The dramatic drop in crude oil prices – all the way to below zero for the futures market – clearly shows the importance of liquid terminals and storage to the world oil market, the International Liquid Terminals Association said Tuesday.
“Liquid terminals are probably the most important business you’ve never heard of,” said ILTA President Kathryn Clay. “Terminals play an essential role in balancing the market. That was clearly demonstrated with the recent sharp drop in crude oil prices, which in turn, lowered refined product prices.”
Clay explained there were clear reasons for plummeting crude oil prices—a huge volume of foreign crude oil in the market, extremely limited demand because of stay-at-home orders across the globe and storage inventories spiking as both traders and producers look to find places to put unneeded oil and petroleum products.
Terminals store crude oil, gasoline, diesel, jet fuel, chemicals and liquid foods. Because oil traders and producers are looking for places to park their oil and refined products until demand rises, they are looking to terminals. Terminals, however, have limited space, and tanks are filling up faster than even the experts expected.
“Terminal storage improves the flexibility of the entire supply chain and provides an ability to respond to market fluctuations,” Clay said. “We usually have surplus storage even during periods of oversupply and lax demand. The global pandemic changed all the rules.”
Clay also noted that storing liquids is only a fraction of what terminals do. They also provide essential logistic services, including blending and organizing inbound and outbound transportation. While the storage part of the business is strong, throughput – or the amount of product flowing into and out of the terminal – is down sharply.
Most liquid storage terminals do not own the crude oil or petroleum products stored in their facilities. Storage is a contracted service offered to those that own and sell the product, such as petroleum producers, distributors or commodity traders. ILTA member companies plan for their facilities’ total storage capacities based on historic utilization rates and contracts with their customers.
As a result, it would be unwise for terminal operators to simply expand capacity to meet short-term market conditions. Expanding commercial capacity is a lengthy process that varies by the size of tank and permitting jurisdiction. Adding a new aboveground storage tank in a petroleum product terminal would typically take 12-18 months to permit and construct.