The price is trying to go to a level to force companies to keep the oil in the ground. If it has to go negative to incentivize that behavior, then it will.
Depends heavily on the location, but just expanding a crude tank farm in the US is a multi-year design and permitting job, even when you can just throw money at it. There's also significant ongoing regulatory costs of keeping them, even if they're just sitting idled.
Plus much of storage that exists isn't really for storage, but is a needed buffer on the supply line for steady-state infrastructure, like pipelines and refineries. Some amount of empty is required (both practical and by regulation) to absorb surplus, like in the event of an emergency refinery shut down due to fire.
Other cases are for when pipelined supply isn't single product, or is shared by multiple users... Your plant might need 500k bbl/day, but you only get the pipeline every other day at 1000k bbl/day. Or you get different products on different days.
Part of the US strategic oil reserve's purpose is for what's happening right now, and they've been using it to absorb excess capacity for a few weeks, with a few more weeks to go before full. And this is filling entire underground salt domes with oil, at a scale way beyond any manufactured tank capacity.
We'll probably see more tankers and even rail car tankers repurposed for storage, but I don't see anyone justifying the need to build more fixed storage, unless there's some existing/ contributing need for storage that was already permitted and is suddenly cost justified. But even that is at tiny scales compared to the current surplus.
It's just easier and cheaper to start shutting in the more isolated and/or expensive wells. Which is just storing it in the ground, anyway.
foxyv|6 years ago
beerandt|6 years ago
Plus much of storage that exists isn't really for storage, but is a needed buffer on the supply line for steady-state infrastructure, like pipelines and refineries. Some amount of empty is required (both practical and by regulation) to absorb surplus, like in the event of an emergency refinery shut down due to fire.
Other cases are for when pipelined supply isn't single product, or is shared by multiple users... Your plant might need 500k bbl/day, but you only get the pipeline every other day at 1000k bbl/day. Or you get different products on different days.
Part of the US strategic oil reserve's purpose is for what's happening right now, and they've been using it to absorb excess capacity for a few weeks, with a few more weeks to go before full. And this is filling entire underground salt domes with oil, at a scale way beyond any manufactured tank capacity.
We'll probably see more tankers and even rail car tankers repurposed for storage, but I don't see anyone justifying the need to build more fixed storage, unless there's some existing/ contributing need for storage that was already permitted and is suddenly cost justified. But even that is at tiny scales compared to the current surplus.
It's just easier and cheaper to start shutting in the more isolated and/or expensive wells. Which is just storing it in the ground, anyway.