PAGE HEADER	                                                                                  TA N K S T O R A G E • Janua...
January 2012 • TA N K S T O R A G E 	                                                                               PAGE H...
PAGE HEADER	                                                                                   TA N K S T O R A G E • Janu...
January 2012 • TA N K S T O R A G E 	                                                PAGE HEADER                          ...
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Restructuring logistic systems for 2012 – 2020 to meet market demands

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Article published in Tank Storage Magazine January 2012 issue.

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Restructuring logistic systems for 2012 – 2020 to meet market demands

  1. 1. PAGE HEADER TA N K S T O R A G E • January 2012Industry leaders share their visions on what the year ahead holds forthe tank storage sectorOutlook for 2012Gene McClain, president, WestwayGroup As we come to the end of non-core industrial assets, of 2011, it is safe to say particularly in developed the year has proven to economies like North America be more economically and Europe. Along the sameturbulent than most expected. lines, a rebalancing in assetsMoving into the New Year, is typically accompaniedsovereign debt issues and by a shift or consolidationthe prospects of another in production capabilities.world recession continue The foreseeable effect ofto dominate headlines and these initiatives is perhapspermeate debates at both the a combination of additionalcorporate and personal levels. niche storage facilities for The industry as a whole sale on the market andcontinues to produce a further consolidation ofincredibly robust results storage requirements intodespite a challenging year major established hubs.and we expect 2012 to be no For Westway, we see theless demanding. We strongly development of current andbelieve that the fundamentals new storage hubs as coreof liquid bulk storage as a to the long term success ofwhole are unaltered – the our business. At the end ofindustry remains as crucial 2010, we announced theas ever to helping producers, construction of 40,000m3 andsuppliers, traders and end- 16,000m3 of additional storageusers in managing their overall capacity at our Houstonsupply chains. Globalisation and Amsterdam terminalscontinues to be a key driver respectively – two areas whichas global production and we consider to be strategicconsumption patterns continue hubs serving importantto evolve requiring the use markets. We are pleased thatof liquid bulk storage to these infill expansions have Gene McClainstabilise these imbalances. now successfully come on In 2011, we saw a spur of stream and are generating leading non-hazardous storage I am confident thatdivestments by oil majors revenue. With our Amsterdam provider in the region. innovation and sound– a trend that we expect to land bank fully utilised we Overall, I believe the operating fundamentalscontinue into 2012. However, continue into 2012 with our industry will maintain the will pave the way forwardthe changing economic infill strategy as we recently consistent performance we for improved efficiencieslandscape has also led many announced a further 60,000 have come to be known for, and expansionsindustrial corporations to re- m3 capacity expansion in which is perhaps reflected by that will support theevaluate their asset portfolios Houston where we seek to the high valuations placed on next round of globaland the potential divestment solidify our position as the the industry by investors. economic growth. development necessary to average annual growth ofRestructuring logistic systems for 2012 solve energy needs have -0.2% until 2020; however– 2020 to meet market demands emerged from the financial the developing countries system’s limited access to oil demand will significantly The challenge of been facing some of the most credit resources coupled increase at a compound restructuring logistic extreme economic challenges, with a general decline in oil average annual growth of systems for private especially developed consumption by developed 2.8% in the same period. and public sectors countries. The oil industry has countries. According to Furthermore, Europeanbetween 2012 and 2020 been adapting to this delicate the OPEC 2011 World Oil refineries are threatened byneeds expertise and a proven situation. As a result, the Outlook, the oil demand in the the high efficiency of orientaltrack record. Over the past major factors contributing to a OECD countries will slightly refineries that are currentlyfew years, the world has slow down of the oil industry decrease at a compound provoking European shutxxx
  2. 2. January 2012 • TA N K S T O R A G E PAGE HEADERdowns and/or reconversions including pipelines,into storage facilities. waterways, trucks and rail.These types of changes the • Optimise commercialEuropean refining industry policies, establishing ais suffering will eventually pricing policy in order tocause modifications in the oil maximize the profitability ofand refined product flows. the overall system both forIn addition, the emerging clients and shareholders.oriental refineries may benefit • Define an optimised productfrom a complete overhaul of movement flow and adapttheir logistic infrastructures the design of each elementto adequately modernise their of the logistic system, basedsystem in order to efficiently on a calculated movementdistribute their production. flow that minimizes global Considering this overall costs and considers clients’picture, the oil industry overall costs, includingneeds to be prepared for those occurring outsideefficient logistic systems in the logistic system.order to maximize the return • Define the system’son investments, currently profitability, calculating thelimited by the financial revenue and cost model ofsituation, and to guarantee the future system and thethe supply of oil products profitability obtained fromto the different industries the asset investments.and to the population. The The design of efficient logisticmost developed countries systems could be consideredwill need to re-adapt their an easy task at first glance,infrastructures according to however nothing furtherthe new product flows and from reality. The followingthe emerging economies factors should be taken intowill need to construct new account in order to obtainfacilities to both supply the a competitive logisticslocal demand and efficiently system, in such a wayexport their products. that clients, shareholders, What are the different and governments alike Andres Suarez, strategy and business development manager at CLHcriteria to be considered when maximise their profitabilityre-structuring or developing with efficient use and systematic, structured and the pricing policy has a stronglogistic systems? To identify strategic investments: verified study approach. effect on customer’s use ofthe main objectives to meet • High investment decisions • High management skills the system as they are pricethe demand in both emerging based on sound guidance in to avoid intuitive decisions sensitive and will try to reduceeconomies and developed the design phase to prevent based on simplifications, overall costs, modifyingcountries, the following high costs if modifications which can decrease therefore the use of theshould be addressed: in the future are necessary, efficiency even in highly system. Furthermore to make• Optimise investments in strengthening investment modern logistic systems. it more complex, the initial logistics assets, ensuring return on profitability. Logistic systems are capital configuration of the assets will the optimal location of • High complexity designs intensive businesses that determine the pricing storage facilities and to ensure cost efficiency require a high level of system policy, and therefore the correct dimension of that require advanced utilisation to compensate for the overall profitability the transport capacity, support tools with a high investments. In addition, of the system.Magellan seizes domestic crude oil transportation and storage opportunities While 10% of our (€444 million) of expansion which originates in Cushing working on crude oil pipeline growth capital was projects underway, Magellan and has the capacity to projects in Oklahoma and directed to crude oil is seizing opportunities to transport over 160,000 b/d to Texas, Magellan is planning to projects in 2011, we grow its infrastructure. refineries in Kansas. In 2009, offer Permian Basin producers expect to direct over With over 12 million barrels Magellan acquired 7.8 million a new option - pipeline60% of our growth capital of capacity, Magellan is the barrels of storage in Cushing transportation from thein 2012 towards crude oil third largest crude storage from BP and over 300 miles of Permian Basin to Houston-arearelated projects. Magellan provider in Cushing, Oklahoma crude oil and refined product refineries. The project, whichhas taken several key steps and Magellan officials say pipelines in Texas. With the will make the new capability ato grow in the domestic they are currently considering BP acquisition complete, our reality, involves the conversioncrude oil transportation the construction of additional customers were willing to and reversal of an existingand storage sector while storage in Cushing to meet underpin the construction of pipeline system and shouldkeeping our commitment to the needs of their customers. 4.25 million barrels of new be operational in early 2013.deliver excellent service in Magellan’s first investment storage in Cushing. All of The Houston-to-El Pasoour base business of refined in the crude oil transportation Magellan’s storage in Cushing segment of the Magellanproducts transportation, business was through is backed with multi-year Pipeline system is currentlystorage and distribution. purchasing a 50% interest customer agreements. being used to transportWith over $575 million of the Osage Pipeline system While several companies are refined petroleum products xxx
  3. 3. PAGE HEADER TA N K S T O R A G E • January 2012 350,000 b/d of crude pipeline to safely transport produced in the Permian refined products westbound basin of Texas is transported from Crane to El Paso. The via pipeline to Cushing. current project scope of “Forecasts indicate production the westbound segment of in the Permian basin could Magellan’s pipeline system increase 600,000 b/d above will have a capacity of current levels which gives 58,000 b/d into El Paso. us another great reason Once crude oil arrives in to move forward with our Magellan’s East Houston reversal project,” said Barnes. crude storage terminal To continue to deliver via the newly reversed reliable service for customers system, it can be delivered of refined products in West via current and potential Texas, Magellan will expand pipeline connections to all another existing pipeline refineries on the ship channel route that connects Magellan’s and Texas City. Magellan is Texas infrastructure from planning to construct Frost (approximately 50 miles 1.25 million barrels of south of Dallas) to Midland new crude oil storage and Odessa. Magellan will in Crane and at their continue to use its existing East Houston terminal. Corpus Christi prospects look bright Magellan is working with another company on a project to transport condensate via pipeline from the Eagle Ford basin to Magellan’s marine terminal in Corpus Christi. The project is in the late phase of development and prospects look bright. Magellan’s terminal in Corpus Christi currently has 3 million barrels of storage and has roomRobb Barnes, VP of Magellan’s Marine Terminals to double its storage capacity. The terminal is connected via pipeline to three local refineries and petro-chemicalfrom Houston to El Paso. In to secure commitments to plants and has dock capacity to load water cargos forresponse to customer demand, transport 225,000 b/d. export to other domestic refineries and plants.Magellan will reverse flow and The price spread between Magellan believes its competitive advantage lies inuse part of the Houston-to-El West Texas Intermediate the fact that it is an independent transportation andPaso route to transport crude (WTI) and Brent crude oil storage provider. Magellan does not directly competeoil from Texas production has been significant. There against the companies who use its crude servicesregions. The Crane, Texas-to- are many factors that are since they do not have a crude trading group or takeHouston segment will have an responsible for the WTI ownership of the crude stored in their facilities.initial capability to transport discount including one major Earlier this year, Oklahoma-based Magellan Midstream135,000 b/d of crude oil. With contributor - the lack of Partners celebrated its 10 year anniversary as a Masteradditional pumping facilities, pipeline takeaway in Cushing. Limited Partnership. Magellan’s financial and operationalMagellan can increase the While crude oil is aggregated success has been largely attributable to the managementcapacity to 225,000 b/d. in Cushing from production of the company’s core business which includesBased on current feedback in Canada, the northern tier approximately 10,000 miles of refined products pipelinefrom shippers, we are of the United States and and 85 petroleum distribution terminals in 22 states.optimistic we will be able the Midwest, approximatelyNigel Passmore, Managing Director, SemLogistics Milford Haven Despite the current diesel fuel to unleaded unable to entirely satisfy. This to generate growing margins. economic situation gasoline, the region has benefits import terminals on SemLogistics is situated our forecasts are that seen an increasingly large the east coast of the US as in Milford Haven on the the global product diesel deficit, notwithstanding well as European refineries west coast of Wales and is imbalance between investments on the part and terminals that are able strategically located to accessoil producing regions and of European refineries to to service US petrol demand. the UK market and to serviceoil consuming regions will increase their diesel yield per In addition to Northern numerous global marketscontinue to grow and this barrel. Russia and the former Europe and the US, regions such as Europe, the eastvaried regional demand Soviet states currently fill the such as South America, West coast of the US and the westgrowth for oil products vast majority of this diesel Africa, China, and Singapore coast of Africa. SemLogisticsis driving trade patterns deficit, although imports are generating increased has a commercial storageand increased business from the Middle East and demand for various refined capacity of 1.4 million m³opportunities for independent the Far East are expected to petroleum products. These (8.5M bbls), approximatelystorage operators, especially increase in the long term. geographic imbalances greatly two-thirds of which isthose geographically situated Similar to Europe’s reliance increase the demand for comprised of multi-productto service numerous markets, on diesel, the US’ heavy strategically located storage or dual purpose tankage,such as SemLogistics. reliance on petrol means capacity and have allowed while the remaining tanks are For example, as consumers imports are necessary to meet SemLogistics and other primarily dedicated to storagein Europe increasingly prefer the demand US refineries are European storage operators of crude oil and specificxxx
  4. 4. January 2012 • TA N K S T O R A G E PAGE HEADER refined petroleum products. one of the most advanced The terminal has two deep independent terminals in the water berths with a maximum UK representing over 23% capacity of 165,000 dwt. of the total UK independent The continued increase storage capacity. for environmental and Since the acquisition, safety regulations from the SemLogistics has invested UK authorities are an area over $50 million of capital of concern. However, at to maintain, refurbish, SemLogistics the investment and upgrade tanks and in the terminal over the equipment and planning last five years in respect permission is in place for of full tank refurbishments a future expansion project including underfloor secondary to provide approximately containment for over 240,000 m³ (1.5M bbls) 50% of the tanks, has the of additional commercial company well placed for the capacity. This project will bring future. Another successful the terminal’s commercial project during 2011 was the capacity to approximately installation of an automated 1.6 million m³ (10.0 million shutdown system on all the bbls) upon completion and Class 1 tanks by our in- leaves us well placed to satisfy house engineering teams. the ever growing demands Since being acquired by of storage customers and SemGroup Corporation to provide flexible, in 2006 the SemLogistics value adding storage terminal has seen significant opportunities in an everNigel Passmore capital investment to become changing market. xxx

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