Frenzy hits storage construction in the US
While corrosion, emissions, leaks and spills continue to be major challenges in the bulk liquid storage industry in the US, 2007 is still turning into a big year for consolidation and expansion.
Possibly bolstered by uncertainty in the oil sector – as storage is central to reducing price volatility and to smoothing seasonal and other demand variations – there has been some major interest from investors. Working in the industry’s favour as well, was the gradual introduction of low-sulphur petroleum and diesel products. These required additional capacity at many terminals and offered some companies the opportunity to provide extra services connected with distributing this new fuel.
Where financial reports are available, 2006 appears to have been a good year for those with terminals and distribution facilities and they have continued into 2007.
Magellan Midstream Partners, with its 45 terminals and seven marine facilities, showed an increase in operating profits of 43%, while Plains All American Pipeline recorded a facilities segment profit increase approaching 400%. Earnings at the Norwegian owned Odfjell Terminals’ Houston facility were $22 million (€16.3 million) in 2006, up from the previous year’s $17 million.
It is this profitability, perhaps, that has fuelled a number of company takeovers, mergers and splits. Last year Valero LP and Valero GP were hived off from Valero Energy Corporation to become NuStar Energy with a rebranded image and entry on the New York Stock Exchange; and in April, LBC Tank Terminals announced that, subject to regulatory approval, ownership from One Equity Partners LLC, the private equity arm of JP Morgan Chase would be transferred to Australia’s Challenge Infrastructure Fund (CIF).
The current construction frenzy is illustrated by happenings at Plains All American Pipelines (Plains), where even before the commissioning of Phase I at its St James Terminal in Louisiana, a second phase expansion project was announced. Begun in mid-2005, it became operational in March this year, with seven crude oil storage tanks and an interconnecting piping system. The capacity of phase I is 3.5 million barrels, and it was delivered at a cost of approximately $93 million.
Matrix Service of Tulsa has been re-appointed as contractor for phase II, which will see the terminal expand to 6.2 million barrels costingS
$64 million, and is scheduled to become available for use during the Q1 of 2008. Greg Armstrong, chairman and CEO of the partnership, said that the investment decision was based on a belief that foreign imports would continue to increase as a result of increased US crude oil consumption and falling domestic production.
