Category: Blogs

Optimizing sales and growth with Market Intelligence

What is the key factor, the bottom-line that determines the success of a terminal operator? Of course it is the percentage of tanks that are rented out over a given period of time and the fee or rate that these tanks generate. The people realizing this bottom-line day in day out are your sales and account managers. What can Market Intelligence do to help them reach their targets? And what can Market Intelligence do to secure future growth?

Market Intelligence helps establish three pillars of your success, by:

1: Continuously investigating market trends and price movements

2: Investigating what mix of customer sizes and their desires and what mix of liquid bulk products will make the terminal operation run most smoothly over time

3: Via competitive intelligence giving each sales and account manager the right information at his or her fingertips when entering price negotiations

The first pillar lays the groundwork for all strategic decision making. It will guide your commercial team to where growth and value can be found. The second means that a company will not let sales managers just blindly hunt for any customer. It will guide them towards the right deals that will strengthen the terminal’s position and competitiveness and at the same time will guard against having a portfolio of clients that does not match with logistical capabilities and constraints. For instance part of the terminal can be reserved for customers who need strategic storage, like governments. The staff responsible for Market Intelligence can make calculations and show exactly why it could be beneficial to reserve a given percentage of the terminal for such a customer who pays a somewhat lower price but signs a long term contract and does not require a lot of throughput capacity.

Price negotiations

The third pillar with which Market Intelligence helps sales and account management is literally hands-on as a staff department giving the sales or account manager all key numbers, prices, competitor intelligence and other metrics needed to negotiate good contracts. A sales manager can only make good deals when they have superior market and customer information at their fingertips. A customer will notice when their negotiating partner is well informed and be more likely to accept an offer.

Logistics

When making such optimal sales strategy plans, a big consideration is the effective use of terminal installations like jetty’s and pipelines. It makes no sense to do a lot of sales for a certain product in certain volumes only then to note that logistically it’s impossible to service these customers without long and expensive waiting times. On the other hand with proper market intelligence it becomes possible to even plan investments in new installations when for instance it is known that a new customer, or a new product, will very likely grow strongly in the years to come.    

Avoid chaos

Market Intelligence can “design” an optimal mix of good (i.e. growing) customers where you have enough diversity to respond to short term demand fluctuations, but still create a stable business with a hub function for certain preferred liquid bulk products and a number of larger dedicated customers. In this way day to day chaos at the jetties, caused by a multitude of hyper-active customers, can be avoided. And the customer benefits too from this smart planning since they hate to pay demurrage. Market Intelligence is there to make sure that everything in the terminal operation happens in the smartest way possible with the largest economies of scale!

Counter-intuitive

Sometimes good market intelligence can help a business spot counter-intuitive opportunities. For instance when globally investments in oil facilities go down, at the terminal level the effect might be contrary. Decreasing funding may lead to the phasing out of local refineries which in turn increases global shipping of refined products. So less investment in fossil fuels can in certain cases lead to increased demand for tank capacity. Without good Market Intelligence it is practically impossible to instruct sales and account management to look into such changing opportunities.

Competitive edge

To conclude we can say that, starting from current awareness, through strategy and business development, it is crucial that Market Intelligence extends deeply into the sales and account management. Only then the benefits of all the labor in the prior stages can be reaped. Only in this way a terminal operator will get the competitive edge over the competition, that will lead to sustained excellence, growth and profitability.

Whitepaper: Market Intelligence for Tank Terminal Operators Explained

How to move from a strategy to business development using market intelligence?

Business development is what comes next in line from current awareness and strategic planning. It is basically the moment when a company says: “Let’s do it!” One would almost assume that all necessary research for this execution of the strategic plan has already been done and that now it’s just a matter pushing ahead come hell or high water. In reality Market Intelligence remains important in this phase too!

If we recap quickly we have seen that without market intelligence there can be no current awareness. Then we have seen that this current awareness can be expanded upon by applying further market intelligence to create well-founded scenarios and predictions. Only with those scenarios and predictions at hand strategic planning starts to make sense. In this blog post we will look at the next phase when the strategic plan needs to be decided upon and get executed.

Let’s look at an example. Currently, the terminal world experiences a shift towards sustainable fuel sources. Many terminal operators want to get clout in new fuels such as hydrogen (at minus 250 degrees Celsius), ammonia (transporting hydrogen chemically bound to nitrogen at temperatures and pressures comparable to LPG), and also SAF (sustainable aviation fuel). Lastly there is a growing demand for LNG due to the war in Ukraine and other geopolitical factors. Current awareness means to at least be aware of these trends and having current data at hand. Strategy means having a plan on how to capitalize on these trends under various scenarios. Business development then, is the stage where a desired position in these fuel supply chains is going to be built up.

In this new phase a good and constant intelligence flow remains critical for success. Market intelligence will now provide detailed knowledge and information about which concrete players would need what amounts of storage capacity. There can be absolutely no surprises regarding rules and regulations for these new fuels. Price movements need to be current at all times. These factors will then be taken into consideration when constructing of new tanks, jetties or pipelines. As in any construction project, these stages are feasibility study, design, licensing and permits and (preliminary) contract negotiations.

Investments in terminals are huge and therefore go hand in hand with long term contracts. Time spans of such contracts are usually between 5 and 15 years. So obviously most terminals and installations will not be built without a signed contract to cover a part of the lifespan of the asset. However, it is rarely the case that a client will be prepared to sign a deal for the whole lifespan of an asset. So there will always be a risk associated with such a project and market intelligence will enable you to estimate this risk and factor that into your decision. If the risk is acceptable you can go ahead, if too large then either you walk away from the deal or try to negotiate better terms. We can conclude that Market Intelligence continues to play a large role all the way into the  business development phase.

And as we will see in another blog post it remains important up until the final stage of the asset’s lifecycle: the operational phase. In this phase the objective is to get a good return on investment by attracting and retaining valuable customers that pay premium rates for your terminal. With excellent market intelligence for marketing, sales and account management you can achieve these results.

Gut feeling or a strategy aligned with market intelligence?

We don’t deny it: some entrepreneurs keep getting lucky just basing their decisions on gut feeling. At the same time we claim that even these entrepreneurs and their companies would fare even better if they had ongoing smart and structured intelligence gathering about all aspects of their market. Let’s take a look why market intelligence is an equally vital support activity within a company just as IT, human resource management or accounting are.

Tank terminals are capital goods. Strategic decisions in the terminal business often result in investments worth millions of dollars. And these investments determine to a large extent the capabilities of a terminal for years to come. So obviously any reduction of long-term investment risk is welcome. Market intelligence, the systematic gathering and analysis of information about all things concerning your current and future business, is the way to do this.

The important of current awareness before strategy

In a first blog on current awareness we have explained that a company simply must have sufficient understanding of what’s currently happening in your industry. What are clients looking for? What are competitors doing? Which tech trends influence the market? How is the pricing of services changing? Which mergers and acquisitions are taking place? Is there news on the regulation front in any of the relevant geographic areas? Are there important changes in the political landscape?

The current awareness can be structured using a PEST-factor (macro-level: political, economic, societal, technological) analysis, competitive environment (industry-level: customers and competitors) analysis and SWOT (segment-level: strengths, weaknesses, opportunities and threats) analysis.

The next stage should offer a clear view on various realistic future scenarios for industry and market developments. Most often there is one strong trend dominating the market, but it would be foolish to always just follow the pack jumping on such a new trend. If you come in early it could prove demand is not yet as predicted. If you come in late you can’t win either.

Market intelligence allows a business to stand on its own two feet and make specific decisions independently. Better decisions. Quicker decisions. Better timing. The right partners. That’s what makes the difference!

The consequences of strategic decisions and what to do with them

A helpful way to analyse consequences of strategic decisions is to always consciously run through three scenarios:

  • worst case
  • most likely
  • best case

If your market intelligence is capable of providing this kind of “three-stage” realistic prognosis for each possible expansion or change of a terminal operation, then it is also likely that the management will be able to recalibrate the long-term corporate strategy and pick the best choices. The fact that various levels of management are involved in the information gathering, also ensures that strategic decisions are well supported by the whole organisation.           

In the end what counts is to move away from the intuitive and short-term approach towards a systematically organized long-term form of Market Intelligence (MI) preferably with concrete roles for key staff members and with a proper embedding in the company culture.

The handbook of Market Intelligence (2009) offers a good example of world-class market intelligence as it relates to strategy:

“We are future-oriented in our approach and frequently use scenario analysis in combination with forecasting as methods to understand the future dynamics of our industry. One example is that we have a project focusing on as far as the year 2050. We have an intelligence network in place and are producing deliverables that have been tied into our strategic and operational business processes.”

In the end, world-class companies have proven that ongoing smart and structured intelligence gathering about all aspects of their market will enhance profitability and reduce risk. In the highly fragmented tank terminal business, servicing an ever-changing liquid bulk market, it is not possible to survive without a clear strategy. Market Intelligence (MI) ensures that this strategy is well founded and recalibrated frequently. In this way it is a vital internal support function.

Whitepaper: Market Intelligence for Tank Terminal Operators Explained

How good is your current awareness of market trends?

Current awareness is the starting point of good market intelligence for any company operating in a competitive market. Entrepreneurs often make intuitive decisions, but when they are supported by hard facts and good data entrepreneurial risk taking is no longer a game of roulette but the smart and successful way to take calculated risks.

Current awareness is the starting point of good market intelligence for any company operating in a competitive market. Entrepreneurs often make intuitive decisions, but when they are supported by hard facts and good data entrepreneurial risk taking is no longer a game of roulette but the smart and successful way to take calculated risks.

What do we mean by “current awareness”? Well, it simply means that as a company you have sufficient understanding of what’s happening in the terminal industry and the wider economy at this moment.

What are clients looking for? What are competitors doing? Which tech trends influence the market? How is the pricing of services changing? Which mergers and acquisitions are taking place? Is there news on the regulation front in any of the relevant geographic areas? Are there important changes in the political landscape?

Structure “current awareness” within your organization

In order to do this right “current awareness” shouldn’t remain a vague undefined asset floating around somewhere somehow in the organization, but it should be systematically structured to make sure that your organization is always up-to-date on what is happening in the terminal market and – importantly – where your company stands relative to that. Gathered information should be easily accessible to support each employee in their work and decision making.  

Setting this up could involve these measures:

  • allocating some work hours of certain employees to spend on research activities
  • structuring how employees write-up, report and store their findings
  • creating an internal market intelligence network connecting all management levels
  • subscribing to relevant periodical news sources
  • outsourcing part of the intelligence work to an external market researcher

In the end this should lead to a situation where each manager feels supported by the best possible information. A well-informed manager who enters a (price) negotiation for instance will always fare better than a manager who comes across as uninformed. A director or management team eyeing a take-over will not just make a better decision, but they will make it faster, before the competition snatches it away. Research has proven that companies with good systemic market intelligence outperform the competition on all levels.

An example of a market trend that requires current awareness

So can we give an example of a market trend in the terminal industry, that requires good current awareness to understand it fully, to anticipate well and to position your company accordingly?

The energy transition is definitely a good example. Oil and gas are no longer the prime areas of investment. Alternative fuels are being developed and are growing in market share. One product in particular is looking for terminal space across the world and that is ammonia. This liquid bulk substance has two uses:

1: Acting as an intermediary carrier of hydrogen that’s produced in sunny parts of the globe and that needs to be transported to areas with less sun but high energy demand. So hydrogen is chemically bound in ammonia and shipped around the world and in destination countries it is decomposed again to free the pure sustainable hydrogen fuel source.

2: Acting directly as an alternative sustainable fuel for ships and tankers currently burning dirty marine fuel oil as their fuel source.

Both applications have different implications for required terminal space in ports around the globe. This trend will lead to substantially less investment in oil and gas terminals and high interest in tanks that can hold ammonia.

It also warrants a reorientation of the commercial acquisition process: you may want to get acquainted with a new group of potential customers who are entering this market. And if you talk to them you will want to come across as knowledgeable. So if your company at the moment has no detailed information on ammonia requirements, then you may want to invest time to get this knowledge.

An important aspect of current awareness is also the ability to think in scenarios and structure your information gathering accordingly.

Let’s take the above example of ammonia. You would not want to forget about oil and gas completely of course. You would want to continue to gather information about all product groups and customers that use them. You might however assign the task of following these trends to different people inside your organization and maybe ask an external consultant to write up a report about an area that you are currently less aware of. In this way your knowledge base for whatever may happen in the market grows in all dimensions.

Thinking in possible scenarios as a model for your current awareness, then leads over to the next important application of market intelligence: strategy. In a subsequent blog post we will delve into that and learn how market intelligence will support laying out a strategy and wisely choosing how to devote your company’s resources to it.   

Whitepaper: Market Intelligence for Tank Terminal Operators Explained

5 key indicators to determine the value of your tank terminal

The tank terminal market is very fragmented with more than a thousand terminal operators operating five thousand terminals worldwide (1). The global market leader Vopak owns just 5 percent of all tank terminals worldwide. Many smaller players are operating in and across niches. With increasing spot activity, vessel owners call many terminals that they are not familiar with. Each tank terminal now handles more vessels of different types and sizes than ever before (3). Buying and selling opportunities abound, but properly valuing a tank terminal has become a daunting task. So how do you determine the value of your tank terminal? In this article, we share 5 key indicators that will help you understand how much your tank terminal is worth.

Until some ten years ago tank terminal investments were exclusively the territory of industry players and private equity. Now increasingly pension and infrastructure funds are entering the market. With the yield on bonds approaching zero percent pension funds and insurance companies shift more of their capital allocations to riskier higher-yielding investment opportunities. And since typical core infrastructure investments like airports, ports, gas pipelines and toll roads are very competitive, tank terminals stand out as an interesting alternative (2) with a low-risk profile and stable revenue streams.

Countering this trend private equity firms are also becoming more creative to realize better returns on tank terminals. Some hire management teams from the storage industry to acquire and develop storage terminals for them, thereby turning a formerly distant investor into an active role of storage operators. Some have bought into existing storage companies with the same goal: turning hands-on experience and know-how into higher yields (2).

As an owner of a tank terminal one can profit from these trends because there are more buyers around plus investors looking for partnerships and acquiring strategic shares. This applies mostly to the independent operators, who have yet to position themselves in a nice market. Semi-captive players need to constantly reevaluate their proposition and be open to better partnerships. Fully captive sites are already vertically integrated in a branch of the industry so they will only be open to selling or investment when that industry is restructuring.

How to approach the valuation of your tank terminal

Before we look at the five factors determining the value of your tank terminal, let’s describe three approaches for valuation (4):

Income approach

The income or discounted cash flow approach requires inputs on prospective financial information, single- or multi-period cash flows, rates of return and long-term growth, and exit multiples and terminal values. Potential challenges with this approach include the availability of projections, unobservable industry growth/risk benchmarks, and a high level of subjectivity. Potential benefits of this method include capturing the asset-specific growth trajectory and risk/reward profile and sidestepping the lack of comparability across peer groups. Limitations include input parameters that can be difficult to estimate and the possibility of yielding negative values for early-stage projects.

Market approach

An alternative approach is looking at the general market of tank terminals and identifying similar transactions. Here we have for instance the so-called “cost of a comparable transaction” with the same reasoning as when a prospective home buyer checks out recent sales in a neighborhood. An alternative is the Guideline Public Company Method, which also looks for similarity but in this case of trading multiples of publicly traded companies that are similar to the subject company. However, pre-revenue companies lack a basis to apply meaningful multiples, and in general, there is a lack of comparability across peers due to differences in margin and cost structure, location, and the competitive landscape.

Cost approach

These methods provide the estimated replacement cost of an asset based on the current replacement cost minus the cost of depreciation, including deductions for physical deterioration and all relevant forms of obsolescence. Or they restate the individual assets and liabilities on the balance sheet to fair value. This method is easy to understand, but it fails to capture intangible assets like contracts, location, future growth and goodwill value.

The 5 key factors that influence the value of your tank terminal

From the limitations of these technical valuation techniques, follows that we need a complementary, more intuitive, birds-eye view to get at a decent valuation. So let’s bring in five key factors that singly influence the value of your tank terminal.   

1. Location

The most important factor determining the value of your tank terminal is its location on the map. In most cases the surrounding industries, position within transport and distribution networks, and regional supply and demand dynamics determine the demand for tank space. A tank terminal on a bad spot is like a hotel in a disaster zone. An example: after the collapse of the Soviet Union in a few years’ time many tank terminals sprang up in booming industry and trade zones in the Baltics. Since then, the new strong Russian government has been consolidating elsewhere, especially around St. Petersburg. The Baltic tanks became partly redundant and crashed in value of course.

2. Infrastructure

A second related factor is the infrastructure of the tank terminal. A good location at the sea side is worthless without good maritime infrastructure. Are there good rail connections? What kind of pipelines are available or could be built? Do installations have security valves? Are there adequate fire extinguishers? Is the terminal maintained well enough and what’s the state of the equipment?

3. Business model

As outlined above, ever more diverse players are entering the market of tank terminals with varying business models for generating revenue. The employed or planned business model is the third factor determining the value of the tank terminal. We can discern four types of business models:

1/ An industrial terminal has low margins but a very stable business; In this setup, a tank terminal is located next to an industrial site. It is basically an outsourcing solution for the chemical site next door. All storage and logistical services are handled by the industrial terminal and the players on the chemical site pay a fee for that;

2/ A trade hub is a highly flexible set-up, mostly on prime locations and with bigger margins. Traders use the terminal to facilitate their arbitrage strategies. As such the terminal needs to be very flexible and responsive so that the trader can capture market opportunities. However, customers come and go and tanks quite often go empty for a while;

3/ an import or export terminal focuses on specific products entering and given clearance in a geographical area. Players in those regions need the terminal to either import products for consumption or to make bulk for exporting excess products;

4/ strategic storage is related to the security of supply issues and is mainly applicable to OECD countries.

The business model is often determined by historic choices with regard to clients, business development, and infrastructure development. Especially today it is important to be able to pivot towards more lucrative business models, and as outlined above this can be enabled by smart joint ventures between operators and investors.

4. Customer portfolio

The fourth factor determining the value of a tank terminal is the customer portfolio. Tanks have a lifetime of about 30 years and have long-term lease contracts for the soil they stand on. During this lifetime a terminal will develop a certain customer portfolio and when a terminal is sold the new owner, of course, continues with much of the existing customers. Having a client portfolio that consists of solid companies that have the potential and expressed their will to grow their business at your terminal is definitely very valuable.

5. Product specialization

Finally, the fifth factor for tank terminal value determination is which products specific tanks may store and what product markets the terminal is specialized in. For gasoline, there are other requirements than for, for example, chemicals. Many kinds of safety and sustainability regulations have to be complied with. Furthermore, specialization in certain products has benefits for clients as a terminal can act as a hub for such a product, generating economies of scale and operational efficiencies.

All in all, it’s quite a complex field for business developers and investors to make their moves. Technical tools like discounted cash flow or EBITDA multiples can never have the last say. Tank terminals offer a vast global playing field where sometimes inexperienced newcomers make very bad decisions. A good team of experienced operators and well-informed investors however can make tank terminal investments profitable. With the abovementioned 5 factors in mind, it becomes easier to geographically and economically zoom in to spot the best opportunities for buyers and sellers.    

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The impact of changing supply and demand balances on tank terminals

Covid-19 also has effects on tank terminals: As soon as the true scope of the Covid-19 pandemic became apparent, the oil market shifted from a backwardated market into a deep contango. Needless to say, this contango immediately led to a significant increase in demand for tank storage.

As the world is slowly emerging from the Covid-19 pandemic, it is safe to say that the corona virus has had a profound impact on nearly every aspect of our daily lives. Besides the more visible effects on public health, society, and transportation, Covid-19 also sent a shockwave through the global economy.

This shockwave also had its effects on tank terminals: As soon as the true scope of the Covid-19 pandemic became apparent, the oil market shifted from a backwardated market into a deep contango. Needless to say, this contango immediately led to a significant increase in demand for tank storage.

The road less traveled?

The demand for road and jet fuels has been affected most by the Covid-19 pandemic. While the short-term effects of national lockdowns on demand for fuels are relatively straightforward (fuel consumption is strongly linked with people’s mobility patterns), it will be the longer-term effects that are the most interesting to keep an eye on.

Large corporations like banks, IT companies, and insurers are already preparing for a ‘new normal,’ where their staff will work more from home after Covid-19 than they did before (source). As people will commute less to their offices, a decline in overall car traffic volume could be expected. Together with the ongoing electrification of road vehicles, we expect that the current surplus for gasoline will increase further.

When we take a look at diesel consumption, reversed dieselization of passenger cars will lead to a faster decline than we will see for gasoline. That being said, because the electrification of trucks is not expected to happen in the coming years, there will still be a large volume of diesel consumption left. 

For jet fuel, we forecast that the current deficit for North-Western Europe will grow at a slower pace. While it is expected air travel will largely recover, analysts forecast it will take at least towards 2023 until air travel is back at pre-pandemic levels (source).

Electric vehicles

Over the past few years, the market for electric mobility has seen incredible growth. In 2019, the global electric car fleet exceeded 7.2 million, up 2 million from the previous year. With more and more electric car models being introduced to the market and charging infrastructure improving, this strong growth is only expected to increase. The IEA estimates that by 2030, there will be over 250 million electric vehicles (excluding three/two-wheelers) on the world’s roads. According to the IEA, the projected growth in the Sustainable Development Scenario of electric vehicles would cut oil products by 4.2 million barrels/day. (source)

While battery electric vehicles (BEVs) are considered the preferred solution for short-distance and light vehicles (passenger cars, delivery vans) because of their high energy efficiency, their batteries have a limited energy density compared to traditional fuels. This means that for vehicles with high power demands, such as ocean liners, long-haul trucks, and airplanes, batteries are highly impractical. 

Alternative fuels

With an energy density that’s comparable to fossil fuels, e-fuels and green hydrogen are poised to play a crucial role in our transition to sustainable mobility. E-fuels are produced by electrolyzing water, creating hydrogen and oxygen. While hydrogen gas in itself is an excellent renewable energy carrier, it can be synthesized further with carbon dioxide or nitrogen into more stable and easier to handle e-fuels. When using electricity from renewable sources and circular carbon dioxide (such as direct capture from the air), net emissions are close to zero.

While this process’s overall energy efficiency is lower than that of chemical batteries used in BEVs, the much higher energy density of e-fuels makes them much better suited for applications with high power demands, like shipping, trucking, and aviation.

Circular economy

As the call for reducing plastic waste gets louder and louder, the concept of circular economy is gaining traction. While the market for recycled plastics is growing rapidly and will have its effect on the demand for chemicals, it is not foreseen yet that consumption of virgin material will decrease the coming years.

What’s next?

It is clear that both the covid-19 pandemic as well as the transition to sustainable fuel sources will greatly impact the tank storage terminals. The market outlook for the oil and chemical industry will see significant shifts in supply and demand, while the Covid-19 pandemic only adds further complexities to the market. That’s why market intelligence should be on the radar of every terminal operator. During our regular Market Update webinars, we offer our expert outlook on supply, demand, and trade flows and their impact on tank storage demand.

Do you want to make sure that you never miss out on important market updates? Sign up for the next webinar today, so that you are better prepared for what tomorrow will bring.

5 New Growth Markets for Tank Terminals

In this blog, we will take a close look at five alternative fuel candidates that promise to change the tank terminal landscape as we know it today.

As the world slowly but surely is going into an energy transition, new growth markets for tank terminals are emerging. As the demand for traditional fuels as diesel and gasoline will decline in the coming decades, new liquid bulk alternatives are currently being developed to take their places.

In this blog, we will take a close look at five alternative fuel candidates that promise to change the tank terminal landscape as we know it today.

The road towards sustainability

To meet the ambitious goals set out in the Paris Climate Agreement, signatory governments have pledged to drastically cut emissions of CO2 and other greenhouse gasses and work towards a carbon-neutral economy.

In Europe, sectors like agriculture and industry have since made ample progress in cutting emissions. Yet the transport sector is lagging behind. Considering transport accounts for 23 percent of global CO2 emissions, significant efforts need to be made to reduce the environmental footprint of our trucks, boats, and airplanes. 

Thanks to advances in renewable energy sources, such as wind turbines and solar panels, we can generate vast amounts of energy in a sustainable way. The biggest challenge ahead of us is storing that energy for when it’s needed and carrying the energy to where it’s needed.

While battery electric vehicles (BEVs) are considered the preferred solution for short-distance and light vehicles (passenger cars, delivery vans) because of their high energy efficiency, their batteries have a limited energy density compared to traditional fuels. This means that for vehicles with high power demands, such as ocean liners, long-haul trucks, and airplanes, batteries are highly impractical. 

Future Fuels

With an energy density that’s comparable to fossil fuels, e-fuels and green hydrogen are poised to play a crucial role in our transition to sustainable mobility. E-fuels are produced by electrolyzing water, creating hydrogen and oxygen. While hydrogen gas in itself is an excellent renewable energy carrier, it can be synthesized further with carbon dioxide or nitrogen into more stable and easier to handle e-fuels. When using electricity from renewable sources and circular carbon dioxide (such as direct capture from the air), net emissions are close to zero.

While this process’s overall energy efficiency is lower than that of chemical batteries used in BEVs, the much higher energy density of e-fuels makes them much better suited for applications with high power demands, like shipping, trucking, and aviation.

Methanol

Feedstocks for methanol are green hydrogen, CO2, and electricity. Traditionally, these kinds of synthesizing processes use fossil fuels for their CO2 source, but they can be made almost carbon neutral by capturing the CO2 from the atmosphere. 

As methanol is a liquid and does not need to be compressed or chilled for storage and transport, it’s very suitable as a fuel. The energy density of methanol is relatively low compared to E-diesel and E-kerosine. Still, from an economic point of view (cost per GJ fuel energy), methanol has a lot of potential as a fuel for shipping and trucking operations.

E-Diesel

Like Methanol, E-diesel is also produced from green hydrogen and CO2. A Fischer-Tropsch process is required for the synthesis, with an efficiency of up to 69%. Like methanol, e-diesel is easily stored and transported. No modification is needed for existing diesel vehicles, making e-diesel an excellent replacement for fossil diesel applications.

Ammonia

Synthesized ammonia (NH3) consists of green hydrogen and nitrogen extracted from the atmosphere. The synthesis of hydrogen and nitrogen takes place in a Haber-Bosch reactor and can achieve yields of up to 70%.

Production of ammonia is relatively straightforward and easily scalable, but it has to be stored and transported under either cooled or compressed conditions. This requires relatively large tanks, making ammonia only a feasible option for large ocean-going vessels.

E-Kerosine

With a similar process to E-diesel, E-kerosene is produced by combining hydrogen and CO2 through a Fischer-Tropsch synthesis. Compared to other e-fuels, synthesizing e-kerosine is quite expensive. Still, its high energy density and compatibility with existing jet engines make it the only viable e-fuel for aviation.

(Green) hydrogen

Green hydrogen (H2) is made by electrolyzing H2O (water) using green electricity. As electricity is the ‘main ingredient’ of green hydrogen, it’s an excellent energy carrier to store excess energy production from renewable sources like solar and wind. This way, hydrogen gas can act as a ‘battery’ to store electricity production during off-peak hours (let’s say, a windy and sunny Sunday afternoon). 

Because storage and transportation of hydrogen must be done either compressed or cryogenic, it is less suitable for long-haul transport applications like oceanic shipping. However, as green hydrogen is a key feedstock for other e-fuels, its importance to future supply chains for renewable fuels cannot be understated.

What’s next?

It is clear that the transition to sustainable fuel sources will greatly impact the tank storage terminals. That’s why market intelligence should be on the radar of every terminal operator. During our regular Market Update webinars, we offer our expert outlook on supply, demand, and trade flows and their impact on tank storage demand. 

Do you want to make sure that you never miss out on important market updates? Sign up for the next webinar today, so that you are better prepared for what tomorrow will bring.

What Would Green Hydrogen Imported from Sunny Deserts Cost?

In a former article we explored six renewable commodities that might power the emissions free world of the future. Among those, green hydrogen has gained most attention in recent months. What would it cost to import green hydrogen?

Conflation of goals
The shift to renewable energy often is advertiser as a shift to energy independence as well.

That might work for some countries with large potential for hydro, wind or solar power but for most countries it is a conflation of goals. Global reduction of carbon emissions is much more important than national energy independence. If part of a country’s energy demand can be met cheaper via imported low carbon energy, low carbon energy will be traded.

Cheap solar power spurs renewable energy export ambitions

Over the last decade, the price of solar panels has decreased at an unimaginable pace. In regions like the Middle-East and South-America the cost of producing solar power consequentially has dropped below 2 dollarcents per kilowatt-hour (kWh). It is to be expected that solar installations in Australia and the Sahara-region soon will follow.

Solar power in these desert regions is available for prices far below wholesale power prices in Europe, the United States, Singapore and Japan. Logically, proposals arise to get this cheap renewable energy to aforementioned markets. Some think enormous new power lines may be the best way to distribute cheap solar power around the world. Others propose converting cheap power to hydrogen, for transport via pipelines or ships.

Shipping in the short term is most probable
The solar potential in desert regions is that big, and the challenge of the energy transition in densely populated northern regions that large, that all routes will probably come to fruition someday.

Despite the extra energy losses in transport and liquefaction, transport of hydrogen via ships will probably be the first viable option. Dutch tank storage giant Vopak in 2019 announced an investment in in the German startup Hydrogenious (developing a liquid organic carrier able to bind hydrogen). Vopak also joined a feasibility study for conversion of gaseous hydrogen to liquid ammonia, for use as a marine fuel. In July 2020 Air Products announced a $5 bln plant for production of ammonia using wind an solar power in Saudi-Arabia. Starting in 2025 it would export the renewable commodity to global markets.

Estimates for the cost of green hydrogen produced in the Middle-East

If by 2025 renewable hydrogen or hydrogen derivatives would indeed be available in ports all over the world that would off-course be great for the global energy transition. In the following an attempt to estimate the costs of one kilogram of hydrogen, originating from a 1 gigawatt solar electrolysis plant in Saudi-Arabia.

Basic assumptions and bandwidths:

  • Solar power generation cost. 1 up to 2 dollarcents per kilowatt-hour (kWh);
  • Solar capacity factor. ±20%;
  • Electrolyzer cost. For long, the estimate of the cost of electrolyzers has been about $1,000 per kilowatt. Recent reports have claimed cost could fall rapidly with growing deployment, $200 per kilowatt might even be possible before 2025;
  • Electrolyzer efficiency. 65 to 80%;
  • Design lifetime electrolyzer: 10-15 years;

Cost of power per kilogram of hydrogen:

At the mentioned efficiency, 50 up to 60 kWh of solar power is required for every kilo of hydrogen produced. At 1 up to 2 dollarcents per kWh this results in a power cost of $0.50 to $1.20 dollarcents per kilo of hydrogen;

Cost of the electrolyzer per kilogram of hydrogen:

In order to convert all solar power originating from 1 gigawatt of solar panels into hydrogen, an electrolyzer capacity of 1 gigawatt is required. This would cost $200 mln up to $1 bln. At a capacity factor of 20% and over a 10 to 15 year lifespan the electrolysis plant would convert 17,5 up to 26,3 billion kilowatt-hour into hydrogen. Given the efficiency of 50 up to 60 kWh per kilogram that would result in 290 million up to 525 million kilograms of hydrogen over the project lifetime. That gives a spread of $0.40 up to $3.50 of ‘electrolyzer cost’ per kilogram of hydrogen produced.

What would it cost to get the hydrogen to Europe?

The production cost* of solar hydrogen in the Middle-East would end up somewhere just under a dollar to up to five dollar per kilogram. Natural gas derived ‘grey hydrogen’ is prized between one and to dollar per kilogram. Mostly depending on the real cost and lifespan of electrolyzers, solar derived hydrogen might all-ready be competitive with fossil fuel derived hydrogen.

The question remains what it would cost to get this fairly affordable hydrogen to customers all over the world. Estimates for the cost of either liquefaction of hydrogen or conversion of hydrogen to ammonia are hard to find. The cost for liquified natural gas (LNG) might give an indication. Liquefaction of natural gas, shipping between the Middle-East and Rotterdam, handling and one month of storage would cost around $120 per tonne LNG, or about 1 cent per kilowatt-hour of energy content imported.

LNG is about 7 times denser than liquid hydrogen, resulting in significantly less hydrogen transported for a given ship type. Furthermore these estimates for LNG assume consumption of local energy mix for liquefaction and regular marine fuels for shipping. If the hydrogen produced is also to serve for its own liquefaction, transport and processing, more than 30% of the hydrogen would be consumed in the process, resulting in considerably higher costs.

*Aside from power cost, fresh water and labour cost will add to the price of hydrogen. Several optimizations (adding wind power, extra solar power and/or batteries) might help bring down the estimated cost.

Is hydrogen the liquid bulk growth market of the future?

As governments worldwide are looking for ways to reduce their carbon footprint, hydrogen is often considered as an indispensable element in the energy transition. The importance of fossil fuels as the primary energy source for the global economy is expected to dwindle in the coming decades. Is hydrogen the perfect candidate to take their place?

As governments worldwide are looking for ways to reduce their carbon footprint, hydrogen is often considered an indispensable element in the energy transition. The importance of fossil fuels as the primary energy source for the global economy is expected to dwindle in the coming decades. Is hydrogen the perfect candidate to become the liquid bulk of the future?

As renewable energy is getting cheaper to produce thanks to advances in solar panel and wind turbine development, the ‘missing links’ in the transition to renewables are energy distribution and storage. While solar and wind can, in theory, easily meet all our energy needs, it’s not always sunny or windy outside – without a suitable energy carrier, matching supply and demand is practically impossible.

Hype or hope?

On paper, hydrogen is very well suited as an energy carrier. It’s not only the most abundant element in our universe but is also easy to combust, can be electrolyzed from water, and does not produce any harmful waste when combusted. Furthermore, compared to batteries, the energy density (MJ/kg) of hydrogen is much higher, meaning it can produce more power with less weight.

It’s therefore hardly surprising that many industries see hydrogen as an important growth market for the future. Mostly oil and chemical companies, which have a lot of the required infrastructure for distributing and converting gas and liquids already in place, consider hydrogen as an integral part of their future.

Does that mean hydrogen is the growth market of the future, replacing fossil fuels like diesel, gasoline, and kerosene? Well, it depends.

Over the past few decades, hydrogen-powered electric propulsion promised to be the perfect replacement for fossil fuel combustion engines in cars and trucks. Since both the car industry and fuel industry had ample experience with gas and liquid fuels, switching from petrol and diesel to hydrogen seemed relatively straightforward. However, over the past few years, considerable developments in lithium battery technology have upended this belief drastically.

If we look at the so-called ‘well-to-wheel’ efficiency, the difference between hydrogen-powered and battery-powered vehicles is quite dramatic. While ‘tank-to-wheel’ efficiency tells you how efficiently an engine turns fuel into movement (the traditional ‘miles per gallon’ metric), ‘well-to-wheel’ efficiency adds the energy it took to get that fuel to the gas tank or battery. Whereas the ‘well-to-wheel’ efficiency of hydrogen-powered is significantly better than the ‘well-to-wheel’ efficiency of a petrol fuel car (22% vs. 13%), battery-powered vehicles on average have a ‘well-to-wheel’ efficiency of 73%.

The main reason for this difference in efficiency is the required extra steps to convert electricity into forward motion. Hydrogen first needs to be produced through electrolysis at a production plant, only to be converted back into electricity in the car to power the electric motor.

Storing and distributing hydrogen also comes with a set of challenges. Storage of hydrogen as a gas typically requires high-pressure tanks (350–700 bar or 5,000–10,000 psi tank pressure). Hydrogen can also be stored as a liquid, but considering the boiling point of hydrogen at one-atmosphere pressure is −252.8°C, this requires cryogenic temperatures. In short, this means that both storing hydrogen as a gas or a liquid requires large amounts of energy, as the hydrogen needs to be pressurized or cooled, respectively. 

A promise unfulfilled?

Does this mean hydrogen has no place in our ongoing energy transition? No, not at all. While hydrogen might not be as suited as fuel for cars as it once was thought, it still has a lot of potential as an energy carrier in industrial applications. 

Over the past years, the proportion of renewable energies has proliferated. Wind power and solar energy have seen the most significant increase. However, because the wind doesn’t always blow, and the sun doesn’t always shine, the availability of these so-called variable renewable energies (VREs) fluctuates over time. Simultaneously, because of how power grids work, supplying electricity requires a constant balancing of supply and demand.

As the proportion of renewable energies keeps growing, additional measures are necessary to integrate fluctuating renewable energy supplies. Because of its relatively straightforward production and abundance, hydrogen is very suitable to store energy production peaks from solar and wind, thus balancing energy supply and demand.

Bulk storage

Balancing the energy production of variable renewable energies will require large amounts of hydrogen storage capacity. Can we leverage our current liquid bulk storage capacity for this herculean task? The most important hydrogen storage methods are physical storage methods based on either compression or cooling or a combination of the two (hybrid storage). As mentioned before, hydrogen is typically stored in high-pressure tanks. Higher storage density comes at a price, however. The higher the storage density, the greater the amount of energy needed for cooling and compression, and the more complex the design of tank systems and infrastructure. Because of the extreme high pressures, converting current liquid bulk storage assets will most likely not be feasible.

In addition to physical storage methods, a large number of other new, material-based hydrogen storage technologies are being developed. These materials-based storage technologies can include solids, liquids, or surfaces. While most of these techniques are still in their infancy, materials-based storage technologies promise to solve many of our current issues with hydrogen storage. For tank terminals, liquid organic hydrogen carriers (LOHCs) represent an especially interesting option. By binding hydrogen chemically in organic compounds like, for instance, methanol and ammonia, these liquids act as a chemical battery for storing hydrogen molecules.

Stay up-to-date on hydrogen storage as a growth market

As liquid bulk terminals are specifically designed for handling such liquid organic compounds, the tank terminal industry will keep a keen eye on these storage technologies.

The developments in the ongoing energy transition and its impact on the fuel market make it crystal clear that hydrogen should be on the radar for every tank terminal operator. During our regular Market Update webinars, we offer our expert outlook on short-term supply, demand, and trade flows and look ahead to future developments and new technologies.


Impact of OPEC+ conflict and COVID-19 on Tank Storage Demand in Main Oil Hubs (part 3)

Recap second quarter 2020

FROM THE TANKER VISITS AND MARINEGROSS TRADE OF TERMINALS WITH WATER ACCESS, IT WAS CONCLUDED THAT, DUE THE COVID-19 PANDEMIC, DEMAND FOR FUELS HAD BEEN SEVERELY WEAKENED. THIS RESULTED IN LESS PRODUCT BEING MOVED TO AND FROM TERMINALS, AND THE TREND THAT WAS ALREADY VISIBLE IN THE FIRST QUARTER OF 2020 EVEN ACCELERATED IN THE SECOND QUARTER OF 2020. INTELLIGENT LOCKDOWNS, CLOSED BORDERS AND OTHER PREVENTIVE MEASURES IN ALL MAJOR HUBS WEIGHED ON FUEL CONSUMPTION AND INTERNATIONAL TRADE FLOWS.

THE COVID-19 PANDEMIC AND THE SHORT-TERM SUPER CONTANGO HAD A HUGE IMPACT ON FUEL DEMAND, TRADE FLOWS AND STORAGE DEMAND, COINCIDING FOR ALL TRADING HUBS. STATISTICS SHOWED THE VIRUS WAS LONG FROM DEFEATED AND IF COUNTRIES DID NOT TAKE IMMEDIATE PREVENTIVE ACTIONS A SECOND WAVE WAS EXPECTED TOWARDS THE END OF THE YEAR. THIS WOULD MEAN THAT CURRENT MARKET DYNAMICS WILL PERSIST FOR THIS YEAR.

Key highlights third quarter

  • Tanker visits in the third quarter dropped to their lowest value in three years but the decrease was less than in prior quarter
  • Like the number tanker visits, marine gross trade volumes in the third quarter also fell to their lowest value in three years. Again, the rate of decline was not as strong as in 2Q20
  • Berth occupancy rates in the third quarter showed a modest uptick
  • Total stocks in the hubs are declining in the third quarter with tanker visits are gradually increasing in the last part of 3Q20

Tanker Visits Per Hub Per Quarter

Looking at all oil tanker visits per hub combined in the graph below, we see that the total number has fallen from the second quarter to third quarter with 8% to 16,126 tanker visits. Comparing the third quarter of this year with the third quarter last year, there is even a 22% decline visible. With the exception of Fujairah, which showed its second lowest value, all hubs in the third quarter showed their lowest value in three years. In the ARA, the number of tanker visits fell from 12,124 to 11,254 which is a 7% decline q-o-q. Comparing y-o-y, tanker visits in Europe’s main hub decreased by 21%. In the Asian hub, Singapore, the number of tanker visits fell from 3,393 to 3,072. That is a 27% decline y-o-y and a 9% decline q-o-q. Houston showed, with 937 tanker visits, the largest drop, q-o-q with 15% and y-o-y with 29%. As stated before, Fujairah, with 863 tanker visits, showed its second lowest value in the third quarter. On a quarterly basis, tanker visits rose by 1% while on yearly basis, tanker visits dropped with 22%. Looking at the consolidated numbers of the hubs, we see that pace of decline is slowing. From 1Q20 to 2Q20, the number of ship visits fell from 20,586 to 17,474 or 15% while from 2Q20 to 3Q20, we saw a 8% decline. The slower pace of decline is mostly the result that as from mid-August the number of oil tanker visits started to improve modestly.

Figure 1: Tanker visits per hub per quarter; source TankTerminals.com

Marine Gross Trade Per Hub Per Quarter

The marine gross trade numbers show a similar pattern in relation to the tanker visits. For all hubs combined the marine gross trade figures dropped from 18.8Mcbm in the second quarter of 2020 to 17.4Mcbm in the third quarter of 2020, reflecting a decline of 7%. On yearly basis, comparing 3Q19 with 3Q20 marine gross trade numbers shaved some 23%. Again the value of 3Q20 was the lowest value in three years’ time and  this applied for all hubs with the exception of Fujairah. In the ARA region, marine gross trade volume edged 10% lower on quarterly base to 6.9Mcbm and 24% lower on a yearly base. In Singapore, marine gross trade volumes decreased by 10% to 4.8Mcbm q-o-q while in Asia the volumes dropped with  30% year-on-year. In Fujairah volumes in the third quarter were 3Mcbm compared to 2.6Mcbm in the second quarter. That is a 14% build q-o-q but on a yearly basis it is still 25% lower. Houston showed the largest drop quarter-on-quarter (14%) and year-on-year (33%). The marine gross trade volume in the third quarter stood at 2.7Mcbm.

Figure 2: Marine gross trade per hub per quarter; source TankTerminals.com

Berth Occupancy Per Hub Per Quarter

With the exception of Houston, similar patterns were seen for ARA, Singapore and Fujairah when looking at the average berth occupancy of the local marine terminals. The berth occupancies at these hubs still stood at their second lowest value since 2017 but showed a minor uptick compared to the second quarter of this year. The berth occupancy rate for all hubs combined rose from an occupancy of almost 30% to almost 31%. In the ARA region, average berth occupancy rates rose from 31% to almost 31.5% in the third quarter. In Singapore, average berth occupancy rates grew from 29.5% to 30% while in Fujairah, occupancy rates jumped from 29.5% to 32.2%, making it the biggest mover. Berth occupancy rates in Houston fell from 30.3% to 29.7%.

Figure 3: Average berth occupancy per quarter; source TankTerminals.com

Stock numbers versus tanker visits

Total stocks combined (including light ends, middle distillates and heavy end stocks) showed similar patterns like the number of tanker visits as already explained. It seems that in most trading hubs total stocks peaked around the middle of the year (June) and then started a modest descent in the third quarter. The rise in stocks was a combination of fuel demand destruction and the presence of the super contango due to the impact of COVID-19. The number of tanker visits shows a contradictive pattern, with the number of visits kind of bottoming out as from the middle of the year.

Figure 4: ARA stock levels and tanker visits; source TankTerminals.com

Conclusion

The number of tanker visits in the third quarter of this year kept decreasing for all primary trading hubs. However, the pace of decline was less strong than in the second quarter. The weaker contraction rate came from a recovery of ship movements in the last four weeks of the quarter. The same pattern was visible for marine gross trade volumes. Average berth occupancy rates for all hubs showed a modest increase. These developments combined with lower stocks indicate that the easing of the COVID-19 lockdown measurements during the summer period have supported trading and shipping dynamics at global trading hubs.

So although fuel demand remained very weak some indications of improvement were visible. Worrying is that in September the numbers of Corona infectious globally started to rise again. This situation led most countries to undo the relief of restrictive measures. In these countries harsh actions have been introduced to further limit travel movements and social contacts of people. Obviously this will lead to less fuel demand in the transport industry and thus less trading and business activity at the terminals.

It is expected that, with a continuation of the restrictive measures in the world well into December and January, the number of tanker visits and marine gross trade volumes remain depressed. Recovery will go hand in hand with the introduction of a vaccine. However, expectations are that numbers and volumes will still not be on the level as before the Corona pandemic.

About the authors and the data

The data in this report was extracted from the Tankterminals.com database and Insights Global’s weekly ARA Oil Product Levels publication. The data in Tankterminals.com came specifically from the Logistical Performance Benchmarking addon, which uncovers information on certain terminal performance indicators such as occupancy rates and turnaround times at berth level of a terminal. To analyze the hubs, all the berth data from the various terminals located in these specific hubs was aggregated and offered these unique insights. Tankterminals.com has data on the logistical performance dating back till the third quarter of 2017. Insights Global’s weekly ARA Oil Product Levels publication is a well-established report in the international oil trading business. Insights Global has data going back to 1995.

Jacob van den Berge has been working for Insights Global for more than 8 years and has 10 years of experience in the oil & gas industry. Currently he is the Head of Marketing and Sales but used to work as an oil market analyst and industry consultant for the company.

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