crude storage capacity brought the national total to a whopping 585.5 MMbbl—not counting the 714 MMbbl of underground cavern storage along the Gulf Coast that is part of the Strategic Petroleum Reserve. More than half of the new capacity (18.7 MMbbl) added in fourth quarter 2015 and first quarter 2016 is located in Petroleum Administration for Defense District (PADD) 2, a 15-state region that reaches from Ohio to Oklahoma to North Dakota and that includes the Cushing, OK storage and distribution hub (the nation’s largest). Most of the rest (12.8 MMbbl) is in the six-state PADD 3 (Texas to Alabama, plus New Mexico and Arkansas), which now has 315.1 MMbbl of capacity in operation (28% more than it had five years ago)—and which we focused on in Episode 1.