Bulk Storage Terminals
Date May 2019
- As of the end of the first quarter of 2019, global liquid fuels inventories had declined 0.5 million barrels per day with increased demand more than offsetting production growth
- Modest growth in global liquids storage capacity is forecasted, with the largest capacity growth anticipated in Asia
- After trending lower throughout 2018, days of supply for U.S. crude oil were up approximately 10% at the end of May 2019 over last year
Gordon Brothers by the numbers
High barriers to entry temper new market entrants: Terminals require a large upfront capital investment, and the break-even point is high depending upon property costs, the variety of tank sizes, and similar factors. After making this upfront investment, the facility can expect to realize high operating margins, which reflects the capital-intensive nature of the business. Additional tankage tends to generate high margins due to small incremental operating costs; the main cost is the investment in tanks, pumps, roads, pipelines, and loading racks.
Liquefied natural gas storage is the most expensive and oil storage is the least expensive to construct. Provided facilities are maintained by competent operators, they can generate long-term predictable cash flows.
Dependence on chemical and petroleum markets: Bulk petroleum and chemical storage is the largest component of the specialized storage and warehousing industry, accounting for over 70 percent of industry revenue. The majority of this product segment is devoted to petroleum, particularly crude oil and fuel storage. Demand for third-party storage of bulk liquids grew steadily during recent years as more oil refiners and chemical manufacturers outsourced storage.
Storage of crude oil increased significantly in 2014 and 2015 as prices fell drastically and distributors and commodity investors looked to hold extra stock to hedge price ranges. The growth of this product segment is anticipated to slow, however, as oil suppliers adjust production levels and oil prices improve alongside growing demand.
Growing capacity needs: Refineries represent the main upstream suppliers of petroleum products for the industry. Domestic refinery expansion has not grown in recent years. As U.S. oil drilling and extraction has expanded over the past five years and refining capacity has not kept pace, bulk storage capacity for petroleum products has grown closer to full capacity. As a result, many oil companies are being forced to concentrate on developing additional storage facilities to satisfy their domestic refining needs.
Additionally, foreign refining and oil exports also grew throughout the period, leading to large imports of refined petroleum products, further increasing the need for bulk storage tanks, particularly at oil ports.
Storage capacity forecast: Global liquids storage capacity is expected to grow 5.7 percent between 2019 and 2023, increasing from over 7.7 million barrels in 2019 to over 8.1 million barrels by 2023. Asia, North America, and the Middle East account for the greatest liquids storage capacity growth from planned and announced projects, with capacity increases of 272 million barrels, 112 million barrels, and 106 million barrels, respectively, by 2023.
North America represents the second-largest market in terms of liquids storage capacity growth, accounting for 31 percent of projected global liquids storage capacity in the next four years.
Growth in oil production: United States’ crude oil production averaged approximately 11.0 million barrels per day in 2018, with forecasted production over the next two years averaging 12.4 million barrels per day in 2019 and 13.1 million barrels per day in 2020. However, while oil production should continue to grow, growth in oil inventories likely will remain restricted due to an increase in demand.
The U.S. Energy Information Administration estimates that global liquid fuels inventories declined by 0.5 million barrels per day during the first quarter of 2019, which largely reflects the fundamentals of an increasingly tight petroleum market.
Positive outlook for storage industry: In light of the above trends, the storage industry is expected to return to stronger growth over the next several years. This expected growth is supported by domestic demand for crude oil and petroleum products, which is forecasted to continue to grow at a slow, steady rate as domestic economic activity expands. Significantly, the price of oil and petroleum products is expected to return to consistent growth. Oil exports are expected to rise as more pipelines and other oil transportation infrastructure are built and as global oil demand rises.