Storage Days

There’s been a lot of talk--and angst—this summer and early fall about the flood of crude oil headed to the Houston area from the Eagle Ford, the Permian Basin and other burgeoning oil-production regions. The angst seems worst for crude producers, who rightly wonder whether Houston’s looming shortfall of storage capacity will further disrupt crude oil logistics, contribute to more downward pressure on crude prices, or worse.  Understanding what’s ahead requires an in-depth look at the changing crude flows into Houston and that is precisely the subject of RBN Energy’s latest drill-down report. In today’s blog, we provide highlights of the report, which is available for download by RBN Backstage Pass holders, and discuss how the shift from waterborne to pipeline delivery of crude already is affecting the market.

Changes, expansions and reversals of the existing logistics system that supplies crude to 2.5 MMb/d plus of refining capacity in Houston have allowed refiners to expand output and process more crude than ever before. But there is still another 1.5 MMb/d of pipeline capacity coming into Houston by the end of 2015 and the decline in waterborne imports has reduced system flexibility. One company’s plans to build out over 17 MMBbl of crude storage in salt dome caverns south of Houston could alleviate some of the storage capacity challenges. Today we discuss the proposal.

Houston area refineries are currently operating with about a third less onshore storage (measured in storage days) than comparable refineries in other regions. Waterborne crude imports help to alleviate the challenges that this constraint can cause. But Houston is importing less waterborne crude nowadays – down by 0.5 MMb/d since 2011 to just under 1 MMb/d and that number will continue to fall as US production increases. When you add the challenges of handling crude quality issues, including apotential new requirement to segregate certain types of condensate, the storage shortfall looks even worse. Today we continue our analysis of Houston area crude storage.

Houston area refineries are the first to experience the full impact of the flood of domestic and Canadian production headed to the Gulf Coast in 2013 and 2014. These refineries have traditionally relied on floating storage in the form of import cargoes in transit to buffer them against supply shocks. Now the region is adapting to new crude supplies mostly delivered by pipeline. As imports decline, the floating storage option disappears, leaving the potential for congestion caused by inadequate onshore working storage. Today we calculate the storage impact of these changes.

During the days when Gulf Coast refineries were dependent on crude imports for the majority of their feedstocks, tankers delivered crude from overseas markets. Those same tankers also played an important role in preventing refinery supply disruptions because they acted as a floating storage component in the supply chain. With waterborne imports to the Gulf Coast declining as domestic and Canadian production is increasingly delivered by pipeline, the buffer provided by floating storage will be much reduced. Today we continue our series looking at Gulf Coast crude storage needs in the shale era.