BATON ROUGE (AP) — Louisiana's offshore oil port, with huge underground storage caverns, was built to handle imported oil but is now leasing space to traders who need to store U.S. crude.
The Louisiana Offshore Oil Port recently auctioned 11.3 million barrels of monthly storage space and has scheduled another auction Tuesday, The Advocate’s Ted Griggs reported.
"For us, it's an innovative new product. It's another service to our customers. We hope to attract new customers with it," said Terry Coleman, vice president of business development at LOOP.
Global production now exceeds consumption by about 1.5 million barrels a day.
U.S.-produced crude is piling up at Cushing, Oklahoma, the country's major oil hub — but that's getting close to capacity, and some storage fees are going up, said Brian Busch, director of oil markets and business development for data analysis firm Genscape.
He said storage at Cushing generally runs 30 cents per barrel per day, but some operators are charging up to $1 — though few contracts have been signed for that price.
That's about the same amount it costs to store crude aboard tanker ships, which some traders have done while waiting for prices to rebound.
The highest price at LOOP's auction was 10 cents a barrel.
David Dismukes, executive director of the LSU Center for Energy Studies, said the LOOP auctions indicate the market needs to find a better way to allocate storage resources. If storage prices get high enough, companies will even construct storage space, he said.
"We are long on supply and short on storage, and it's going to continue to be that way," he said.
LOOP and the CME Group, formerly the Chicago Mercantile Exchange and Chicago Board of Trade, are offering contracts to store up to five grades of oil in LOOP's eight caverns. The facility will auction 7 million barrels of storage space per month, or a total of 84 million barrels' worth for the year.
LOOP was receiving about 1 million barrels of imported oil a day in 2008. Imports have fallen by about half, but domestic production has kept the amount it handles steady. Last year, for the first time in its 34-year history, LOOP received, stored and distributed more domestic crude than imports.
Though LOOP's contracts are much cheaper, Busch said there are some drawbacks. He said one is that the contracts require the oil actually be delivered on a set delivery date. The oil can't be traded out with offsetting contracts.
Moreover, oil most be moved by barge from a port to LOOP.
All of that costs money, Busch said. Then the trader has to find a buyer for the actual oil and sell it, and securing a profitable price is not a sure thing.
