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Who are the biggest players in the tank terminal market?

In the global commercial tank storage industry thousands of terminal operators are active. Without taking a terminal operator’s specific function, it is interesting to learn who the biggest players are in the international tank terminal industry.

In picture 1 can be seen where the largest concentrations of tank terminals are.

Looking on a global level the following top 10 terminal operators can be derived. See table 1.

Rank

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

Head office

Sinopec

Vopak

CNPC

Kinder Morgan

PetroChina

Buckeye

Oiltanking

Marathon

Enterprise

Magellan

# of terminals

51

69

24

96

34

114

73

99

55

93

Capacity

44.1Mcbm

33.1Mcbm

25.7Mcbm

21.7Mcbm

19.8Mcbm

18.1Mcbm

17.6Mcbm

16.7Mcbm

13.2Mcbm

13.1Mcbm

As can be seen in this list, based on total capacity, the biggest players are located in China with Sinopec, CNPC and PetroChina, followed by US with Kinder Morgan, Buckeye, Marathon, Enterprise and Magellan and Europe with Vopak and Oiltanking. With a combined total capacity of 223Mcbm, the top 10 players cover around 21% of the total capacity globally.

A bit more details on the three biggest storage operators

Sinopec Group, Chinese dragon at the top of the food chain

Sinopec Group, China Petroleum and Chemical Corporation, is a Chinese energy company based in Beijing (China). It is the second largest oil producing company after PetroChina. Besides 50 terminals (with a total storage capacity of 44Mcbm, mostly located in China) and 30.000 petrol stations, this company operates dozens of refineries, around half of the Chinese refinery capacity. Sinopec has various listings on stocks exchanges but for the majority the shares remains in the hands of the Chinese government. In 2017, total revenues was around €300 billion.

Vopak, Dutch giant with a global storage print

Vopak is an independent storage player with a long history dating back to the early 16the century. Independent means it does not own the oil products its stores. It therefor holds an independent position in the market unlike for instance Sinopec and CNPC, the number 1 and 3 in the list. The 69 terminals of Vopak are scattered around the globe. It has locations in more than 20 countries with largest concentration of terminals in the Netherlands, followed by China and the US. In 2018, Vopak’s revenues lay at €1.25 billion.

China National Petroleum Corp, a powerful energy emperor

CNPC is a one of the biggest vertical integrated oil companies in the world. Its origins date back to 1949 when communist China was formed. The company rose from Ministry of Petroleum which secured and managed the country’s fuel. It operates oil assets in more than 30 countries, except for the 24 storage terminals (with a total capacity of 25.7Mcbm) which are mainly located in the Chinese homeland. In the downstream area it also operates more than 20.000 petrol stations.

Are storage capacity market shares equal across the globe’s regions?

Is the global division of market shares similar for the different regions? Absolutely not. Let us analyze the regions with the largest concentration of terminals. The regions with the most terminals are the United States (1.447), Europe (1,125) and Asia (1.057).

In the United States, the tank storage is dominated by publicly owned storage operators with US origins. The top three consist of 1) Kinder Morgan, 2) Magellan and 3) Buckeye. The remainder of the top 10 consists only out of US-born tank storage players.

In Europe, the top 3 biggest players are 1) Vopak, 2) Oiltanking and 3) CLH. These companies are also publicly owned and have a broad international coverage which means they have a global storage footprint. For instance Vopak is ranked number 6 in Asia and Oiltanking is ranked number 12 in Asia.

In Asia the top 3 consist solely of Chinese state-owned companies: 1) Sinopec, 2) CNPC and 3) PetroChina. Their number four is a Japanese company, JX Nippon Corporation and the number five as the Korean Gas Corporation. As mentioned before, ranked six is Vopak.

As can be concluded, the global players take a large piece of the pie. However, there is enough room for other tank terminal players to operate a sustainable business in specific regions, countries or ports. Furthermore, the competitive dynamics differ per region, so tank terminal players face different opponents in various regions.

The data for this article was gathered with the support of TankTerminals.com’s database platform. With only a few clicks and couple of seconds the information of the biggest market players in the various regions was obtained.

What You Should Know about IMO2020 (Part 2)

Click here to read part 1.

A Change for the ARA bunker markets

Insights Global structurally forecasts the future supply and demand of oil products in the ARA region and naturally incorporates IMO 2020 into its models. In our forecasting models we predict an annual growth rate for marine fuels that is adjusted for efficiency gains of ships, while the split between HSFO and MGO in bunker demand switches in 2020 and is submissive to price changes and upcoming alternative fuels. We predict a sharp decline in heavy fuel oil demand with simultaneously a jump in the demand for (marine) gasoil in 2020. The heavy fuel oil demand is expected to more than half in size, whereas MGO demand is predicted to quadruple. Our assumption for the post-2020 era is that the shipping industry will gradually switch back to fuel oil using scrubbers or 0.5% LSFO. Furthermore, LNG will take in a more dominant position, up to 11% in 2030. This will diminish the share of gasoil used and lead to a slight decline in gasoil demand between 2020 and 2030.

The transition from high sulphur fuel oil to marine gasoil and the changing demands for both products can be seen in the futures markets. The forward curve for HFO makes a steep dive towards the beginning of 2020 when the regulation comes into force. The gasoil prices show an inverted pattern: a small contango until the start of 2020 can be seen as demand for the product will be the largest when the legislation becomes active. After these initial price extremities of gasoil and HFO the markets settle down as HFO prices recover slightly while gasoil prices enter a backwardated situation. This is in line with our demand forecasts and resembles the extent to which alternatives such as scrubbers gain an increasingly larger share. We expect subsequent waves of investments in shipping but also in refining, as the production of 0.5% fuel oil becomes more profitable. For more complex refineries with a certain crude slate this will offer opportunities while for other, more simply configured refineries, their continuity is at stake.

A Change for the Tank Storage Business

The ARA region currently is a net-importer of gasoil and is the final destination for many of the world’s gasoil flows. Estimates are that in 2022 the deficit would increase by between +12% and +34% relative to 2018 values, primarily driven by IMO 2020. The changing imbalances of gasoil and fuel oil in the ARA region will have an impact on the ARA tank storage business. The lower fuel oil demand will increase the oversupply of fuel oil in the region and as such affect all tank terminals who lend their facility to this product. The changing environment for fuel oil tank storage will eventually lead to higher fuel oil storage rates in the region. Fuel oil storage rates are likely to remain depressed in 2019, but when the IMO regulation hits the markets in 2020 the oversupply of fuel oil is likely to switch the markets into a contango, supporting the storage business. This effect is expected to be reinforced when the crude markets switch to contango as well.

Higher storage rates for fuel oil are thus expected, but the current fuel oil tank storage business nevertheless faces a tough time from a logistical point of view. Terminals in ARA specialized in fuel oil are either busy in the bunkering market or in the transit business. In the first case these terminals will suffer from the reduced size of the HFO bunker market. In the second case the business is more related to the flow from Russia towards Far-East. This transit flow is also expected to be marginalized in the medium term and long term. Therefore tank terminal operators storing HFO will need to anticipate on these changes and explore options in order to cope with possible oversupply of fuel oil tanks. Less tanks for fuel oil storage will be needed, but opportunities lie in diversification. From 2020 onwards more grades of bunker fuel (a.o. ULSFO, 0.5% LSFO, 3.5% HSFO) will need to be stored, while smaller tanks as well as blending capabilities will become more important.

Running up to the bunker fuel spec change in 2020 the fundamentals for the gasoil storage market are likely to improve following more interest in middle distillate tanks and the need for more grades of gasoil. The contango that is developing in the gasoil markets supports the storage rates as well. In 2020 however we expect a halt to the growth of gasoil storage rates caused by a backwardated market structure following the higher spot prices. After 2020 we expect storage rates to improve with the gasoil markets following the contango formation in the crude markets, albeit to a smaller extent. More tanks are needed in this bunker market to store middle distillates which could increase competition, but occupancy rates in the medium term will remain high due to increased demand.

What you should know about IMO2020 (Part 1)

In 2020 the international marine bunker fuel markets are in for a big change. For environmental concerns the International Maritime Organization will implement a new policy that limits the sulphur content of fuels burnt in maritime traffic. High sulphur fuel oil has been historically the most widely used fuel for maritime transport, but will most likely lose this position to low sulphur fuels such as marine gasoil or LSFO when the new regulation comes into force. This article dives deeper into the subject, and shares our vision on how the ARA bunkering market and international oil markets will change under the new policy.

As of January 1st 2020 the International Maritime Organization (IMO) requires all marine fuels to have a sulphur content of at most 0.5% of the total mass, down from the current maximum allowed 3.5%. With the exception of a few areas that already have special IMO requirements in place, the new IMO standard will hold globally. Traditionally the bunker fuel market has been a sink for refiners to unload their high sulphur refining resids into. In 2018 an average of seven million barrels of such heavy resids were produced every day, half of which was absorbed by ship bunkers. But the global refining system is not yet equipped to produce such quantities of fuel oil at a sulphur level of 0.5%. The impact of this new regulation is therefore big as most vessels will have to abandon their current fuel oil consumption, therewith completely changing the market dynamics for existing marine fuels and creating opportunities for alternatives.

An important decision for shipowners

The shipping industry faces an important decision for their fuel use under the IMO 2020 regulation, and several options exist for shipowners who need to replace their HSFO consumption.

The most likely scenario is that the majority of the shipping industry switches to using marine gasoil (MGO), which doesn’t require any technical modifications nor upfront investments.

Second, the shipping industry could switch to a new 0.5% low sulphur fuel oil (LSFO) grade. Current global LSFO production capacity is however insufficient to cover a transition from HSFO to LSFO in the bunkering industry, and this change would need vast refinery investments.

The third option is to install scrubbers on board of ships and continue to burn HSFO while the exhaust gasses are being filtered. This is an expensive and lengthy investment for the shipowner, as installation costs range between 2-3 million per vessel and the delivery time to install the scrubber will have the vessel out of operation for a long time.

The fourth option is that the shipping industry switches to burning LNG. Significant investments and concerns about the availability of LNG as a bunker fuel however challenge the implementation.

The fifth option is that the shipping industry switches to methanol. Methanol has a low energy density however and in addition requires a multi-million investment. Given the ease of the transition to marine gasoil compared to the other products the market will initially shift its bunker demand by using marine gasoil when the new regulation goes into effect.

Read part 2 of the article here.

If you have any questions, contact us at info@insights-global.com.

Market transparency in the Tank Terminal industry

The increasing of information stream due to digitalization and accessibility to information sources, has led to numerous debates in the oil markets. Refiners, traders, brokers, end-consumers and all other stakeholders within the industry need to cope with decision making on various levels and are therefore relying on certain proved sources in an industry which is full of closed doors and limited availability of information. Transparency in this market is therefore crucial to search and select the appropriate partners within the market and to make smarter business decisions.

Market transparency can be found in all different subjects within the oil and gas industry. Price setting agencies, transport and tank storage rates overviews and other statistical insights contribute to a level playing field, which can help the customer make the best decision possible. By obtaining instantly accurate information, one can reduce mainly costs, time and effort. Objective players in the oil and gas environment, help balance the markets by supplying vast amounts of data and information to all participants. Traders interpret the macro-economic data of NGOs, governmental institutions and central banks to weight their decisions and therefore depend on reliable information. Falsified or incorrect information can give individuals an edge and increases the costs involved for the other businesses.

Moreover, these objective market participants withhold fraudulent companies or individuals from entering and disbalancing the market. Associations such as, FERM Rotterdam (ferm-rotterdam.nl) provide insights over the fake suppliers of tank storage capacity, in order to limit the risks involved for other market participants. Individuals without proper knowledge of the markets, can easily become targets of these scams. Who is able to spot the differences when certain, legitimately looking, websites come across?

Websites about the same terminal in the port of Rotterdam, which one is legitimate?

For businesses entering the market, these organizations are key to a fruitful collaboration between suppliers and clients. In addition, these organizations show which websites, companies or individuals to bypass. Companies and terminals in the TankTerminals.com database are investigated by various database administrators before being added in the vast database of terminal details, characteristics, contacts and other relevant information. Data supplied by the terminals and the managers of the terminals is thoroughly checked before it is approved. The data is regularly updated and if possible expanded with more data to give a transparent overview on the tank terminals. This way, potential suppliers, customers and others interested have a quick go-to list which reduces the efforts of going through all kind of information. The completer the information in the terminal factsheets, the higher the reliability, legitimacy and opportunities to connect with the relevant contacts.

Market transparency is imperative in getting quickly the right information and with as little errors as possible. The oil and gas industry and its environment has been closed and constrained. However, it is rapidly changing in the digital age with the help of different organizations. The information, statistics and other relevant news can be supplied to the interested individuals and companies in order to get more insights, to make quicker and smarter decisions.

Author: Lars van Wageningen

Two-days Oil Academy

Increase Your Value with More Knowledge

Numbers from EY (2015) show that in the Netherlands around 16.000 people were active in the oil and gas industry. In the same year in the United States some 1.5 million people were employed in this sector. The service providing companies are not even taken into account. It is a massive industry!

It is not only big in size but also in complexity. A lot of companies that we meet only partly understand the logistical oil and gas chain in which they are active. They lack the knowledge to oversee the entire supply chain. Specifically these other parts of the value chain have a direct impact on their business.

Several companies have followed our two-days Oil Academy. After these days they are capable in understanding the functions of the oil and gas value chain. They understand better how the different market players work and how market fundamentals interact. More than 200 participants preceded you and rated this course with an 8!

For more information, request our Oil Academy brochure by registering in below’s form.

Agidens on leading in technology

Welcome to “GRIPPING THOUGHTS”, the space created by Insights Global where Clients, Partners and Friends are invited to share ideas and insights that help shedding light on the challenges that the Oil & Gas industry faces in the near and long future.

So join us, read and get inspired by our talk to Mr. Koen Algoet – Product Manager Terminal Solutions – and Mr. Kevin Pluvier – Project Manager Oil & Gas – at Agidens, a solutions provider with a workforce of over 600 people that for more than 70 years has been helping companies in various sectors to improve their operations in the areas of security, reliability, efficiency and sustainability.

Q: How would you describe the main market challenges at the present time?

In our view, the tank terminal market presents two main challenges.

The first is linked to Operational Excellence. Due to backwardation and the new capacity added in recent years, it is correct to expect a surplus of storage capacity that will increase the competition even more and leave profits under stress.

In this environment, there will be a high demand for improved, more efficient processes to guarantee full usage of the existing assets. A good example of how this can be realized is Agidens’ Axcel® smart slot booking solution. Due to increasingly bad traffic conditions, it is very common that trucks don’t make their schedules leaving terminals with empty slots and the necessity to reserve ‘late arrivals’ slots which reduce the normal asset capacity. Axcel® doesn’t use and thus ‘waste’ these empty slots but relies on the smart engine to recalculate updated planning scenarios keeping all available assets and resources into account.

The second challenge is linked to Human Resources. Nowadays there is a high workforce turnover in the industry, as a result of several reasons, among them the fact that young people don’t want to stay in the same job and activity for a long time anymore. The time and energy that is needed to train new employees into working with these manual procedures could be invested in automation. Furthermore, in order to attract and retain young people we can assume that automated terminals will have preference to manually operated terminals as an employer.

Q: And how do you see the industry evolving in a period of 5 to 10 years? What are the main challenges ahead of us?

As it was said before, due to the high competitiveness of the market there will be a growing pressure on the terminals in terms of operational excellence, but also to cope with the speed of innovation.

Even though there is a lot of interest in Artificial Intelligence, the focus in the next years will be on Big Data and in learning how to transform what is generated and collected by sensors – as a consequence of the development of the IoT – into knowledge.

Agidens understands the necessity to foster the development of specialists that can handle this new scenario that encompasses themes as cyber security, GDPR, new standards and regulations, and questions on how to communicate data between all the different networks, how to set up this data and how to do it in a secure, safe and controlled way.

Agidens embraces the proposition of sitting with the client to understand his problems and ‘pains’ in a consultative approach. So that the people involved in the project can take over and develop the product based solutions keeping a vision of the future time and not only the present.

At last, it is important to mention that no matter how much of a terminal’s management moves to the cloud, all that is related to safety must remain local.

Q: How is Agidens getting prepared for these future challenges?

Agidens understands that innovation is essential to offer competitive solutions to its clients, therefore we give special attention to this theme and how to accelerate its pace. We believe that if we expect to be ready for the challenges of the next ten years we must act today. First, by keeping a close relationship between our R&D department and universities as Leuven, Antwerp and Ghent. Second, by creating a culture and atmosphere that encourages our employees from different areas to voice their ideas and by granting time, budget and guidance from R&D for them to be developed.

As an example, at Agidens as soon as young engineers are hired they have the opportunity to be in direct contact with clients, especially with people who work on the field and experience the day to day challenges.

Agidens’ Atalk® solution is an excellent example of a product that was proposed by one of these young talents. While on the field, he noticed that there was a dangerous gap between the moment that a potentially dangerous event started – a fire, for instance – and the moment this information was passed to the personnel at the terminal. So he proposed a system that translates the usual text messages installed upon an existing operational control system such as SCADA or DCS into speech, in a way that now they can be transmitted by voice directly to the walkie talkies of all the employees around the terminal.

At last, it is important to give people time, support and a lot of training to be able to cope with the transformation speed of the industry.

PS: if you want to contribute to “Gripping Thoughts” please send an email to acavalcanti@insights-global.com

Find here other “Gripping Thoughts” articles:

Read now the interview with Bertrand Chupin, VP of the Loading Systems business unit of TechnipFMC, a global leader in subsea, onshore/offshore and surface projects, with about 37,000 employees.

Tank Terminal Market Model – Part 1

Last week was a short review of the profit drivers for physical traders, where we explained in short how traders make profit. There are a lot of different factors influencing the tank storage sector. Mostly the imbalances in the sector create opportunities for financial players. The market appears to be complex and demonstrating a lack of transparency. PJK International has developed a Tank Terminals Commercial Performance Model to quickly gain insight and a higher proficiency of the tank storage market. This is the first part related to the Tank Terminal Market Model, next week we will publish the second part for you to be able to connect the dots.  

MARKET FUNDAMENTALS

First we describe the market fundamentals as shown in the image below. Relevant market fundamentals for the oil storage business are the shape of the forward curve, the competitive market structure and the logistical factors supply, demand, imbalances and trade flows. The shape of the forward curve is determined on oil futures markets. The oil price forward curve can be upward sloping (contango) or downward sloping (backwardation). In a backwardated market is less demand for tank storage than in case of a contango. Inventory levels are also lower in a backwardation compared to a contango. Both demand and tank availability are therefore affected and this influences the commercial setting.

Furthermore the competitive market structure consists of a supply-side and demand-side market structure. Tank capacity and market shares of various terminal operators are key factors that determine the supply-side competition. The number of players, their size and diversity are key factors on the demand-side of the market. Both demand- and supply-side competition influence commercial performance of the terminals. And also Tank terminals are part of the oil products supply chain and therefore logistical factors such as local product demand, regional refinery output, imbalances and trade flows are very relevant. Developments in these factors influence the demand and requirements for tank terminal capacity.

MARKET DYNAMICS

Besides the market fundamentals we have to take into consideration the market dynamics. Relevant market dynamics are inventory levels, arbitrage and trade flows, changes in product specifications and variation in vessel sizes. These market dynamics have a direct influence on operations and on terminal requirements. A terminal that can accommodate and can adapt better and faster to these dynamics compared to competitors will likely show superior commercial performance. From the previous section you could already see that market dynamics are linked to market fundamentals.

CONCLUSION

The market fundamentals and the market dynamics are important building blocks for Insights-Global’s commercial performance model. If you have any questions regarding the above mentioned subject please do not hesitate to us. 

Investment dynamics vary per major trading hub

In the world, there are considered to be four major oil trading hubs: ARA, Singapore, Fujairah. These four port areas have their own different identity and their own local trading dynamics. In this high level research, we will compare investment intensity in these locations. For comparison purposes in ARA, we have split ARA in only Rotterdam and Antwerp.

In these 5 ports combined there are 146 terminal companies active. Most of the companies are situated in Houston (53), followed by Rotterdam (31), Antwerp (24), Singapore (21) and Fujairah (17). Looking at the capacity, these ports sum up to 76.35Mcbm. Most capacity is available in Houston (25Mcbm), followed by Rotterdam (19Mcbm), Singapore (15.28Mcbm), Fujairah (9.35Mcbm) and Antwerp (7.65Mcbm).

When we divided total storage capacity with the number of terminals we can calculate the average capacity per terminal. Biggest average tank size is in Singapore (0.73Mcbm), followed by Rotterdam (0.62Mcbm), Fujairah (0.55Mcbm), Houston (0.47Mcbm) and Antwerp (0.32Mcbm).

This calculation says something about the local storage footprint and the port’s specialty. For instance, Singapore is an Asian bunker hub which facilitates fuel oil storage. There are a number of big underground caverns there. Antwerp is focused on specialty chemical storage which need smaller tank sizes and lower average storage capacity per terminal.

For these five port areas, it is believed that around 22 expansions projects (existing greenfield, brownfield and planned additions) will add almost 8kcbm to current capacity. Fujairah has 7 projects, followed by Houston (6), Antwerp (5), Singapore (3) and Rotterdam. Looking at the growth per capacity, port that shows the largest storage additions is Fujairah (29%), Antwerp (11%), Houston (9%), Rotterdam (7%) and Singapore (5%).

The conclusion of these statistics is that the major oil trading hubs have different strengths, serve a different purpose and show their own investment dynamics. Insights Global has presence at all these ports. We have the statistics and local knowledge to help investment companies value storage assets they would like to include in their investment portfolio.

Jacob van den Berge, M&S manager Insights Global

What technology area do you expect to be a game-changer?

Welcome to “GRIPPING THOUGHTS”, the space created by Insights Global where Clients, Partners and Friends are invited to share ideas and insights that help shedding light on the challenges that the Oil & Gas industry faces, in the near and long future.

So join us and get inspired by IVAR BERNTZ, Research Analyst in the Cross-Industry and Advanced Manufacturing Group at GARTNER :

“Gartner recently released the results of their 2019 CIO Survey Oil and Gast Industry insights , based on 84 responses out of the 3,102 overall respondents from 89 countries. Let us discuss two of the questions posed, namely: 1) What is your organization’s top priority for 2018/2019? and 2) What technology area do you expect to be a game-changer for your organization?

Through 2018 oil and gas firms have made continued significant progress improving efficiency. With improving balance sheets and leaner operations, it is unsurprising that oil and gas executives are strongly focused on revenue and business growth as their top priority, as stated by 28% of the respondents. Caution, however, is still in evidence since the recovery is recent and market conditions remain volatile. Operational excellence  provides a relatively low-risk route to growth and profitability and is the priority for 26% of respondents.

Oil and gas company executives, senior leaders and functional managers are embracing digital. This year 22% of survey respondents rated it as top priority, compared with only 8% last year. Recognition of the capacity of digital innovation to both optimize and transform business models has crossed a tipping point in the industry, significantly elevating digital as a priority. Nevertheless, companies in most other industries are more likely to prioritize digital, a sign that traditional oil and gas industry inertia has not disappeared. Progress may be rapid by oil and gas standards but is only just keeping pace with trends outside the industry.

The oil and gas industry’s striking enthusiasm for analytics continues unabated, with 44% of oil and gas CIOs expecting data analytics to be the top game-changing technology  for the industry this year — double the percentage across  industries. Despite occasional mixed results and scepticism of vendor promises, analytics has gained widespread acceptance based on multiplying use cases and demonstrated value. As digital ambitions intensify, analytics is consistently prioritized by oil and gas leadership seeking proven ways to derive business value from digital technologies.

The greatly elevated priority of the IoT is new, with 24% of respondents now identifying it as a game-changing technology compared to 8% last year. As companies deal with existing inefficiencies, continued pursuit of operational excellence demands new strategies to improve asset performance, driving greater use of analytics for simulation and prediction of future behaviour. Analytics’ focus also shifts from reactive modelling offline to nearer real time. IoT offers advantages in data collection and system responsiveness over legacy systems to support this. However, cost-benefit considerations have so far acted as a brake on adoption, especially on mature assets. With renewed business growth the comparative advantages (and increasing cost-effectiveness) of IoT promise performance differentiation that will accelerate take-up.

A stark difference between oil and gas and all industries is apparent in artificial intelligence/machine learning. Across all industries, artificial intelligence/machine learning is ranked as the No. 1 game-changing technology across all three categories of performers, with 40% of top performers placing it at the top. While it is the third-most-cited, game-changing technology in oil and gas, only 21% of industry CIOs rate it as the top technology.

In part, this reflects the natural mistrust of the industry to hyped technology. Many oil and gas operators are still exploring ML and AI use cases and have yet to operationalize it. Understanding is more concrete for other technologies today, which — given the asset-centric nature of the business — are also expected to deliver significant value leading to a more even spread of expectation. Nevertheless, the growth of AI and ML, along with the elevation of IoT, indicates a shift in focus in the industry toward greater real-time connectivity and prediction for asset optimization.

Given this background, what do you believe will be your organization’s top priority for 2019 and what technology will be a game changer to accomplish it?”

PS: if you want to contribute to “Gripping Thoughts” please send an email to acavalcanti@insights-global.com
Find here other “Gripping Thoughts” articles:

Read now the interview with Bertrand Chupin, VP of the Loading Systems business unit of TechnipFMC, a global leader in subsea, onshore/offshore and surface projects, with about 37,000 employees.

Profit drivers for physical traders

Download TT week report

INTRODUCTION

This is the second blog article of our series of 5 blog articles made for you to be able to better understand the drivers and the complexity of the tank storage industry. In the first article we took a closer look at the functions of a tank terminal.

HOW DO TRADERS MAKE MONEY?

Traders can take a physical (&paper) position and ‘buy low / sell high’ to be able to make profit. There are several strategies to profit from trading physical commodities. We can distinguish three main strategies:

1.Arbitrage
2.Speculation
3.Optionality

ARBITRAGE

Arbitrage is a very simple idea, it is really taking advantage in the difference of price on essentially the same product, to make profit. For example if you would have the price of gasoline in two different geographical markets. These different markets can be the Netherlands (A) and the US (B). If in market A the price would 1 dollar and in market B the price would be 2 dollars, then you can profit from the difference in price. The three main types of arbitrage are:

1.Geographical arbitrage
2.Time arbitrage
3.Technical arbitrage (blending)

SPECULATION

The U.S. Commodities Future Trading Commission defines a speculator as a trader who does not hedge, but who trades with the objective of achieving profits through the successful anticipation of price movements. Traders take a position in anticipation of moves in prices/spreads. For example with the gasoil price as is shown in the chart below:

OPTIONALITY

As for speculation, also for optionality volatility is key. Profit can come from market opportunities, where traders can limit losses if market turns against position. Three examples are:

  • Optionality during geographic arbitrage trade. For example divert ship if there is a better deal and reduce costs
  • Optionality during contango storage. Contango means that the spot price of oil is lower than future contract for oil
  • Optionality in transport mode. Can be applied when transport costs are market driven and volatile

CONCLUSION

More familiarity within this complex market can provide you with quick insights derived from the financial markets. By watching and following oil prices spreads and market volatility can provide you with a better picture of the market. Other trends like backwardation and contango are also important to understand and analyse, to be able to make intelligent decisions. More to come in the next blog article next week, meanwhile feel free to download last week’s tank terminal report. And try to test your comprehension of the subjects discussed.

For more information or any questions please do not hesitate to contact us.