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The evolution of a downstream powerhouse

Petrotank's Regensburg facility

The creation of a major independent oil company in northwest Europe opens up significant downstream possibilities for the market

The enlarged Varo Energy has an ambitious vision to offer a market leading supply network in northwest Europe.
These ambitions are supported by a solid foundation consisting of 50 tank terminals in Benelux, France, Germany and Switzerland, a wholly owned refinery in Switzerland and a 45% stake in the Bayernoil refinery in Germany. Additionally it has a network of supply, distribution and sales organisations.
The completion of a significant merger between Argos, an independent trading, storage and distribution company with a network of 21 tank terminals, and Varo Energy, which owns all Petrotank storage facilities and additional facilities in Switzerland, has created a major new downstream player in the region.
Led by CEO Roger Brown, the group will handle more than 16 million m3 of products per year through its terminal system with a current capacity of close to three million m3.
In an interview with Tank Storage Magazine, Brown explains that the company is capitalising on the fragmentation that took place in the market when the oil majors sold off large parts of their inland terminal networks some time ago.
‘The majors such as Shell, BP and Total used to own refineries and associated terminal/depot networks together with their own delivery trucks and
retail station networks. They therefore controlled the entire integrated supply chain,’ he explains.
‘They then however sold a lot a lot of their midstream depots to independent operators who at the time could operate them more efficiently.’
Terminal regulations governing safety and the environment are now however becoming more stringent and as a result terminal owners are having to invest significant sums of money to upgrade facilities. For some operators this is difficult to do because of the scale of budgets required.
‘We believe this offers an opportunity for Varo to build a large network of terminals benefiting from the economies of scale in managing and investing in these assets.
‘We now have a network of terminals that stretch across northwest Europe. Not only is this more efficient to operate but it also enables us to offer our customers convenient supply options from one provider across the entire region in which we operate.’

The demand for storage has grown over recent years and the market is particularly tight at the moment as the contango market structure offers customers the opportunity to profit from storing oil.
In Germany, where Petrotank operates, the market is also very competitive because of the current high demand for product driving high through-putting demands on the terminals. These high through-putting rates make these terminals less dependent on the contango market structure to drive
Onno Handels, managing director of Petrotank and director of terminals for Varo Energy, says that the network in Germany is flexible to the changing supply and demand balance.
‘Product is moving through the terminals quickly, driven by high-end user demand. Even with this high demand, end user stock levels are still average for the time of year so we may see even more demand in the winter as the weather gets colder.
‘For distribution terminals their capacity rate is not a real measure of success because in some cases they can be filled up to 40 times per year.’
Elsewhere in Europe, the storage market is largely similar. However in countries with large seaports, such as the ARA region, terminals have a different function in the market as in many cases storage is leased for far longer on the back of the current contango market structure or for blending products from intermediary products.
‘The seaport markets help to signpost the storage market to in-land operators,’ says Handels.
‘There are larger storage possibilities in the ARA region compared to Germany.
‘There is more demand in the market overall but we (Petrotank) don’t benefit from it because we have distribution terminals, so we benefit when there is a high demand and high throughput, which we are currently experiencing.’

Continual investment in the storage market is vital not only to adhere to stringent emerging regulations but to also accommodate and anticipate
demand for certain products. The sheer scale and size of Varo Energy’s market offering is an attractive proposition for clients as the group can dedicate funds to continually upgrade its facilities and further expand its network to meet its customers’ demands.
Brown explains: ‘Around $8 to $9 million a year is spent on upgrading and maintaining our facilities. Our focus on storage and our ability to
make investments of this scale ensures that we can continually improve the safety and efficiency of our terminals.
‘For now we intend to focus on filling some of the geographic gaps in our terminal network where our customers would like us to be able to supply. This could take the form of some further terminal acquisitions.
‘As the European economy starts to grow we hope to maintain or even exceed our current service levels. Our aim is to build a network that is capable of delivering products safely and efficiently across the entire region.’
Within the German storage market, Petrotank is also looking to further evolve its market position by consolidating its current assets and adapting them for different uses.
Future projections on the declining use of heating oil in Germany has prompted Petrotank executives to reduce their dependency on
heating oil storage. Handels says: ‘We need to look at how we can bring our tanks to be used for different products and there are several options for us to consider, including jet fuel, some niche grades of petrol and bio free diesel.
‘There is the capacity to add more volume to existing facilities but there is not the room for the introduction of large-scale new assets. ‘The investment is being focused into the baseline assets that already exist. There are terminals where top loading is still used and gradually it will change to bottom loading because it is safer and more efficient.’
Some of Petrotank’s investment projects include the construction of a petrol storage tank at its Hanover South facility. Currently the terminal cannot offer storage of all petrol grades, but the construction of a small tank for high octane petrol will complement the facility’s current operations.
At the company’s facility in Trier, an investment project is planned to upgrade the existing infrastructure to allow the tanks to store petrol.
Currently the 32,500 m3 facility can store heating oil, diesel fuel and gas oil and is supported by vessel, train and road tank truck connections.
There are also projects to ensure all facilities comply with vapour recovery and emissions legislation that have been introduced into the market.
As for larger infrastructure builds Handels explains that it is unusual for companies to embark on a completely new development project in Germany.
‘The investments we are making are finetuning what we have.
‘There might be some people who want to build more terminals in Germany but it is rather unusual.’

Petrotank's Regensburg facility