Trading companies are seen reducing capacities of their products storage tanks that they lease from terminal operators on the U.S. West Coast, U.S. Gulf Coast and New York Harbor in an effort to cut losses due to low tank utilization so far this year. As a result of reduced tank demand, clean products tanks have fallen significantly from a peak seen only a few years ago in 2007.   

“The demand for tanks is now less than supply. If I were a tank marketer, I’d be nervous in the service,” an arbitrage player said.   

“This (storage tank) is a build-and-purge business. The marginal guys are getting out,” he added.   The writings were on the wall when G.E. Warren (GEW) pulled out the gasoline blending business on the Gulf Coast late last year.   

OPIS reported last December that GEW, a commercial supplier, blender and wholesale distributor of refined products in the U.S., subleased its entire 1-million-bbl clean products storage tanks space at Kinder Morgan’s Pasadena and Galena Park terminals in Houston to Lukoil.   
GEW had held leases for those tanks for many years, and these were the only clean products tanks held by GEW on the Gulf Coast. GEW had six years left on the lease as of December 2010.   
Also, Musket Corporation, an Oklahoma City-based products trading and distributing company, put up late last year for subletting to third-parties an unspecified volume of its 1.6-million-bbl capacity storage tanks at Magellan’s Galena Park.   
In the Northeast, Glencore has recently given up 350,000 bbl of tank space at IMTT’s Bayonne terminal in New Jersey, prior to the expiration of the tank lease.   
That tank space at IMTT was then picked up by Reliance at a significantly lower rate of about 78-80cts/bbl, sharply lower than the market rate of about $1.00-$1.20/bbl last year and a high of more than $1.60/bbl in 2007.   
“No one will pay more than 90cts/bbl for tanks in the harbor for new or sublet leases right now,” a second source said.   
The handover of that tank space was approved by IMTT.   Despite the unexpected tank capacity reduction, Glencore continues to operate at IMTT with a smaller capacity of about 350,000 bbl. Besides Bayonne, the trading house also has another 1-million-bbl capacity at the Perth Amboy terminal.   
Reliance is expected to optimizing its storage tank capacity in the Northeast, giving up some capacities at less attractive locations after taking over the extra tank space at IMTT.   
Reliance also has a substantial storage tank space of about 1 million bbl at BORCO terminal in the Caribbean, which the company uses for break bulk and storage purposes.   
Apart from Glencore, other major trading houses are also considering trimming their products tank capacities on the Gulf Coast and West Coast and signing up for shorter-term leases.  
Some players are looking at tank leases for less than three years now instead of five- or 10-year leases because of the market uncertainty.   
Meanwhile, gasoline blending economics are dampened by an anemic demand and high prices of blending components.   
Also, in addition to a lack of incoming arbitrage cargoes, gasoline storage economics have been very poor this year due to a sharp price backwardation. The sharply lower forward prices offer no incentives for players to keep fuel in tanks.   
The steep price backwardation was also blamed for the poor financial performance of some fuel marketing and storage companies, including Global Partners LP.   
A steep price backwardation increases the risks of a marketer selling products at a much lower price than the purchased value at a later date.