From using up reserve storage spaces to paying premium for leasing third-party storage spaces, oil companies are dealing with a plethora of challenges due to sudden decline in demand post the Covid-19 pandemic. Distant storage locations increase costs further as transportation fees gets factored in along with the storage fee. Additionally, the relatively shorter shelf life of gasoline and jet fuels and the limitations of storing light crude alongside heavy crude, compound challenges for these companies.
North America is battling severe shortage of storage capacity. The US Energy department is leasing spare strategic petroleum reserve (SPR) capacity to private companies. However, with US crude inventories surging, it may be only a matter of time before the country runs out of storage space. North American oil producers and refiners are planning to use unconventional and cost-effective methods of storage such as rail cars, oil tankers and pipelines.
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Asia-Pacific, on the other hand, is dealing with inflated storage costs that have become nearly 40% dearer due to excessive demand. Despite higher price, companies such as SK Energy and Nayara Energy have taken on lease, SPR spaces from their respective countries to store crude.
Saudi Arabia is filling up its huge spare storage capacities with domestic production to export these crude volumes as and when global oil prices appreciate. In the wake of demand destruction and dearth of storage space, the Kingdom’s oil giant, Saudi Aramco, has offered up to 90-day deferred payment option for its crude deliveries to European oil refiners.
In Europe, maintenance activities at storage terminals are being delayed in Germany, Italy, and France, due to the Covid-19 outbreak. Capacity expansions of storage terminals are also likely to be delayed as the activities are hindered due to limited number of workers. Tankers anchored at ports are serving as floating storages to store surplus crude volumes.
The brighter side of this chaotic situation can be the likelihood of operators thinking on the lines of building enough storage spaces to tackle such unforeseen challenges. This may pave a way for increased investments in storage projects from private and foreign entities, particularly in nations that lack enough storage space. While India is one such example, developing four additional SPRs, countries like Japan and South Korea may follow suit, especially in building emergency reserves.
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