Canadian oil pipeline congestion puts in place a lucrative storage system

CALGARY, Alberta / NEW YORK (Reuters) – The turmoil in the Canadian crude oil market offers unique opportunities for companies leasing large long-term leases on storage tanks in Alberta.

Canada has the third largest crude oil reserve in the world, but years of lagging in the construction of new pipelines have resulted in oil production exceeding takeaway capacity. An oversupply of crude has been created, which has increased demand for storage tanks in Alberta's oil sands province, which this year introduced a reduction in production to cope with overproduction.

The monthly "distribution" of pipelines is an opportunity for traders, when the demand for crude oil on certain pipelines exceeds their capacity, forcing pipeline operators to limit the number of barrels each shipper can move. .

This practice has long been a source of frustration for Canadian producers, but offers a lucrative, albeit risky, game for traders who can invest and take advantage of price volatility after distribution.

The inflated storage tanks contribute to the strong distribution of Canada's main grid on Enbridge's main grid, with a capacity of 2.85 million barrels per day.

Despite cuts in Alberta, oil inventories in western Canada reached a record high of 37.1 million barrels in April and were close to 34 million barrels in May, according to the supplier. Genscape energy information.

A Calgary-based merchant said 37 million barrels are as full as storage can get and that anyone with storage tanks has made a profit.

Genscape is monitoring about 62 million barrels of storage in western Canada, but at most only 67% is being used because of the operation of the pipeline and the need to separate ranks.

Some merchants and storage companies benefit.

Mercuria holds leases for a storage capacity of about 3 million barrels in Western Canada, according to a source familiar with the matter. Mercuria declined to comment.

BP does not disclose its position as a storage lease in Canada, but has large refineries in the US Midwest that manage Canadian heavy crude oil. BP also declined to comment.

Traders with access to space in tanks can buy cheap barrels, store them for a month and resell them at the beginning of the next trading cycle, when prices are generally higher.

Storage rates are not publicly disclosed and vary widely, with long-term reservoirs being cheaper than short-term reservoirs. A trading source said that three-month contracts were offered at around $ 2 per barrel per month.

A four-year contract in Canada costs about $ 1.50 a barrel a month, compared with 30 to 40 cents a barrel on the US Gulf Coast, other sources said. The monthly storage rates on the US Cushing futures hub (Oklahoma) are about 30 cents per barrel.

The rates in Canada are expensive, said another source, "but I guess if you can recover all this after distribution, it's really worth it."

Companies such as Gibson Energy Inc., Enbridge Inc and TC Energy Corp own most of the storage facilities in Western Canada and are also benefiting from strong demand to lease their tanks.

Gibson is the largest storage owner in Hardisty, with 10 million barrels built and this year it has approved an additional 2.5 million barrels. Its storage contracts are all long-term leases, with an average term of 10 years, and its main customers are large oil sands producers.

"We get short-term storage requests all the time, but we do not have tanks to do that," said Steve Spaulding, general manager of Gibson.

Delays in pipeline construction mean that Canadian production is likely to remain above catchment capacity, which will maintain demand for reservoirs, Genscape analyst Mike Walls said.

"Storage is so valuable because you need a place to put casks right now. That's what Gibson is enjoying, "said Walls.