Sparks

Surplus oil: how much and where?

 By Nicholas Newman

No one is quite sure how much oil lies in storage. The exact amount held in state-owned and commercial storage around the world varies in response to prices, levels of production and demand, and seasonal variations. In order to balance supply and demand, OPEC and Russia joined efforts to reduce record inventories by agreeing a 1.8 million barrels a day output cut for the first six months of 2017. This move allowed prices to recover slightly, but a resurgence of US shale oil output and weaker than expected demand growth, have made little inroads into the supply glut and levels of storage. In response, OPEC and Russia are expected to extend production cuts to March 2018 to lower inventories of crude to their five-year average.

The scale of oil storage
As of July 2016, IEA estimates public and private inventories of crude at 8 billion barrels, stored on land or floating in tankers, boats and barges. OECD countries account for 5.7 billion barrels or 60 percent of the world’s known crude inventory. The US stores around 2 billion barrels and China stores a little less. A conservative estimate puts total inventory at about 80 days’ worth of global consumption. Given this huge overhang of supply and resurgent US shale alongside increasing output from Iraq , Libya and Nigeria, it is not surprising that Brent crude, the international benchmark, hovered between $47 and $52 a barrel in Spring 2017.

Why store crude?
It is normal practice for oil companies to build up stores of oil and refined products to meet expected changes in seasonal demand and against any interruption of supplies. For instance, American refineries build up stocks of winter heating oil during the summer and autumn, which are stored on barges. In 2014, barges on the Hudson River delivered 20 million barrels of oil or 70 percent of the home heating oil to the port areas of New York and Boston for onward distribution to retailers’ storage tanks and subsequent delivery to customers in the region.

Enbridge storage tank

Energy security is the prime motivation for government stockpiles. Many nations, including the US, China, India, Japan, South Korea and Spain have established Strategic Petroleum Reserves (SPR) in order to guarantee the availability of crude oil, petrol and heating oil in case of supply disruptions or unseasonable weather. For instance, North America’s Strategic Petroleum Reserve has sufficient capacity for 727 million barrels of crude oil.

In a rising market such as the first half of 2014, oil traders, companies and investors bought and stored oil for future delivery at a higher price and made a profit. Major market traders like Trafigua, Noble Group and Vitol Group made large profits from their oil inventories as prices climbed. Oil trading and market speculation has not ceased since the collapse of oil prices. Traders and investors continue to bet on oil prices on the futures market, where buyer and seller contract to buy or sell oil at a set date in the future. In the interim, the oil in question is stored. Rising prices in the last few months have encouraged withdrawals from storage but not enough to dent inventory.

Where is oil stored?
The estimated 8 billion barrels of oil is stored in a variety of containers and places on land and on seas.

Growth of an Oklahoma oil facility

In the US, oil is stored above ground in refineries, oil tank farms, pipelines and even railroad oil tankers. Refineries such as a South Philadelphia’s refining complex can hold around 1.8 million barrels. Across the US there are around 2,100 storage tanks, with 300 oil storage tanks, able to hold 85 million barrels of oil, concentrated in Cushing, Oklahoma. In October 2016, 66 million barrels of oil were stored at Cushing. The same year, around 20,000 idle rail tank cars, representing storage potential of 14 million barrels were used to store crude in the US.

Oil is also stored underground in billion dollar salt caverns and depleted oil fields. For instance the US Strategic Petroleum Reserve uses four main caverns in the Gulf of Mexico region. These means of storage are repeated in OECD countries and in South Africa, where the Saldanha Oil Terminal comprising six in-ground concrete storage tanks has a combined capacity of 45 million barrels.
Offshore, tankers dedicated to hold crude or petroleum products lie at anchor or travel unusually slowly to their destination. Some crude tankers can carry up to 2 million barrels of oil, equivalent to 5 million average sized automobile gas tanks. In May 2016, 40 super tankers holding 47.7 million barrels of oil were anchored off the coast of Singapore, according to Thomson Reuters Eikon. Rows of tankers anchored off the coasts of Gulf of Mexico, Malta and UAE and the Straits of Malacca remain a common sight.

Offshore, tankers dedicated to hold crude or petroleum products lie at anchor or travel unusually slowly to their destination

Cost of storage
In the US, the cheapest monthly storage comes in at 25 cents a barrel in salt caverns. It costs 50 cents a barrel in rail tankers. On water, floating storage on a large boat or barge will cost upwards of 75 cents a barrel. Most expensive, at $40,000 a day is storage on a Very Large Crude Carrier (VLCC) with a capacity of 2 million barrels.
As innovations such as electric cars and 3-D printing become more widespread and the transition to a low-carbon economy gathers pace, oil storage will continue to play an important, but diminishing role.

SEE MORE: How crude oil surplus is affecting Africa by Nicholas Newman

about the author
Nicholas Newman
Freelance energy journalist and copywriter who regularly writes for AFRELEC, Economist, Energy World, EER, Petroleum Review, PGJ, E&P, Oil Review Africa, Oil Review Middle East. Shale Gas Guide. https://nicholasnewman.contently.com/