A major player now being recognized in the oil and gas industry is the storage service provider. According to a research report released by Al Masah Capital today, this segment has a triple potential for earning revenue through storage fees, throughput charges( paid for delivery of products to pipeline and third party storehouses) and ancillary services needed like mixing and blending during the storage phase. The wide margins of profit offer a very attractive incentive.
Shailesh Dash, CEO of Al Masah, adds that the top storage companies can stretch profit margins to as high as 50% of their expenditure and speculators can take advantage of the impact that ‘pricing basis’ has on the demand for storage. The differential between near term and future prices invariably increases demand and heightens profit.
Underscoring the rising importance of this sector, Dash said, “There is no dearth of customers for those who can offer the storage facility. Refiners, distributors, merchant traders are high net clients who need storage for their specific purposes. Whether it is kerosene, naphtha, gasoline, liquefied gases, aviation fuel, each needs a specific and a safe storage facility can only become intrinsically more vital.”
The report indicates that Fujairah in the UAE is now in the top three storage spots along with Rotterdam and Singapore. But a stronger global network for storage is well on its way to being established in order to avoid choke points and delays.
Dash added that in the near future investors will see important storage hubs improving their facilities and their capacity. Among them are Hamburg, Houston, Sao Paulo and a trinity in China that covers Shanghai, Dalian and Jiangyin.
Referring to the smooth transition from exploration to end-user, Dash said, “The world has to ease the choke points in this journey. Blockades, politics and arbitrary closures can adversely affect the oil and gas supply chain. At present there are seven such points that include the Panama Canal, the Suez, the Straits of Hormuz, the Danish Straits, the Turkish Straits, the Straits of Malacca and Bab al Mandab. While this may extend storage time and thereby give that segment of industry a surge the disruption is an issue that calls for a globally unified policy.”
The Al Masah report clearly sees storage facilities as a high upfront investment area calling for anything from $60 million for a oil storage facility in Mombasa to $500 million for a terminal in Yeosu, South Korea. India recently invested $130 million for a tank terminal in Fujairah.
Commenting on the customer base, Dash concluded by saying the trends strongly favor huge capital investment into storage. “Third party storage is the preferred choice, it delivers global connectivity, traders, oil and gas companies are divesting their facilities, traders and independent operators are buying into storage, the demand is only going one way and that is upwards and the absence of sufficient capacity in places like China is also acting as a spur to the oil storage market. I see the short and long term potential as very bright.”
