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What drives demand for tank storage?

Gepubliceerd Jacob on 31 mei 2018 9:04:01

PJK’s tank terminal commercial performance model

In this article we would like to explain PJK’s tank terminal commercial performance model and why this model offers essential insights into tank storage demand drivers.

Eager to know on a structural base what moves tank storage demand? Click here for a FREE trial of PJK’s Tank Terminal Week Report.

Intro PJK’s conceptual model

PJK’s tank terminal commercial performance model (see figure: 1) shows the relation between a terminal’s market environment and its commercial performance. The environment is divided into market fundamentals (which have a slow rate of change) and market dynamics (which have a fast rate of change). In our model the fundamentals drive dynamics. A terminal that has a good fit with market dynamics will find storage rates are being better supported. Besides market dynamics also market fundamentals influence storage rates.

Market fundamentals (see figure 2) are:
• The shape of the forward curve,
• The competitive structure and
• Logistical factors such as supply, demand, imbalances and trade flows.

 

Market dynamics (see figure 3) are:
• Inventory levels;
• Arbitrage and trade flows,
• Changes in product spec, and
• Variation in vessel sizes.

These variables have a direct impact on a terminal’s operations and on a terminal’s requirements. When a terminal is able to react faster to these dynamics in relation to its competition, it is more likely that it can create superior commercial performance.

PJK’s Tank Terminal Week Report has been based on these essential parametrics that drive tank storage demand. This report will improve your understanding of the world of oil trading and as a result offers you the chance to make intelligent decisions. Contact PJK International for more information. Or register on our website for the weekly newsletter.

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Drivers of Tank Storage Demand

Gepubliceerd Jacob on 14 mei 2018 11:22:40

Demand for tank storage capacity is heavily influenced by changes in the market environment as it alters client’s requirements and its profit potential. To identify which market variables are relevant and how these influence a terminal’s commercial performance, PJK International has developed a tank terminal market model: ‘PJK Tank Terminal Commercial Performance Model’.

In this model a number of important market variables are described and analyzed thoroughly. The most relevant are touched upon below:
1. Market structure
2. Price volatility
3. Arbitrage

Market structure

An oil price for immediate delivery is called spot price or cash price while an oil price for delivery at a specified date in the future is called a forward price. When we plot these various prices and order them from short to long term delivery, a forward curve is created.

When a futures price (second month) is below a futures spot price (first or front month), the market structure is in backwardation. In this case, the forward curve is downward sloping. When the futures spot price is below the futures price, the market structure is known as contango. In this case, the forward curve is upward sloping.

In a period of contango, oil traders are encouraged to buy oil products today and sell in the future when the spread between two months covers storage, shipping and finance costs. When this opportunity presents itself, product is being sold, shipped and stored, resulting in more business for tank storage companies. This play is known as a ‘contango storage play’ but is limited by the maximum tank storage capacity available.

In some rare occasions, when the time spread is large enough even tanker vessels are chartered by trading companies to store oil products. This is known as floating storage. In this rare environment demand for tank storage is high and pushes storage rates for spot availability. Backwardation discourages storing oil products as a trader can sell oil today at a better price than in the future.

Price volatility

Volatility is applied to describe fluctuations of oil prices and it relates to the level of uncertainty in the market. Historic volatility is calculated by the standard deviation of an oil price return series, measured during a certain time frame. There are other ways to calculate volatility i.e. looking at the daily high and low range of oil prices during a trading session or the estimated volatility of an option (implied volatility). Implied volatility offers an outlook on the expected volatility and is the opposite to historic volatility that looks back into recent history. It is important to understand that there are events that can impact the level of price volatility.

Important for tank storage companies to understand is that in times of high volatility, such as described in these three cases, trading volumes on the paper market are very high. As traders are able to make bigger profits in a high volatile regime when an old saying become reality: ‘buy low and sell high’. Taking into account that every paper position is squared by a physical position, one can understand that also physical trade will increase. More physical trade will eventually lead to more demand for tank storage capacity.

Arbitrage

There are several forms of physical arbitrage:

1. Geographical arbitrage identifies temporary price anomalies between different locations;
2. Time arbitrage seeks to benefit from the shape of the forward curve for physical delivery (see our article on market structure); and
3. Technical arbitrage seeks to benefit from the different pricing perceptions for particular commodity grades and specifications

From historical analysis we have learned that in the period between 1 January 2016 till 31 May 2017, 68% of the VLCC’s left for Singapore when the arb was open. 32% of the VLCC’s still undertook the voyage to Singapore when the arb was closed. So monitoring if arbs are open (or closed) is a good indication, to understand if trade between two regions is likely to increase. A positive trading environment, ultimately will influence tank storage dynamics.

Interested to learn what market variables impact the commercial performance, read our Tank Terminal Week Report. Contact me when you would like to receive a copy or get more information.

Jacob van den Berge (Marketing&Sales)

+31-850-662505

 

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ARA Tank Terminal Market Review

Gepubliceerd Jacob on 4 mei 2018 13:45:19

The ARA (Amsterdam – Rotterdam – Antwerp) region is one of the main global commodity trading hubs. Its central location within Northwest Europe and its excellent connectivity to local and global markets have attributed to this position. When we zoom into liquid bulk markets the above statements certainly apply: ARA plays a central part in global petroleum, chemicals and vegetable oil markets. There are very few international commodity traders that do not have a presence in ARA.

In order to support liquid bulk traders a massive amount of tank storage capacity is located in ARA. A lot of that capacity is managed by independent terminal operators. These terminal operators rent out tank capacity to third parties, The majority of this capacity is rented out to traders and the biggest market segment is the petroleum products tank storage market. In this article we will examine recent developments and outlook for the ARA tank terminals market for storing oil products.

When analyzing tank terminal markets one needs to keep in mind that this business is tied closely to the trading business. Traders need tank terminals to facilitate their physical operations. So in order to gauge the tank terminal market one can best look at trader’s business model and trader’s behavior. The central question here is: what circumstances make having access terminal capacity a profitable position?

If you are interested in the answer of this question, please drop me a mail and get the complete article.

Jacob van den Berge
Marketing & Sales Manager

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Planned investments, where are pockets of growth?

Gepubliceerd Jacob on 18 april 2018 15:22:36

Introduction

All over the world, there are independent tank storage companies that support market players in storing their oil products. They help oil companies that have downstream obligations with storing products or support trading companies seizing (arbitrage) opportunities or governments and oil companies with building their strategic reserves. Tank terminals have an important if not a primary function in the oil and gas value chain.

Terminals per region

At the moment, the TankTerminals.com database consists of 4.700 tank terminals per geographical region. This number is not evenly spread over these regions. The applicable regions are Africa, Asia, Europe, Middle East, Oceania, North America, Central America and South America.

Planned expansions

In figure 1 can be seen that most of the expansions are planned in the Middle East with 45% of the planned expansion allocated in this region. This region is followed by Asia with more than 25% of the planned expansions and Europe with more than 10% of the planned expansions. North America, Central America and Africa are other regions that have some expansions planned.

In terms of capacity we are talking about almost 40.000kcbm in the Middle East. Asia follows with more than 20.000kcbm and Europe with around 12.000kcbm. The other regions have all less than 6.500kcbm expansions planned.

When we sum all capacity projects that are under construction, under expansion or planned, the main growth area is the Middle East that will practically double in capacity. Other relatively fast growing tank storage areas are Africa and Oceania. In absolute terms, capacity growth in these regions is small.

Curious to learn more about the global tank storage industry and what the value is from these statistics for your business, contact us.

Jacob van den Berge, Market & Sales Manager TankTerminals.com & PJK International

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In which region is the most tank storage capacity under construction?

Gepubliceerd Jacob on 12 april 2018 19:39:18

Introduction

All over the world, there are independent tank storage companies that support market players in storing their oil products. They help oil companies that have downstream obligations with storing products or support trading companies seizing (arbitrage) opportunities or governments and oil companies with building their strategic reserves. Tank terminals have an important if not a primary function in the oil and gas value chain.

Terminals per region

At the moment, the TankTerminals.com database consists of more than 4.700 tank terminals per geographical region. This number is not evenly spread over these regions. The applicable regions are Africa, Asia, Europe, Middle East, Oceania, North America, Central America and South America.

Under construction

In figure 1 can be seen that in total there is 37.529kcbm under construction. The most tank storage capacity is in Asia. This is around 20.829kcbm or 56% of the total capacity. The Asian region is followed by South America (5.491kcbm or 15%) and Africa (4.027kcbm or 11%). Other more mature regions with respect to tank storage assets (Europe and North America) have only little capacity under construction. This ranges between 2% and 7%.

Some examples of major projects in Asia are from Brightoil in China. According to the latest news, in Dalian the capacity that is under construction is 4.800kcbm and Zhoushan is 1.200kcbm. Another major project is the joint venture between Petronas and Vopak of 2.100kcbm which will be commissioned in 1Q19.

Under expansion

Figure 2 shows that in total there is 20.461kcbm under expansion. Also in this case, Asia is the region where the most tank storage capacity is under expansion. Around 9.427kcbm or 46% of capacity is under expansion. Asia is followed by Europe (4.250kcbm or 21%) and North America (3.720kcbm or 18%). Other regions have little capacity under expansion which ranges between 1% and 7%.

Curious to learn more about the global tank storage industry and what the value is from these statistics for your business, contact us.

Jacob van den Berge, Market & Sales Manager TankTerminals.com & PJK International

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In what region is tank capacity the highest?

Gepubliceerd Jacob on 5 april 2018 11:08:25

Introduction

All over the world, there are independent tank storage companies that support market players in storing their oil products. They help oil companies that have downstream obligations with storing products or support trading companies seizing (arbitrage) opportunities or governments and oil companies with building their strategic reserves. Tank terminals have an important of not a primary function in the oil and gas value chain.

Terminals per region

At time of writing, the TankTerminals.com database consist of 4.628 tank terminals per geographical region. This number is not evenly spread over these regions. The applicable regions are Africa, Asia, Europe, Middle East, Oceania, North America, Central America and South America. In table 1, you can see the number of terminals per region.

Table 1: terminals per region (approximate figures)

Region # terminals # tanks Market share
Africa >150 >2.500 4%
Asia >850 >22.000 19%
Europa >1100 >28.000 24%
Middle East >125 >2.500 3%
Oceania >60 >1.250 2%
North America >1500 >25.000 35%
Central America >175 >3.500 4%
South America >400 >7.000 10%

From this table can be derived that most terminals are located in the US followed by Europe and Asia. Smaller regions with respect to terminals are Middle East, Africa and Oceania.
When analyzing tank storage capacity per region and per terminal, some clear distinctions can be found as can be seen from table 2.

Table 2: capacity per region (approximate figures)

Region Capacity (cbm) Market share Av. Cap. (cbm)
Africa >30.000 3% >150
Asia >320.000 34% >350
Europa >250. 27% >225
Middle East >45.000 5% >370
Oceania >4.000 0.4% >60
North America >20.000 23% >125
Central America >38.000 4% >180
South America >30.000 3% >70

Tanks per terminal and average capacity

In table 2 can be seen that most storage capacity is currently in Asia, followed by Europe and North America. Because of this perspective the top 3 has reshuffled and makes Asia, the region with most tank storage capacity.

When combining table 1 and table 2 the following charts can be derived: chart 1 tanks per terminal per region and chart 2 Average capacity per region.

Chart 1 shows that Asia and Europe have the most tanks per terminal. Both regions have more than 25 tanks per terminal. Middle East and Oceania follow by more than 20 tanks per terminal.

Chart 1 Tanks per Terminal

Chart 2 Average capacity per region

In chart 2 can be seen that the Middle East holds the most capacity per terminal. In the case of this region the average capacity per terminal is 370cbm. A good second place has been taken in by Asia with 350cbm. The third place is for Europe. The average capacity per terminal globally is 200cbm. This leaves Central America, Africa, North America, South America and Oceania.

The reason behind this ordering, although not part of this analysis, is that tank terminals in the Middle Eastern Asian region are new compared to more matured tank terminal regions such as Europe. Furthermore, especially in the case of the Middle East national governments have a stake in these assets. Both variables have led to the build of assets with a larger average capacity.

Curious to learn more about the global tank storage industry and what the value is from these statistics for your business, contact us.

Jacob van den Berge, Market & Sales Manager TankTerminals.com & PJK International

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ARA stocks down, led by fuel oil

Gepubliceerd Jacob on 19 oktober 2017 17:34:03

London, 19 October (Argus) —Oil products stored independently in the Amsterdam-Rotterdam-Antwerp (ARA) region fell by 3.1pc on the week to 5.51mn t today, reflecting a drop in fuel oil inventory, according to consultancy PJK.

Fuel oil stocks fell by more than 200,000t in the week to 19 October, reflecting a combination of steady exports to the Asia-Pacific region and lower inflows. The Olympic Leader — a very large crude carrier (VLCC) chartered by Socar — sailed to Singapore earlier this week. Meanwhile, imports from France, Latvia, Poland and the UK failed to make up for a lull in Russian inflows.

Jet inventories firmed by 8.1pc on the week as three long-range tankers offloaded cargoes from South Korea and the United Arab Emirates (UAE). Two of these ships — the Yang Li Hu chartered by China Aviation Oil and the Front Pumachartered by Total — saw their 90,000t cargoes taken into account this week despite arriving at Rotterdam on 8 October.

Naphtha stocks declined by 4.6pc on the week as lower import volumes failed to meet substantial demand from the cracking pool. While product came from Germany, Norway, Spain and the UK this week, inflows from Algeria and Russia — two major suppliers of naphtha to the ARA region — grind to a halt. Buying interests from petrochemical end-users remained strong on the back of a narrow naphtha-propane spread. Considerable volumes of naphtha were also shipped to customers along the Rhine this week despite worsening loading conditions on the river. In recent days, barges could only be loaded up to 60pc south of the Kaub bottleneck — the gateway to southwestern Germany and Switzerland.

Gasoline inventories edged 1.3pc up this week as higher import and export volumes largely balanced each other. Growing outflows to Asia-Pacific — including China and Pakistan — and the Mideast Gulf more than offset a dip in US-bound export volumes. PJK described outflows to west African countries, including Guinea, as average. Product was also shipped to Canada and the UK and imported from France, Italy, Spain, Sweden and the UK. Meanwhile, exports from the Baltic, the Mediterranean and northwest Europe exhibited a downward trend, according to fixtures list compiled by Argus. Spot tanker bookings of European gasoline with transatlantic discharge options for loading during 12-18 October fell to 260,000t, down from 370,000t for loading in the previous week, while spot tanker bookings of European gasoline with west African discharge options collapsed to 74,000t, down from 312,000t for loading in the previous week.

Gasoil stocks remained broadly unchanged on the week. Lower import volumes came from Estonia, Finland and Russia this week. Meanwhile, cargoes were shipped to France and the UK, lifting weekly export volumes within their long-term average range. PJK said demand from the hinterland was subdued this week.

Argus reporter: Benoit Petre

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What Drives Tank Storage Demand? Arbitrage!

Gepubliceerd Jacob on 16 oktober 2017 14:30:11

Geographical price differences will lead to increased trade! In this article we would like to highlight the subject arbitrage and what this theme has for impact on the tank storage market.

Introduction to Arbitrage Economics
In theory (Investopedia), arbitrage is the simultaneous purchase and sale of an asset to profit from a difference in the price. It is a trade that profits by exploiting the price differences of identical or similar positions on different markets or in different forms. Arbitrage exists as a result of market inefficiencies.

Learn what drives tank storage demand. Join the FREE Webinar: PJK Tank Terminal Commercial Performance Model upcoming October 30th 2017.

But how does this work in practice? As commodity trading firm Trafigura describes on their website, they apply three forms of physical arbitrage:

  • Geographical arbitrage identifies temporary price anomalies between different locations;
  • Time arbitrage seeks to benefit from the shape of the forward curve for physical delivery (see our article on market structure); and
  • Technical arbitrage seeks to benefit from the different pricing perceptions for particular commodity grades and specifications.

In this article and to make things clear we will focus solely on geographical arbitrage and in particular the Northwest European Singapore arb for heavy fuel oil.

In order to calculate heavy fuel oil’s price difference between Northwest Europe or ARA and Singapore, we compare the FOB ARA spot price with FOB Singapore swap price, second month due to the duration of the voyage. The difference between these values is the spread and should be large enough to cover the trade costs.

On most occasions heavy fuel oil is shipped to Singapore in a VLCC (Very Large Crude Carrier/310 kt DWT) and loads approximately 270 kt of product. We therefore sum the VLCC freight rate, finance costs, port costs, inspection costs and demurrage to come to total trade costs. Should the spread be more than the trade costs the arb between both regions is open. When the spread is less than the trade costs the arbs is closed.

Learn what drives tank storage demand. Join the FREE Webinar: PJK Tank Terminal Commercial Performance Model upcoming October 30th 2017.

Importance of arbitrage to tank storage companies
From historical analysis we have learned that in the period between 1 January 2016 till 31 May 2017, 68% of the VLCC’s left for Singapore when the arb was open. 32% of the VLCC’s still undertook the voyage to Singapore when the arb was closed. So monitoring if arbs are open (or closed) is a good indication, to understand if trade between two regions is likely to increase. A positive trading environment, ultimately will influence tank storage dynamics.

Please note that arbitrage cannot be seen as a single indicator for business opportunities for tank storage companies. Other indicators that should be taken into account are: price volatility, market structure, and more. These subjects have been highlighted in other articles.

Source: www.trafigura.com.

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Lower naphtha, jet offset higher ARA fuel oil stocks

Gepubliceerd Jacob on 12 oktober 2017 17:06:17

London, 12 October (Argus) —Oil products stored independently in the Amsterdam-Rotterdam-Antwerp (ARA) region edged 0.3pc up on the week to 5.68mn t today, as weekly fluctuations of naphtha, jet and fuel oil inventories largely cancelled each other out, according to consultancy PJK.

Fuel oil stocks firmed by 5.1pc in the week to 12 October on the back of above-average inflows from the Baltic and Northwest Europe. Product came from France, Lithuania, Poland and the UK. Export cargoes leaving the ARA region on 6-12 January were limited to a single very large crude carrier (VLCC) heading to Singapore.

Naphtha inventory dropped by 11.2pc on the week, reflecting a combination of buoyant demand from petrochemicals end-users and decent buying interest from the blending pool. Rival propane feedstock has been trading at a premium to naphtha for most of the past three weeks in Europe, despite yielding smaller amount of high-value co-products per tonne of ethylene. This has incentivised European crackers to maximise the share of naphtha in their feedstock slates. On the supply-side, product came from Algeria, Russia, Portugal and Spain. MR-sized cargoes from the US Gulf coast also arrived at Gunvor’s 115,000 b/d Antwerp refinery — a facility that is not covered by PJK’s data — on 10 October. US Gulf coast to ARA arbitrage was unheard of until recently, but a combination of weak gasoline demand in the US with brisk cracking demand in Europe gave momentum to this unlikely trading route. More naphtha cargoes from the US Gulf coast are expected to reach the ARA region in the coming weeks, according to tracking data compiled by Argus.

Jet fuel stocks held independently in the ARA region fell by 29,000t to 643,000t. But two ships carrying 90,000t from South Korea arrived into Rotterdam on 8 October were not included in this week’s calculation, as the vessels offloaded after storage volumes were recorded, PJK said. The vessels were the Yang Li Hu, chartered by China Aviation Oil, and the Front Puma, chartered by Total. Jet fuel supply in northwest Europe is ample, with at least 670,000t arriving into northwest European ports from the Mideast Gulf and Asia so far this month. Demand in northwest Europe is weakening as the peak summer flying season draws to a close.

Gasoline inventory edged 0.8pc up during 5-12 October. Total export volumes were average as higher outflows to the Middle East balanced slightly below-average exports to other foreign markets, including Canada, China, Guinea, the US, Togo and elsewhere in west Africa. Imports — which came from Germany, France and the UK — were slightly below their long-term average. Exports from the Baltic, the Mediterranean and northwest Europe exhibited mixed patterns, according to fixtures list compiled by Argus. Spot tanker bookings of European gasoline with transatlantic discharge options for loading during 5-11 October fell to 222,000t, down from 333,000t for loading in the previous week, while spot tanker bookings of European gasoline with west African discharge options for loading during 5-11 October fell to 208,000t, down from 363,000t for loading in the previous week.

Gasoil stocks held steady on the week as larger import volumes from India and Russia made up for the adverse impact of ongoing maintenances on regional production. Shell is currently carrying out major maintenance at its 420,000 b/d Pernis refinery. Meanwhile, it remains unclear whether production at BP’s 400,000 b/d Rotterdam refinery has resumed following the beginning of a maintenance programme on 4 September. Product was imported from Estonia, India, Russia and the US and was shipped to the UK and west Africa. Demand from customers along the Rhine was said to be weak despite favourable loading conditions on the river.

Argus reporter: Benoit Petre

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What Drives Tank Storage Demand? Market Structure

Gepubliceerd Jacob on 9 oktober 2017 14:30:02

The market structure stimulates traders to buy now and sell late. In this article we would like to highlight the themes contango and backwardation and what market structure means for tank storage operators.

Introduction contango and backwardation
An oil price for immediate delivery is called spot price or cash price while an oil price for delivery at a specified date in the future is called a forward price. When we plot these various prices and order them from short to long term delivery, a forward curve is created.

When a futures price (second month) is below a futures spot price (first or front month), the market structure is in backwardation. In this case, the forward curve is downward sloping. When the futures spot price is below the futures price, the market structure is known as contango. In this case, the forward curve is upward sloping.

Learn what drives tank storage demand. Join the FREE Webinar: PJK Tank Terminal Commercial Performance Model upcoming October 30th 2017.

A contango usually occurs when supply is higher relative to demand (supply glut) while in a backwardation demand is higher relative to supply (shortage). As time evolves, an oil forward curve can switch from backwardation into contango as in the case of the NYMEX RBOB futures forward curve (see: figure 2). When a cyclical pattern is visible, this is called seasonality. With respect to NYMEX RBOB futures, US gasoline prices tend to rise towards summer driving season during the period June and September. In the period before peak demand, oil traders tend to buy and store products to have product available in times of high consumption.

Learn what drives tank storage demand. Join the FREE Webinar: PJK Tank Terminal Commercial Performance Model upcoming October 30th 2017.

Importance of market structure to tank storage companies
In a period of contango, oil traders are encouraged to buy oil products today and sell in the future when the spread between two months covers storage, shipping and finance costs. When this opportunity presents itself, product is being sold, shipped and stored, resulting in more business for tank storage companies. This play is known as a ‘contango storage play’ but is limited by the maximum tank storage capacity available.

In some rare occasions, when the time spread is large enough even tanker vessels are chartered by trading companies to store oil products. This is known as floating storage. In this rare environment demand for tank storage is high and pushes storage rates for spot availability. Backwardation discourages storing oil products as a trader can sell oil today at a better price than in the future.

Is market structure the only business opportunity indicator for tank storage companies?
There are other indicators that should be taken into account such as price volatility, arbitrage and more. These topics and PJK’s market model will be covered in upcoming weeks.

Learn what drives tank storage demand. Join the FREE Webinar: PJK Tank Terminal Commercial Performance Model upcoming October 30th 2017.

Source: Morgan, D., Oil 101, 2009

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