To minimize risk exposure, it would be more economically attractive to build a new terminal than to buy an existing one, Aaron Milford, director of business development at Magellan Midstream Partners, told OPIS on Sunday.
OPIS noted that there is a lack of available storage tanks around the country amid an insatiable demand. The highest demand is concentrated in the Southeast region, partly due to the need for additional ethanol blending space and growing fuel demand.
Milford spoke about a framework of midstream asset valuation at the OPIS National Supply Summit held in Las Vegas. He noted that the bidding of an existing terminal could lead to overpaying, which would translate to low price multiples for the net asset value.
This is evident in a slowdown in merger and acquisition activity for terminal assets this year, compared with the previous few years.
To enhance the asset value, terminal owners are also focusing on building new terminals on the coast with marine access, Milford said.
The working capital estimate for a new terminal project is pegged at around $40-$50/bbl, depending on location and requirements.
Besides a sharp price contango, major trading houses are building new terminals as well as buying existing ones to build up their global strategic storage and distribution network system. Also, refiners are buying terminals due to a need for tanks to store and blend ethanol.