Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast.
Speaker 1: I'm Tracy Alloway.
Speaker 2: And I'm Joe Wisenthal.
Speaker 1: Joe, do you remember that time I bought a barrel
Speaker 1: of oil?
Speaker 2: That was a classic, classic moment in a well, yeah, that.
Speaker 1: Was class I can say it in all of financial journals, all.
Speaker 2: Of financial journalism were you Actually it wasn't a barrel though, No,
Speaker 2: it was honest, Let's be.
Speaker 1: Honest, it wasn't. I tried to buy an actual barrel.
Speaker 1: It was like a gallon, right, It was basically a
Speaker 1: jar of crude oil. I'm really happy I didn't buy
Speaker 1: an entire barrel in the end, because part of the
Speaker 1: experience of doing this was I realized how difficult it
Speaker 1: is to actually move and store oil. Oil is a
Speaker 1: dangerous thing.
Speaker 2: Yeah, you had it on the desk next to us,
Speaker 2: and then you left, right like you left for Hong
Speaker 2: Kong or you left, Yeah, delby and left the oil
Speaker 2: and like a bunch of vaporated I'm.
Speaker 1: Not sure I should tell this story, but I couldn't
Speaker 1: figure out how to dispose of my jar of crude oil.
Speaker 1: So I just procrastinated and left it on the desk
Speaker 1: and it slowly evaporated and poisoned my.
Speaker 2: Car and now the oil fumes for months and months.
Speaker 1: Yes, sorry about that too, right, I survived? All right? Well,
Speaker 1: I bring it up because I'm very, very curious about
Speaker 1: the business of storing and transporting oil right now. And
Speaker 1: part of the reason is because, as we've been discussing
Speaker 1: on this podcast, we had a really great episode with
Speaker 1: our colleague caper Bloss. For instance, US oil production is
Speaker 1: at a record I think it's like more than thirteen
Speaker 1: million barrels per day now.
Speaker 2: Yeah, it's really extraordinary. Obviously, the US just production booming
Speaker 2: like crazy. And you know you mentioned that episode with Javier.
Speaker 2: When we talk about oil, most of the time, right
Speaker 2: we're talking sort of like macro, like who are the
Speaker 2: big producers, how much global demand is there, what is
Speaker 2: the trajectory, what's happening in shit, what is happening in Saudi,
Speaker 2: et cetera. But as we like to do from time
Speaker 2: to time, like these aren't just numbers on a screen, right,
Speaker 2: Oil is definitely not just a number on a screen.
Speaker 2: And if you want to go long oil, if you
Speaker 2: want to, if you're bullish on oil, like you might
Speaker 2: be able to do that with a few clicks, but
Speaker 2: someone somewhere.
Speaker 1: We don't want to take physical delivery.
Speaker 2: You probably don't want to, but someone somewhere has to
Speaker 2: have the physical I don't know if it's counterpart or
Speaker 2: the physical exposure to meet your financial obligation. So if
Speaker 2: your trade oil futures, someone there, like I assume, takes
Speaker 2: the other side on some level by having exposure to
Speaker 2: the physical product, which means worrying about disposal, delivery, storage, tankers,
Speaker 2: and so forth. It is so like the sort of
Speaker 2: the side of the business that's not usually talked about
Speaker 2: we should talk about.
Speaker 1: Absolutely, And just going back to that episode with Havier,
Speaker 1: I remember one of the themes from that was how
Speaker 1: much oil production patterns have changed in the past few years,
Speaker 1: and so I'm very curious if the storage and transportation
Speaker 1: patterns are also changing. So I'm pleased to say we
Speaker 1: really do have the perfect guests to dive into the
Speaker 1: business of storing and moving oil. We're going to be
Speaker 1: speaking with Stephen Barsamian. He is COO at The Tank
Speaker 1: Tiger and also the co host of the tank Talk podcast,
Speaker 1: so a fellow podcaster, Steve, thank you so much for
Speaker 1: coming on. All thoughts.
Speaker 3: Thanks Tracy, thanks for having me. Thanks for having me.
Speaker 1: Joe, maybe just to begin with talk to us about
Speaker 1: what the tank Tiger actually does. I was looking at
Speaker 1: the website. You describe yourself as a clearing house for
Speaker 1: terminal storage, and if you go to the website, Joe,
Speaker 1: I don't know if you've done this yet, I have,
Speaker 1: but you can look at basically kind of want ads
Speaker 1: for storage. It's like looking for you know, specialty chemical storage,
Speaker 1: this amount or I have available this amount of storage
Speaker 1: for a particular product.
Speaker 3: Yeah, I mean, Tracy, you kind of nailed it there.
Speaker 3: That's kind of what we do. I like to say
Speaker 3: we're Airbnb for tanks.
Speaker 2: I was going to say Tinder probably works too.
Speaker 3: My dad has used maatch dot com before, so yeah, no,
Speaker 3: that's kind of high level what we do. Essentially, we
Speaker 3: have customers that are terminals that store you know, petroleum products, chemicals, bioproducts,
Speaker 3: and they're all pretty much liquids and they go into
Speaker 3: a you know, a giant tank. I'm sure people have
Speaker 3: seen the Sopranos, the intro to the Sopranos, those ginormous
Speaker 3: tanks and the intro that typically holds you know, gasoline
Speaker 3: or diesel, and essentially you can lease them out like
Speaker 3: an apartment, and people pay for a term on that
Speaker 3: tank like you would pay for a term on an apartment.
Speaker 3: And essentially oil traders, oil majors, they usually are the
Speaker 3: customers that least those tanks. And there's terminal storage companies
Speaker 3: that are public companies that kind of lease them out
Speaker 3: third party, So that's kind of how it works. And
Speaker 3: essentially we kind of get in the middle of that
Speaker 3: and we try to facilitate the transactions of people that
Speaker 3: need storage and the people that have storage, and like
Speaker 3: you said, is kind of like one ads, you know,
Speaker 3: trying to find the perfect match. And really that's what
Speaker 3: we've done for the past nine years, and so far
Speaker 3: we're still in business and still paying the bills.
Speaker 1: So wanted storage unit with sensitivity and I don't know,
Speaker 1: affinity for poetry slightly round them.
Speaker 2: How much of the business, if you look overall, is
Speaker 2: sort of like big sort of long term relationships between
Speaker 2: some oil producer and some storage company, and then how
Speaker 2: much maybe we have the tank tiger's business or anyone
Speaker 2: else's business is perhaps like sort of like I don't know,
Speaker 2: maybe the term is odd. Lots of oil storage where
Speaker 2: some storage company has a little bit of extra space
Speaker 2: beyond what their contract is. I mean, I assume there
Speaker 2: are like long term contracts, but why do you like
Speaker 2: talk about the breakdown there of how these deals usually
Speaker 2: come together.
Speaker 1: You know.
Speaker 3: So my dad who started the company, he worked at
Speaker 3: HESS for over thirty years and he kind of started
Speaker 3: the third party leasing of terminal storage at HESS. Those
Speaker 3: terminals are now not obviously owned by HESS anymore, and
Speaker 3: he kind of saw the need in the market to
Speaker 3: create this company. And you know, when he was doing
Speaker 3: deals a hes it was you know, largely long term
Speaker 3: deals or spot deals and essentially you know, trying to
Speaker 3: find the best fit for their excess capacity and assets.
Speaker 3: So I would say, you know, typically today, you know,
Speaker 3: with us being in the market, we've kind of added
Speaker 3: some liquidity and transparency a lot of the big players.
Speaker 3: You know, there's big and small terminals, and a lot
Speaker 3: of them have you know, like you said, long term
Speaker 3: customers that have been there for years and years. And
Speaker 3: then there's swings in the market where there's contango, which
Speaker 3: I hope your folks know what that is. It's basically
Speaker 3: in the future's market when the price is more than
Speaker 3: the today's price. So essentially you can put oil away
Speaker 3: and make money by storing it, and then baquidation is
Speaker 3: the opposite, so that's de incentivized as storage. So that
Speaker 3: kind of fluctuates, and you know, people leave and enter
Speaker 3: markets all the time. Companies change all the time, so
Speaker 3: leases run off, so that kind of leaves that excess
Speaker 3: and incremental storage capacity that's you know, up for a
Speaker 3: spot or long term.
Speaker 2: I was just gonna ask one quick question. This comes
Speaker 2: up in a lot of the episodes we do on
Speaker 2: trucking where we look at the rates and they say, okay,
Speaker 2: there's a spot rate and a contract rate for trucking.
Speaker 2: Is there basically an equivalent where you could sort of
Speaker 2: plot over time what sort of contracted rates there are
Speaker 2: for long term relationships and then like a spot rate
Speaker 2: that fluctuates both up and down relative to the contract.
Speaker 3: Yeah, definitely, I mean that's you kind of hit the
Speaker 3: nail on the head there. You know, you know, long
Speaker 3: term rates they're kind of steady at a certain threshold
Speaker 3: and it has to make sense for both sides, and
Speaker 3: there's spot rates and that kind of moves kind of
Speaker 3: with the markets, and that's yeah, exactly.
Speaker 1: It so I know, some oil majors obviously have their
Speaker 1: own storage, but a lot of people are clearly leasing
Speaker 1: it from third parties. Why is that? Like, why not
Speaker 1: just build out your own capacity?
Speaker 3: Some do, but it's kind of like, do you know
Speaker 3: the old economics model that I remember from an episode
Speaker 3: of the Office. Usually, you know, you don't want the
Speaker 3: liability and you have to essentially use that tank all
Speaker 3: the time if you're going to be building it. That's
Speaker 3: really what leasing comes in is you don't have that
Speaker 3: general liability of operating a terminal, so you just can
Speaker 3: come in and go as you please when you need
Speaker 3: it and when you don't need it. Most oil majors
Speaker 3: do own their own storage for their own operational use.
Speaker 3: I would say a lot of you know, oil majors
Speaker 3: now these days are trading physical trading, and they will
Speaker 3: take advantage of arbitrage opportunities by leasing storage in certain markets,
Speaker 3: whether that's for blending or moving product from A to
Speaker 3: B or you know, taking advantage of contango as I mentioned.
Speaker 3: So they kind of do both. And there's oil trading
Speaker 3: companies that exist that are just you know, these companies
Speaker 3: that trade commodities from all different parts of the globe,
Speaker 3: and basically they operate with long term and short term
Speaker 3: leases to take advantage of the same trading opportunities. As
Speaker 3: I kind of just mentioned.
Speaker 2: You mentioned those tanks in the opening scenes of The Sopranos.
Speaker 2: Mayas so would be that in suburban New Jersey or
Speaker 2: suburban New York or wherever they are, there is probably
Speaker 2: not a lot of appetite to build. More that there
Speaker 2: are neighbors who probably do not want those big fields
Speaker 2: or those big terminals or the big storage facilities to
Speaker 2: continue to expand. I imagine people don't want to live
Speaker 2: next to them. Whereas on the production side, I imagine,
Speaker 2: you know, in sort of depopulated parts of like North
Speaker 2: Dakota or Texas or wherever there's explosion, there's probably not
Speaker 2: much of a less of a constraint. So is there
Speaker 2: a mismatch in the country's ability to produce oil, which
Speaker 2: seems like it can ramp up like crazy, versus the
Speaker 2: country's ability to store oil, which I imagine, especially in
Speaker 2: strategic locations near ports, near where people live, is going
Speaker 2: to be somewhat constrained.
Speaker 3: For sure, Joe, I mean, we live, or I live,
Speaker 3: all of us live kind of in the New York
Speaker 3: area and near carb is the nymex hub for gasoline
Speaker 3: and diesel, and we have a I don't know if
Speaker 3: people have noticed, but there's a a bunch of tanks
Speaker 3: farms in the area and really that kind of has
Speaker 3: actually constrained over the years. A lot of terminals have
Speaker 3: been sold and turned into warehouses, and like you mentioned Nimby,
Speaker 3: you know, nobody wants to see, you know, an oil
Speaker 3: tank pop up in their backyard. So a lot of
Speaker 3: that is actually kind of constraining here in this geography,
Speaker 3: whereas you mentioned other parts of the US and the globe,
Speaker 3: they probably more willing and there's nothing around them to
Speaker 3: build more tanks building tanks. I mean, it kind of
Speaker 3: fluctuates with the market. As I said before. You know,
Speaker 3: we started the podcast with production growth. That was a
Speaker 3: big boom in midstream in the early parts of the
Speaker 3: twenty tens with the fracking, and kind of midstream followed
Speaker 3: along with that to facilitate the movement of that production.
Speaker 3: And that was kind of the big midstream boom there.
Speaker 3: And then you know recently with the opening of the
Speaker 3: Mexican border, there was a big boom for midstream needs
Speaker 3: to move product to Mexico, whether it was by rail.
Speaker 2: So sorry, the tanks are midstream midstream tanks, no, just
Speaker 2: making sure, but that tanks are considered me.
Speaker 3: Midstream, yes, yeah, midstream terminals, yes, kind of all midstream
Speaker 3: includes you know, pipelines, tanks, et cetera. So yeah, there's downstream, midstream,
Speaker 3: and upstream. So you had, you know, the big boom
Speaker 3: for Mexico. There was a lot of tanks built for
Speaker 3: that movement of product to Mexico that all these companies
Speaker 3: were able to do business in Mexico. So that provided
Speaker 3: the opportunity to expand and build more tanks for that.
Speaker 3: And then recently we've seen on the chemical side and
Speaker 3: on the agricultural side, which kind of leads into renewable fuels,
Speaker 3: we've seen quite a large movement to build more tanks
Speaker 3: for housing renewable fuels. And you know, that's not a coincidence.
Speaker 3: There's been you know, global push to get into renewables.
Speaker 3: When I say renewable fuels, that's you know, biodiesel, that's ethanol,
Speaker 3: that's renewable diesel. This product called staff that's meant for airlines.
Speaker 3: It's a replacement fuel for jet fuel. And then you know,
Speaker 3: there's the feedstocks that are used to produce these products,
Speaker 3: and those are typically like palm oils, veg oils, use
Speaker 3: cooking oil. All this product does need to be imported
Speaker 3: and then moved to the production facility. So that's kind
Speaker 3: of facilitated this kind of new boom in midstream and
Speaker 3: terminal infrastructure of building more tanks for that and that's
Speaker 3: largely I mean, we've seen it largely across the US,
Speaker 3: and it's predominantly happened in the Gulf Coast too, where
Speaker 3: I would say the Gulf Coast is one of the
Speaker 3: largest holders of tanks inventory in probably the US, and
Speaker 3: just sheared total capacity. It's definitely the most active in
Speaker 3: the largest.
Speaker 1: There used to be headlines about the US running out
Speaker 1: of oil storage. I think during the depths of the
Speaker 1: pandemic in twenty twenty we started to see those crop up.
Speaker 1: But even before then, I think during the shale boom,
Speaker 1: there was storage concerns and like the pipelines were getting
Speaker 1: clogged up and things like that. Do those concerns still
Speaker 1: exist today? If US oil production is at more than
Speaker 1: thirteen million barrels per day, we've seen this massive surge.
Speaker 1: Is the infrastructure to handle the movement and storage of
Speaker 1: that where it needs to be.
Speaker 3: Yeah, actually, we kind of overbuilt our pipeline capacity a
Speaker 3: little bit in anticipation of all this production and needing
Speaker 3: it to pretty much any incremental barrel we produced is
Speaker 3: exported because you know, we've kind of satiated our need
Speaker 3: with the refining capacity here in the US for like cruids.
Speaker 3: So yeah, we kind of overbuilt it a little bit,
Speaker 3: and the productions trying to keep up to get to
Speaker 3: that point where levels are paying for that infrastructure that
Speaker 3: was built. Yeah, kind of the things you mentioned, you know,
Speaker 3: for your prior point with the it was around like
Speaker 3: twenty fifteen when oil kind of cratered, and you know
Speaker 3: oil typically does booming bus cycles, as everybody says, and
Speaker 3: that was a bus cycle in twenty fifteen with all
Speaker 3: that production, and yeah, pretty much everybody that had a
Speaker 3: tank was filled during that time period. And then we
Speaker 3: have you know, the pandemic, which was more on the
Speaker 3: demand side where there was no demand for oil, so
Speaker 3: people had to park it every nook and cranny. I mean,
Speaker 3: that might have been the craziest two months of my life.
Speaker 3: During that What did you.
Speaker 1: See did you see creative storage solutions.
Speaker 2: Yeah, talk about that time.
Speaker 3: Yeah, No, it really was pretty wild. I'm not gonna lie.
Speaker 3: It was unprecedented for so many reasons, for so many people,
Speaker 3: and yeah, we did see so many unusual things which
Speaker 3: probably won't be replicated. We had people parking frack tanks,
Speaker 3: which are these small like portable tanks and filling them
Speaker 3: with oil next to you know, Cushing, which is you know,
Speaker 3: the Nimax hub for WTI and for futures contract that's
Speaker 3: the easiest plate to trade oil. So yeah, we were
Speaker 3: seeing that kind of weird level of detail of you know,
Speaker 3: filling up and moving fractanks to Cushing. You know, people
Speaker 3: filling up pipelines and not even moving the oil. It
Speaker 3: was a very very strange time. And you know, typically
Speaker 3: it's more of a flatter market than that. And we
Speaker 3: were seeing another weird thing, you know, people booking vessels
Speaker 3: and just parking oil on large vessels and parking at
Speaker 3: sea or near ports. I'm trying to think, Oh, oil
Speaker 3: on rail cars. That was another thing. People were parking
Speaker 3: on rail cars and parking in rail yards. So yeah,
Speaker 3: that was an interesting time, not gonna lie. I was
Speaker 3: doing a lot of work in a very short period
Speaker 3: of time, and also being in the lockdown was making
Speaker 3: it weirder.
Speaker 2: But what is the economic sweet spot for owners of
Speaker 2: midstream assets because obviously, you know, you know, we could
Speaker 2: talk about oil in terms of volume, or we could
Speaker 2: talk about oil in terms of price, and sometimes they
Speaker 2: move in the same direction. Sometimes not often they move
Speaker 2: I guess intuitively, often they move in opposite directions. What
Speaker 2: is the sort of like the dream business environment if
Speaker 2: you're in the midstream.
Speaker 3: Spance, Probably the dream is high oil prices and high contango.
Speaker 3: That's that's pretty much you know the dream.
Speaker 2: So high oil prices but even higher in the future.
Speaker 3: Yeah, exactly, I would say that's probably the dream scenario.
Speaker 3: Typically that doesn't happen, but yeah, that would be the
Speaker 3: dream scenario. I mean, then you have you know, producers
Speaker 3: still producing moving the oil, which you know they're paying
Speaker 3: tariffs for the pipeline and then you know they're paying
Speaker 3: it for the export of moving it from the pipeline
Speaker 3: to the tanks, to the dock and onto a ship,
Speaker 3: so that that's making money for the terminal all the
Speaker 3: way through. And then they're making money on the storage costs,
Speaker 3: which you know, people are just gonna park oil in
Speaker 3: the storage and yeah, pay for it. So I would
Speaker 3: say that's a good dream scenario.
Speaker 1: What makes for a good storage facility? And obviously I
Speaker 1: get that the requirements are going to depend on the
Speaker 1: exact product, but in general, what are the things people
Speaker 1: are looking for when they're looking for storage capacity? Is
Speaker 1: it just price or is it maybe safety or convenience
Speaker 1: things like that.
Speaker 3: So when we started the Tank Tiger, storage prices was
Speaker 3: very very opaque, and we tried to bring a little
Speaker 3: bit of light and transparency. Like I said, we've been
Speaker 3: doing this for eight years and now, so people kind
Speaker 3: of trust this, I think. So we've been able to
Speaker 3: kind of shed some light on storage pricing. And it
Speaker 3: was a black box day, you know, somebody could have
Speaker 3: been paying like two dollars more than the other person
Speaker 3: in that same terminal, or you know, vice versa. So
Speaker 3: we've been able to actually create kind of more transparency
Speaker 3: and liquidity in what we do. But to answer your question, yeah,
Speaker 3: I would say it's a combination of all. So typically
Speaker 3: in a you know, a flatter, more backuidated market or
Speaker 3: small contango market, the more what I call well connected
Speaker 3: facilities or desirable locations are going to be you know,
Speaker 3: the first to you know, get leased out, and typically
Speaker 3: those are you know, terminals in Houston, those are terminals
Speaker 3: in near carb like I mentioned in Cushing and along
Speaker 3: the river in New Orleans. You know, these are pretty
Speaker 3: much major trading hubs and logistical hubs. And for at
Speaker 3: least oil terminals, the better the connected, which means, you know,
Speaker 3: the best pipeline connected facilities tend to do better than
Speaker 3: the other the ones that are not as well connected pipeline,
Speaker 3: and that kind of means is like they're bringing in
Speaker 3: oil from multiple locations, so it gives a person optionality
Speaker 3: and they're bringing it to their outbound connectivities to are
Speaker 3: vast and broad, so that kind of lends itself to
Speaker 3: be a favorable facility. And then you know, obviously price
Speaker 3: matters a lot as well. And then for logistically, it's
Speaker 3: you know, location, So customers that least storage want to
Speaker 3: be around other people that least storage, so they're able
Speaker 3: to move barrels from point A to B, and you know,
Speaker 3: that provides some liquidity and trading activity, so they don't
Speaker 3: want to be stuck in the middle of nowhere and
Speaker 3: nowhere to sell their barrels. And that kind of hurts
Speaker 3: a lot if they can't sell and the market's bad.
Speaker 3: So that's kind of what I would say lends to
Speaker 3: a favorable facility and crude in products, what clean products
Speaker 3: is like gesline and diesel jet and crude oil. You know,
Speaker 3: obviously it's crude oil, so they're kind of segregated in
Speaker 3: different terminals. Typically their different facilities handle both, so there's
Speaker 3: differentiators between those two.
Speaker 1: I have a really basic question since you mentioned the pipelines,
Speaker 1: but how does the oil or the product get from
Speaker 1: the pipelines into the actual storage facilities? Like what is
Speaker 1: the mechanism?
Speaker 3: Are we talking from crude oil or clean products standpoint?
Speaker 1: I guess we could do both. I'd be curious to
Speaker 1: hear the sort of like life cycle of both those
Speaker 1: things from like stuff comes out of the ground and
Speaker 1: then gets moved or stuff comes out of the ground
Speaker 1: and gets refined and then put into storage, because I
Speaker 1: don't really understand the physical process, yeah, the sequencing of it.
Speaker 1: And do the pipelines like plug in directly into storage tanks.
Speaker 1: I can't imagine that's the case, But go ahead.
Speaker 3: Sure, Yeah, of course I'll start with crude because that's
Speaker 3: where it all starts. So typically the you know, they
Speaker 3: drill it out of the ground, and the way it's
Speaker 3: moved is into kind of like an aggregation site. Either
Speaker 3: they move it via a truck or a pipeline that's
Speaker 3: connected kind of close to the well, and that's moved
Speaker 3: into like an aggregation terminal, and from that aggregation terminal
Speaker 3: a terminal that has tanks, so it's literally taken. If
Speaker 3: it's a truck that's driving it to the terminal, they'll
Speaker 3: stick a hose into the truck. It'll pump it into
Speaker 3: a tank, and then at that tank, there's multiple tanks
Speaker 3: in that little small terminal that'll pump into a bigger
Speaker 3: terminal and that bigger facility will then inject it into
Speaker 3: a long haul pipeline. Some of the long haul pipelines
Speaker 3: from the Permian go to Houston or Corpus Christie for
Speaker 3: crude Corpus for their refining complex and to export out
Speaker 3: of there, and then Houston, you know, for the refining
Speaker 3: complex into export out of there. So when it goes
Speaker 3: to the long haul pipeline, typically the midstream company that
Speaker 3: owns long hole pipeline also owns the terminal at Point
Speaker 3: A and point B, so when it's coming in and
Speaker 3: when it's going out, and then from that pipeline, it'll
Speaker 3: go into various tanks in that tank field depending on
Speaker 3: manifolds and connections in that terminal, and that's kind of
Speaker 3: how it moves. And then you know, in that terminal,
Speaker 3: it can there's multiple pipes that are connecting each individual tank,
Speaker 3: so it can move from one point to another and
Speaker 3: one tank field to another. Certain terminals have interconnected tanks,
Speaker 3: and it's just like kind of a web inside the
Speaker 3: terminal how the oils moved to each location. And then
Speaker 3: from that tank, it's either transported onto a dock, so
Speaker 3: the dock is located at the terminal, it's piped into
Speaker 3: the dock and a ship comes up and the ship
Speaker 3: is loaded and it goes off to some form port,
Speaker 3: or it's moved into another pipeline that is connected generally
Speaker 3: to a refinery, and then the refinery has their own
Speaker 3: tanks at their own plant, and that they'll take from
Speaker 3: that tank into a distillation tower and start producing clean products.
Speaker 3: And then that kind of leads me to the clean products.
Speaker 3: So once the refinery produces clean products, typically we'll start
Speaker 3: from Houston because that's where a lot of refining capacity is.
Speaker 3: So though a lot of these refineries have connections into
Speaker 3: some of these major terminal hubs in Houston where a
Speaker 3: lot of gasoline blending and diesel activity happen, and they're
Speaker 3: pumped into these terminals via pipeline, and it can go
Speaker 3: trade hands from one person to another, and then it
Speaker 3: can be exported, like I mentioned before, pumped onto a dock,
Speaker 3: sent to South America or wherever, or it can be
Speaker 3: shipped up Colonial Pipeline, which is the largest distribution pipeline
Speaker 3: in the US, and that pipeline has injections at the
Speaker 3: terminal site in Houston, and then there's various stops along
Speaker 3: the way as goes up to New York Harbor. And
Speaker 3: then once it's at its destination, let's say at a
Speaker 3: terminal here in Linden or Bayonne or wherever in New Jersey,
Speaker 3: it hits the tank and then typically it's consumed by
Speaker 3: a customer. So you'll have a truck that comes up
Speaker 3: to the terminal, it'll load the product at the truck rack,
Speaker 3: and then it'll drive off to a gas station. So
Speaker 3: it's kind of how it works.
Speaker 2: That was great, Yeah, that was a really good overview,
Speaker 2: and I have a very first I have a very quick,
Speaker 2: simple question the basic pricing. I mean, are we basically
Speaker 2: talking about as sort of barrel per day type of
Speaker 2: pricing or how does storage pricing? Yeah, storage pricing.
Speaker 3: Yeah, so it's essentially, like you said, it's in dollars
Speaker 3: per barrel per month. Okay, so that's a typical storage.
Speaker 2: What do we what's a typical price on an average
Speaker 2: market historic barrel?
Speaker 3: It varies quite it varies quite quite a bit. I mean,
Speaker 3: petroleum products are probably slightly less expensive than chemical products
Speaker 3: in terms of price, and so it just kind.
Speaker 2: Of like at a dollar amount. If we want Tracy
Speaker 2: suddenly had a barrel of oil, which maybe she will
Speaker 2: what a cost or a stored for a month in
Speaker 2: a typical market.
Speaker 3: Okay, so yeah, I'll say let's start in Houston. You know, gasoline,
Speaker 3: gasoline components, and Houston's around you know, ninety ninety cents
Speaker 3: to a dollar barrel, diesels a little bit slightly less
Speaker 3: than that, and essentially you're paying for one month minimum,
Speaker 3: at least you have to pay for at least one month.
Speaker 3: That's the minimum A terminal will do. More desirable terminals
Speaker 3: won't even do that month. They like, you need to
Speaker 3: take a year or so, so so you basically pay
Speaker 3: for that year whether you use it or you don't
Speaker 3: use it. And then there's actually secondary markets where people
Speaker 3: are allowed to sublease their tanks, like I'll let you
Speaker 3: sublet an apartment.
Speaker 2: So I was going to this was going to be
Speaker 2: kind of my next question. Is there an active speculative
Speaker 2: market for storage capacity? In other words, could I say,
Speaker 2: you know what, I want to go long the cost
Speaker 2: of storing oil here, or I just want to buy
Speaker 2: a bunch of capacity and I don't know if I'm
Speaker 2: going to use it, but I think I can resell
Speaker 2: it for more six months from now. Or I want
Speaker 2: to buy a bunch of capacity here and sell a
Speaker 2: bunch of capacity here because I think it's going to rerutted,
Speaker 2: like how liquid? Like can you just sort of be
Speaker 2: like a computer warrior and trade capacity in some way?
Speaker 3: So yeah, that's kind of a multifaceted question. So yes,
Speaker 3: trading companies will take speculative positions and lease tanks, but
Speaker 3: typically they don't do it so they can sublet it.
Speaker 3: It's typically they're anticipating some sort of market need and
Speaker 3: you usually want it for your own use, whether it's
Speaker 3: blending or storing the oil, and that will actually make
Speaker 3: you more money than subleasing the tank because it could
Speaker 3: be you know, exponential factor, how much more money you
Speaker 3: can make having that tank. And yeah, there is a
Speaker 3: secondary market. I wouldn't say it's that liquid, but with
Speaker 3: us being around, it's maybe gotten more liquidity to it,
Speaker 3: and in terms of future buying a storage So it's
Speaker 3: interesting you say that there was a company that had
Speaker 3: futures exchanged for storage on CME and you were able
Speaker 3: to if you wanted to book June storage for you know,
Speaker 3: a certain amount price and it would be a one
Speaker 3: month contract. So that contract did exist. I'm not sure
Speaker 3: if it's still on cum I'd have to check. I
Speaker 3: don't remember offhand because they were kind of a competitor
Speaker 3: of ours, but yeah, that did it, and it was
Speaker 3: pretty innovative and that did exist, so yes, you could
Speaker 3: you kind of do both.
Speaker 1: How long can oil be stored? And the reason I
Speaker 1: ask is going back to me keeping a jar of
Speaker 1: oil on my desk and slowly poisoning my colleagues. I
Speaker 1: really didn't mean to do that, Joe, I was, Yeah,
Speaker 1: I was surprised by how quickly it actually evaporated from
Speaker 1: this jar. And there was other weird stuff that happened, like,
Speaker 1: for instance, the solid starts settling at the bottom right,
Speaker 1: And so every once in a while, I remember I
Speaker 1: would pick up this jar and just kind of shake
Speaker 1: it to get it looking how it looked when I
Speaker 1: first received it. But there are all these considerations that
Speaker 1: go into actual physical storage. How long can you actually
Speaker 1: do this? And again, thinking back to the Strategic Petroleum Reserve,
Speaker 1: I always have this picture in my mind of a
Speaker 1: mountain of oil barrels, like in storage somewhere, But I
Speaker 1: don't know if that's actually the case. If we have
Speaker 1: barrels of oil, they're just sitting around for decades or
Speaker 1: something like that.
Speaker 3: So yeah, I mean you just mentioned it. Crap can
Speaker 3: go to the bottom of a tank, and that does
Speaker 3: happen naturally in all tanks. You know, if you've ever
Speaker 3: opened one of those large crude oil tanks, you'll see
Speaker 3: some interesting things at the bottom of it, like what
Speaker 3: like rocks. I mean, crude has like all types of metals,
Speaker 3: and yeah, not rocks, but yeah, it's just a it's
Speaker 3: a sludge and.
Speaker 1: Solids and you can't shake it.
Speaker 3: Yeah, they typically clean the bottoms every once in a while.
Speaker 3: Terminals will have to clean the bottoms of a tank
Speaker 3: to you know, get all that crud out of there.
Speaker 3: But you can basically park crude oil in for a
Speaker 3: tank forever. I mean, it's essentially the same as leaving
Speaker 3: it in the ground. Typically products, once it's refined, they
Speaker 3: need to be turned over and eventually consumed. Their shelf
Speaker 3: life isn't as long as crude oil. Crude oil you
Speaker 3: can just really leave there forever. And all terminals have
Speaker 3: what I would call so for crude oil, they have
Speaker 3: floating roofs that sit on top of the crude oil
Speaker 3: to control the vapor pressure. And then there's the bottoms
Speaker 3: of the tank. So there's actually like a little hole,
Speaker 3: a circular hole and a tank, and that's where the
Speaker 3: pipe is connected to. And actually beneath that hole there's
Speaker 3: what called the bottoms of the tank or the heels
Speaker 3: of the tank, and that's where all the crut is.
Speaker 3: And then on top of that is where the oil
Speaker 3: is able to pump out of the tank. So when
Speaker 3: you're leasing a tank, you're actually leasing that full capacity,
Speaker 3: even though technically that usable capacity is less than what
Speaker 3: you're paying for. So that's just kind of an industry standard.
Speaker 1: What happens to the vapor.
Speaker 3: When you suck a oil out of the tank? Yeah,
Speaker 3: that's a good question. I don't even know.
Speaker 2: Yeah, we're gonna have to do episode on oil vapor,
Speaker 2: but I was, I mean, that is sort of what
Speaker 2: I was wondering. Next. Has the mid stream slash storage
Speaker 2: industry been forced to do any changes as a result
Speaker 2: of sort of climate and other questions? I mean, obviously
Speaker 2: you hear about it in natural gas with methane leaks,
Speaker 2: et cetera, and as a particularly potent contributor to climate change.
Speaker 2: Has there been anything in your world that has to
Speaker 2: be done different business practice wise in terms of like
Speaker 2: storage or handling or distribution in order to meet environmental guidelines.
Speaker 3: They're changing those rules every year or so. I mean,
Speaker 3: there's a regulatory agency that you know has standards for
Speaker 3: these tanks, and they look to change them based on
Speaker 3: events or to meet climate goals. And like you mentioned, so, yeah,
Speaker 3: there are standard practices in place, and you need to
Speaker 3: take tanks out of service every certain number of years
Speaker 3: to get it inspected and make sure it's up to code.
Speaker 3: And yeah, essentially, you know, there's basically bylines that terminals
Speaker 3: need to follow to keep safety procedures. And luckily, you know,
Speaker 3: in the eight years or nine years that I've been
Speaker 3: doing this, there hasn't been as many or that many
Speaker 3: incidents of terminal leaking or fires or anything like that.
Speaker 1: So around this time last year, there was a lot
Speaker 1: of discussion of a diesel shortage in the Northeast and
Speaker 1: it was a pretty big deal. I think the White
Speaker 1: House actually put out a statement on it at one point.
Speaker 1: How did that come to happen? How bad was it
Speaker 1: in retrospect? And why does it seem to have gone away?
Speaker 3: Yeah, I know, it's funny. You know, everybody lives kind
Speaker 3: of in the short term. They're like, ah, you know,
Speaker 3: we're right at a diesel and then you know, nobody's
Speaker 3: talking about it today. It was the same thing with
Speaker 3: IMO twenty twenty. I don't know if you guys remember that,
Speaker 3: but yeah, essentially, you know that I believe that was
Speaker 3: around you know, the war in Russia and Ukraine and
Speaker 3: the sanctions happened and people were not accepting Russian oil,
Speaker 3: so that you know, disrupts global supply chains, and there's
Speaker 3: like this natural flow of markets, efficiency of moving the
Speaker 3: oil from point A to point B that kind of
Speaker 3: suffices the global demand for oil. So basically global demand
Speaker 3: stayed pretty high, and you know, there wasn't enough supply
Speaker 3: to reach that with the sanctions, so that's kind of
Speaker 3: what led to the shortage in that time period. And
Speaker 3: that can cause spikes when there's no inventory and say
Speaker 3: there's a you know, really cold winter and you need
Speaker 3: heating oil and there's none there that like the price
Speaker 3: just keeps going up, so it's, uh, that can cause
Speaker 3: severe spikes. But when there's inventory, that kind of flattens
Speaker 3: out those spikes because they kind of smooths that process. Today,
Speaker 3: you know, we're not really having those issues. Actually that
Speaker 3: level was kind of historic lows for low inventory, and
Speaker 3: today now you know, we're building inventory and on the
Speaker 3: distillate side and it's kind of more i would say,
Speaker 3: a normal market, as you would say, and we don't
Speaker 3: really have those issues today. And I would say that's
Speaker 3: mostly because kind of the Russian oil has gotten out
Speaker 3: and demand has you know, weakened a little bit for
Speaker 3: our consumption standpoint, and refiners haven't been able to adapt
Speaker 3: and produce more. You know, heating oil and more diesel.
Speaker 3: So I think it's like a combination of factors like anything,
Speaker 3: and that kind of causes a little bit of an
Speaker 3: oversupply and that kind of fills the tanks, and you know,
Speaker 3: that's almost like a self selling prophecy. Once inventory levels build,
Speaker 3: that's what traders watch. And as they see inventory levels build,
Speaker 3: that kind of decreases the price of oil and that
Speaker 3: actually encourages more people to park moil. So it just
Speaker 3: kind of builds like that.
Speaker 2: So the Northeast, especially in winter, as you mentioned, uses
Speaker 2: a lot of oil for heating. We produce a lot
Speaker 2: of oil not in the Northeast. There's some pipelines, but
Speaker 2: we can't because of the Jones Act. We can't.
Speaker 1: So where's our Jones Act?
Speaker 2: Like yeah, right there or time the Jones Act comes up.
Speaker 2: But is there like a perversity or how do you
Speaker 2: see that play out? When it's like, Okay, the US
Speaker 2: has oil, there are tankers, there is domestic need. What
Speaker 2: is the infrastructure like for getting or not getting oil
Speaker 2: from say Texas to homes in the Northeast that want
Speaker 2: to heat their homes.
Speaker 3: I mean, obviously, with the invention of fracking and natural
Speaker 3: gas that has kind of alleviated a lot of the
Speaker 3: heating oil need and that's kind of, you know, helped
Speaker 3: a little bit as well. I would say the majority
Speaker 3: of the product for US in the Northeast is coming
Speaker 3: from the Gulf Coast and their finery complexes down there
Speaker 3: and via pipeline, by via the pipeline. Yeah, and then
Speaker 3: you know further up north and like the New England area,
Speaker 3: they're not connected to any.
Speaker 2: Pipe, right, there's no pipeline like in Vermont.
Speaker 3: No, they'll take diesel supplies from Europe via vessel, or
Speaker 3: they'll barge it up from New York Harbor and put
Speaker 3: it into terminals and you.
Speaker 2: Know barge the way that means an inland water way
Speaker 2: in New York. So you can you can do pipeline
Speaker 2: from Texas to New York, yes, and then via barge. Yes,
Speaker 2: that way you don't have to deal with any Jones.
Speaker 3: You don't have to pay because Okay, yeah, barges.
Speaker 1: Are so underrated. I always think that whenever they come up.
Speaker 2: Yeah, no, totally. And also just America's blessed inland war
Speaker 2: system is incredibly absolutely underrated.
Speaker 3: Yeah, for sure, I was gonna say Jones as they
Speaker 3: still do exist. People still do lease them and they
Speaker 3: will still take them. Typically it goes to Florida. Most
Speaker 3: of the jones X go from the Gulf Coast of Florida,
Speaker 3: and you'll see some that go to New England, but
Speaker 3: not as many.
Speaker 1: So I know, it's been a busy few years for
Speaker 1: the oil and commodities industry in general. But looking back,
Speaker 1: you know, now versus twenty twenty, what's been the big
Speaker 1: change in your business? If you could sort of, you know,
Speaker 1: just encapsulate it for us.
Speaker 3: Sure, yeah, I mean it's kind of crazy how quickly
Speaker 3: everything so much has changed in only three years. I mean,
Speaker 3: a lot of the oil majors were, you know, crying
Speaker 3: because you know, oil prices were so depressed and refining
Speaker 3: margins were terrible, and now oil prices are high and
Speaker 3: refining margins are great and a lot of these big
Speaker 3: companies are reaping in tons of profit. We've seen a
Speaker 3: lot of mergers and acquisitions on the shale production side,
Speaker 3: with a lot of independent shale producers getting gobbled up
Speaker 3: by these oil majors because shale producers are seeing good
Speaker 3: evaluations and the majors are looking to grow there drilling production.
Speaker 3: But without actually having the drill holes in the ground.
Speaker 3: They can just acquire company. So you know, we're seeing
Speaker 3: a lot of that. And from refining standpoint, I mean,
Speaker 3: there's going to be new refineries built across the world
Speaker 3: and that's kind of eat away at, you know, domestic
Speaker 3: refining capacity from us on the midstream side. The terminal side,
Speaker 3: we've seen a lot of mergers and acquisitions as well.
Speaker 3: You know, a few big recent biots happened and that's
Speaker 3: kind of changed the hands of the names of the tanks,
Speaker 3: so same assets, different names, and that's kind of what
Speaker 3: we're seeing recently, you know, just in the past few months.
Speaker 3: And basically what I mentioned earlier was the global demand
Speaker 3: for renewables and that's not just talk. It's happening today
Speaker 3: and there is definite capital expenditures being put into building
Speaker 3: plants and building terminal infrastructure to house you know, these
Speaker 3: renewable fuels. So it'll be interesting what the next few
Speaker 3: years hold for that. But yeah, I mean it's constantly
Speaker 3: changing and that's kind of what keeps me on my
Speaker 3: toes and keeps me interested in this oil game. But yeah,
Speaker 3: it's been different since twenty twenty. A lot of things
Speaker 3: have changed.
Speaker 1: All right. Steven Barsamian, thank you so much for coming
Speaker 1: on odd Lots and explaining the business of storing and
Speaker 1: moving oil and its various products to us. We really
Speaker 1: appreciate it.
Speaker 3: Fun. Thank you for.
Speaker 1: Joe. That was a fun conversation. I enjoyed that it
Speaker 1: brought back a lot of memories for me about that
Speaker 1: buying oil project. And there's actually a broker who took
Speaker 1: me out on his boat to go around, like sounded
Speaker 1: really fun. Yeah, and look at all the terminal facilities
Speaker 1: and the tankers out there and stuff. There are a
Speaker 1: few things that stuck out for me. So I was
Speaker 1: kind of surprised that we have actually built out storage
Speaker 1: infrastructure to the extent that we seem to, because it
Speaker 1: does seem like in so many other areas the US
Speaker 1: sort of struggles with building just in case capacity, but
Speaker 1: for some reason it seems to have worked out in
Speaker 1: the oil world.
Speaker 2: That was really interesting. I was also just like, really,
Speaker 2: I mean, there were a lot of interesting things. And
Speaker 2: I remember when March, I guess April twenty twenty is
Speaker 2: when we had the negative negative oil prices one day,
Speaker 2: and I remember thinking like, well, like there must be
Speaker 2: some market somewhere that is essentially the mirror image to
Speaker 2: this oil price. But we don't have a chart because
Speaker 2: there's not, like, you know, I don't think like storage
Speaker 2: capacity data is like as common as the oil price
Speaker 2: data or as like readily available. But I remember at
Speaker 2: the time thinking like there must be some chart somewhere
Speaker 2: that is literally the mirror image of this, because someone
Speaker 2: with some marginal storage capacity must have seen, you know,
Speaker 2: the amount that they can rent out their space for
Speaker 2: essentially like shoot up positive forty or something de facto
Speaker 2: like that. Because if you have this oil and you're
Speaker 2: producing so much and you run out of space, like
Speaker 2: you're desperate, right right, So.
Speaker 1: That was when everyone was joking about buying oil and
Speaker 1: storing it in their bathtub.
Speaker 2: You were, you were ahead of the curve on owning
Speaker 2: oil ahead of that, but yeah, right, like that would
Speaker 2: be the ultimate time if you had the capacity. Yeah,
Speaker 2: just been making it.
Speaker 1: Fortunately, I did think it was interesting. Steve brought up
Speaker 1: the sort of creative storage solutions that you did see
Speaker 1: at the time, So for instance, just keeping your oil
Speaker 1: on railcars or just leaving it in pipelines for storage
Speaker 1: as opposed to using them to actually move it. I wonder, yeah,
Speaker 1: crazy times.
Speaker 2: I'm also interested, you know, to like how I guess
Speaker 2: at some point there was like a CME future contract
Speaker 2: for capacity, and like intuitively there's got to be like
Speaker 2: arbitrage opportunities where you're like, oh, I'm long Houston storage capacity,
Speaker 2: its short Louisiana storage capacity, et cetera. But maybe those
Speaker 2: markets have yet to be fully like a built down
Speaker 2: liquid And so.
Speaker 1: Do you think Steve will let us advertise storage capacity
Speaker 1: on his website and see if interested?
Speaker 2: Do you have storage capacity in your basement tracing.
Speaker 1: I've got like one foot of dusk space for if
Speaker 1: someone wants to storage to another jar.
Speaker 2: It sounds it sounds like an environmental headache minimum.
Speaker 1: Yeah, you're right, Okay, shall we leave it there?
Speaker 2: Let's leave it there.
Speaker 1: This has been another episode of the ad Thoughts Pod.
Speaker 1: I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 2: And I'm Joe Wisenthal. You can follow me at the Stalwart.
Speaker 2: Check out Stevens podcast Tank Talk, brought to you by
Speaker 2: Tank Tiger. Follow our producers Carmen Rodriguez at Carman Arman,
Speaker 2: Dashel Bennett at Dashbot, and Cal Brooks at Calebrooks. Thank
Speaker 2: you to our producer Moses Ondam. For more Oddlots content,
Speaker 2: go to Bloomberg dot com slash odd Lots. We have transcript,
Speaker 2: a blog, and a newsletter, and you can chat with
Speaker 2: fellow listeners of the podcast and the discord Discord dot
Speaker 2: gg slash odd Lots twenty four seven. We have an
Speaker 2: energy channel and a transportation channel, so maybe people will
Speaker 2: be talking about it in there.
Speaker 1: And if you enjoy Oddlots, if you want us to
Speaker 1: go on a field trip to Arthur Kill and look
Speaker 1: at all the oil storage out there, then please leave
Speaker 1: us a positive review on your favorite podcast platform. And
Speaker 1: don't forget. If you're a Bloomberg subscriber, you can connect
Speaker 1: your account and listen to all of the Authlots episodes
Speaker 1: add free. Just connect your Bloomberg subscription into Apple Podcasts.
Speaker 1: Thanks for listening.