The trend of building new crude storage tanks is seen continuing as domestic production and Canadian imports are expected to grow. While midstream logistics companies are scrambling to build rail projects and pipelines for crude delivery between Cushing and the Gulf Coast refining hub, current north-south delivery options, including inland barges, are almost maxed out.   

With supplies growing at the huge, landlocked hub of Cushing, there will be a strong and sustained need for storage, at least for the near future. In the past few years, the prospect of new storage being quickly snapped up has brought on a steady stream of new terminal projects there.   
The latest maximum estimate for Cushing storage capacity by the end of 2012 is 70 million bbl; current operational capacity is estimated at about 55 million bbl. The maximum capacity figure has grown by at least 10 million bbl in the past few years.

Besides an almost guaranteed demand for storage in the foreseeable future, Cushing is a crucial location for NYMEX crude deliveries.    
Also, a storage player in Cushing would be able to gather crucial market information about crude flows and supplies, especially when the new Cushing-Houston pipeline project is operational. However, crude traders pointed out that most cautious storage players would like to sign leases for about one to two years amid a volatile trading environment, and a terminal owner would prefer to sign a long-term lease of five to 10 years.

Morgan Stanley Could Be Long-Term Tenant

It is noted that Morgan Stanley, which is a significant player in the U.S. and global crude market, could be the long-term tenant at the new Cushing storage facility.   The additional storage space at Cushing could aid Morgan Stanley’s crude supplies to some Midwest refineries, including PBF Energy’s Toledo plant.   
Last week, TransMontaigne, a subsidiary of Morgan Stanley, and Blueknight agreed to jointly construct and operate 1 million bbl of crude oil storage adjacent to Blueknight’s Cushing facility.   
Construction of the new facility is expected to begin in August with completion planned for the second quarter of 2012. Anticipated cost of the project is less than $25 million.
TransMontaigne also entered into a long-term service agreement with Morgan Stanley Capital Group Inc. for the use of the TransMontaigne facility.   
TransMontaigne will lease a portion of the land at Blueknight’s Cushing facility and construct storage tanks and associated infrastructure on that property for the receipt of crude oil by truck and pipeline, the blending of crude oil and the storage of 1 million bbl of crude oil.   
Both companies will cooperate on the design and construction of the facility and Blueknight will provide operational services for TransMontaigne under a long-term operating agreement and provide connectivity between the TransMontaigne facility and the Cushing market through Blueknight’s existing facility and infrastructure.