Singapore doubling storage as Asia Oil demand soars

[HenryTo]

More oil storage news - this time from Singapore. Will the building up of inventory give continued strength to oil prices even as the global economy slowdown? Can oil decline below $50 again anytime soon? We will just have to see...
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Singapore doubling storage as Asia Oil demand soars
Published: Tuesday, 19 July, 2005, 12:20 PM Doha Time

SINGAPORE: Oil companies will spend almost $1bn to nearly double oil storage capacity in Singapore by 2008, cashing in on Asia’s growing need for foreign fuel as demand soars, industry sources said yesterday.

Flushed with cash from $60-crude and booming global trade, storage firms are gearing up for capital-intensive infrastructure projects that will take total tankage in the region’s top trading hub to more than 6mn cu m (37.7mn barrels).

Although some traders say Singapore’s biggest tank-building boom might depress the market for storing and blending fuels, now running at near capacity, most expect strong demand from China to keep more of the world’s oil flowing into Asia.

“The storage market would probably be oversupplied in the short-term and this would certainly lead to reduction of costs (to consumers),” said Victor Shum, a senior principal with international consultancy Purvin & Gertz.

“In the longer term, given the strong growth in import volumes of oil products in Singapore historically, the market should be able to cope eventually,” he added.

Oil demand in developing Asia, including China, is forecast to exceed that of the US and Canada by 2030, accounting for 26% of the global total, the International Energy Agency (IEA) said.

And inter-regional trade in oil will more than double to 65mn bpd by then, it says, raising the need for storage tanks such as those in Singapore to blend fuels to national specifications or store barrels for later shipment.
Five separate projects – operated by Middle East player Horizon Terminals, Dutch-based Royal Vopak, Oiltanking, US trader Chemoil and Singapore’s Hin Leong Trading – will add about 2.86mn cu m to the current total commercial tankage capacity of 3.6mn cu m in the city-state.
About 55%-60% of the added capacity will store ‘dirty fuels’, or fuel oil, with the rest slated for clean fuels such as diesel, jet fuel, gasoline and naphtha.

“In the current environment of high oil prices, oil companies are flushed with cash. It makes a lot of sense for them to integrate their trading activities by owning storage,” said a source with one storage operator.
Fuel oil is a particular focus for the industry as Europe and the West ship ever greater volumes east, where nations with less stringent environmental standards burn it in power plants or in secondary refining units.

Companies such as Swiss trader Glencore, US Koch Refining International, Cargill International and Russian oil major Lukoil are expanding their Asian fuel business, but lack access to tankage, which is typically leased out by operators on annual-term basis.

“If there are three of them and each brings in one VLCC (very large crude carrier) a month, there will already be an added demand of 1mn cu m,” one trader said.

The monthly inflow of fuel oil from the West, mainly Europe and the Caribbean, has averaged about 2mn-2.5mn tonnes, over the last two years.

The potential for clean fuels storage is comparatively less than for dirty products because clean fuels are moved in smaller lot sizes, typically around 30,000 tonnes, dealers say.

Banks are also keen to help finance such capital-intensive projects, giving them a foothold into the lucrative oil trade. Not all the additional 2.86mn cu m is entirely new capacity, though, sources said.

The Hin Leong proposal, which is under consideration, is viewed as replacement capacity for its offshore floating facilities that throughputs in more than 1mn tonnes of fuel oil and gas oil monthly.

Chemoil, which rents about 150,000 cu m in Oiltanking, is expanding its volume three-fold by building a 450,000 cu-m facility.

Although China is the focus of oil demand growth, storage operators continue to gravitate to Singapore, long the region’s preferred blending hub thanks to favourable fiscal conditions and its strategic location in the Malacca Straits, gateway for Middle East and European exports to most of Asia.
The new expansion should help beat back competition from neighbours who hope to promote themselves as trading centres, especially China, Asia’s biggest fuel oil importer and top gasoline exporter, analysts say.
While China would be a natural location for a new storage hub, the slow opening of the market and uncertain regulatory environment have stymied investment.

Shum believes the storage market in Asia is large enough even if there is a shift towards China.

“A lot of Singapore’s oil re-exports go to the rest of Southeast Asia and even Australia. Indonesia, for example, is a significant trading partner. As long as the neighbours do well, Singapore will retain its dominance,”
he said. – Reuters