A customer who wants tanks would have to sign a term commitment and wait 24-30 months for the tanks to come on line. They are likely paying high prices because the cost would reflect the cost of construction plus profit. This could be tough for most companies to swallow. Also, some terminals may not have the land to expand.
Bullish fundamentals in the New York Harbor storage tank market were reflected in a higher-than-expected rate done for a short-term one-year lease at Hess’ Port Reading terminal in New Jersey.
India’s Reliance paid $1.68/bbl for a one-year tank lease, sharply higher than the market rate then at about 75cts to $1/bbl in the harbor. The contract was for a storage space of 850,000 bbl. Reliance also has another 500,000-bbl capacity at the First Reserve Perth Amboy terminal. Reliance is now renegotiating with Hess to renew its storage contract with
Hess, which expires at the end of June.
Terminal sources do not expect Reliance to pay the same high rate for the new contract, especially with the price curve for products no longer in a sharp contango as seen in 2009. In the current market, a short-term contract for one year in the harbor
could be worth about $1/bbl or slightly more.
A long-term contract for three years should be in a range of 75-95cts/bbl. Traders could also request a two-year contract, but that is less common.
“I think Reliance had committed to only a one-year contract because of the very high rate,” a source said.
“This time around, Reliance could sign up for a longer term if the numbers are more reasonable,” he added.
Another source said that the high rate paid by Reliance had gotten the attention of terminal players.
Some terminal operators in the harbor may be willing to free up some tanks to secure Reliance’s business at a rate lower than $1.68/bbl, he said.
Beside tanks in the harbor, Reliance also has 1 million bbl capacity of storage tanks at BORCO terminal in the Bahamas.
Harbor storage tank rates are comparatively higher than the Gulf Coast and Midwest.
Gulf Coast long-term rates are at 50-75cts/bbl, and the Midwest averages about 40-60cts/bbl.
The West Coast term rates could be as high as $1.50-$2.00/bbl due to a tight supply and difficulty to secure permits to build new tanks.
Meanwhile, OPIS reported in July 2009 that Kinder Morgan entered into an agreement with a major oil company and will invest about $60 million to construct 1 million barrels of new petroleum and ethanol storage tank capacity at one of its terminals in New York Harbor.
BP will have another 1 million bbl of oil products and ethanol storage tank capacity at Kinder Morgan’s Carteret, N.J., terminal by mid-2011.