Logistical, Safety, and Environmental Issues of Storing Excess Oil During This Oil Crash

Logistical, Safety, and Environmental Issues of Storing Excess Oil During This Oil Crash


With oil storage hubs nearly full and many more than usual full tankers docked or in open ocean, storage solutions are actively being sought. The main hubs such as the one at Cushing, Oklahoma are basically full. Plans to add about 77MM barrels of oil to the Strategic Petroleum Reserve will help but are not yet approved and it takes time to move that much oil there. The incentive for storage companies is to buy oil at rock bottom prices and sell later at a significant profit. But will there be costs to this storage overflow? Are these new and makeshift oil storage facilities being managed adequately? Will there be spills due to mismanagement? Will excess oil in storage above ground lead to more methane and VOC emissions?

The Texas Railroad Commission decided against mandatory production curtailments as many companies are implementing voluntary curtailments. As long as these makeshift storage facility owners are making storage available there will be incentive to sell for those who must sell to survive. Oilfield water storage tanks are being converted to store oil. Pipeline company Energy Transfer LP is planning to fill their available pipeline capacity to store oil.


The return of oil demand in the near future is unlikely and it could take a while before it moves much. Both road travel and air travel are expected to stay down for the time being, especially air travel. Refineries do not need it. In reality, the oil is safer in the wells but shutting in wells can cause problems with the wells and add expense especially when resuming production. There could even be reservoir damage.  The International Energy Agency estimates that global oil demand is down by a quarter. That also means that the announced OPEC-plus production cuts won’t have the intended effect on prices. With real uncertainty about re-openings of economies and planned gradual and careful re-openings, demand is not expected to go near pre-coronavirus levels any time soon. Storage overflow is expected to continue to be a problem even after some oil demand resumes. Prices could collapse again to ‘negative on paper’ territory if production is not slowed enough. The shortage in global storage guarantees it. A recovery in the oil sector is not really expected till 2022 but in the meantime the level and speed of demand return will dictate what happens.


Above ground and underground storage tanks, ASTs and USTs respectively, are regulated at federal, state, and local levels. Spill prevention, control, and countermeasure (SPCC) plans are required according to the Clean Water Act (CWA). EPA and OSHA also have requirements for oil storage management. Tanks must be made to certain specs. Those who operate transfer and storage facilities also have training requirements dictated by regulators, usually individual states, under EPA guidance.  

References:


Wanted: Somewhere, Anywhere, to Store Lots of Cheap Oil – by Rebecca Elliott, in The Wall Street Journal, May 11, 2020


The Hunt for Oil Storage Space is On – Here’s How it Works and Why it Matters – by Sam Meredith, in CNBC, April 22, 2020


Breaking: Images of Fully Loaded Oil Tankers Stranded At Sea – in Sahel Standard Magazine, April 29, 2020


Storage Tank Regulations – by Kaela Martins, Retail Compliance Center, Retail Industry Leaders Association (rila.org), April 14, 2020


Oil Glut to Halve in May and Shrink to 6mbpd in June: Rystad – by Carla Sertin, in Oil and Gas 360 (oilandgas360.com), May 3, 2020