European demand is down, most markets are in backwardation… Terrible time for the continent’s storage industry, right?
Definitely not. Speakers, questioners and commenters at the Platts European Oil Storage Conference in Amsterdam this week were dismissive of what might be called conventional wisdom, and saw plenty of opportunity.
Backwardation, which discourages storing any sort of commodity since the value of that product decreases as the calendar lengthens, “has a short-term and limited effect,” Charles Smissaert, general manager of Botlek Tank Terminal, said in the opening address of the gathering. By contrast, he said, storage is a “long-term business.” Even with the backwardation, what Smissaert described as “handling” rose 12% in the Amsterdam-Rotterdam-Antwerp storage region last year.
But Smissaert and others, while talking about the whole of the storage industry, did concede that much of the growth continues to come from movements of fuel oil. For example, Walter Moone, commercial director of the Netherlands division of storage giant Vopak, said the ARA last year exported 39 VLCCs of fuel oil to the Singapore market, a big gain from the prior year, “and we believe it will be sustainable.”
Reviewing Europe’s fundamentals, Moone said the region’s gasoline surplus is going to increase, its diesel deficit will decline, and all of those changes mean more opportunities for storage to even out the imbalance.
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The growing imbalances through the world were described through another perspective by Leo Drollas, well-known director and chief economist at The Centre for Global Energy Studies. And this one isn’t necessarily positive for the storage industry.
Drollas noted that the big seasonal swings in demand that were part of global fundamentals for years — big declines in the second quarter, lesser declines in the third quarter, big increases in the fourth quarter — have smoothed out. “With the decline in seasonal swings, the need of inventories to bridge demand swings has declined,” Drollas said.
Drollas also exhibited an estimate of tank growth in the last 12-13 years, and projections of the next three. The world has added 121 tanks of at least 3 million barrels of capacity since 2000, with big jumps in places like China (83) and the Asia-Pacific region (111), and declines where you’d expect it: the US (41), the EU (42), and Japan (21). The world will tack on another nine tanks of that capacity through 2015, Drollas projected.
Another relationship came through as the conference progressed: the poor state of the refining sector in Europe, with a steady stream of closures over the past few years, is actually a good thing for the independent storage business. As Damian Kennaby, a director at IHS said, “more imports as more r finers close create the need for more storage. Gross trade volumes and storage requirements will continue to be significantly higher.”
Or as Chris Hunt, the director general of refiner group UK Petroleum Industry Association noted, “I think your future is healthy…and I wish it were mine.”