At beginning of this year, oil in the United States was selling for around $60 a barrel. Now you can barely get rid of the stuff; at $12 a barrel on April 29, a latte-sized cup of crude would cost less than five cents. Last week, oil futures prices went below zero for the first time ever—you’d have to pay someone to take it off your hands.
As the Covid-19 pandemic vaporizes global oil demand, producers are running out of places to keep their oil. About 60% of the world’s oil storage is occupied, and it’s filling quickly: According to Goldman Sachs, remaining capacity is likely to max out by mid-May.
In the US, the problem is about to get worse: Import deals signed before the crisis are moving forward. A fleet of 28 tanker ships carrying Saudi oil is due to join a queue of at least 76 tankers waiting to unload at US ports, according to Rystad Energy.
That leaves producers with a tough choice: Get creative (and pay through the nose) for storage, or turn off the pumps. “It’s a big jigsaw puzzle to alleviate the pressure,” said Sarah Ladislaw, a senior oil analyst at the Center for Strategic and International Studies. “But there’s just not enough space.”
So what can you do with a barrel of oil these days?
Don’t send it to Cushing
In the US, the main oil storage hub is in Cushing, Oklahoma. It’s a sprawling campus with hundreds of squat, circular tanks that together can hold around 80 million barrels. In normal times, oil is delivered to Cushing via trucks, trains, and pipelines, and travels from there to refineries, mostly on the Gulf Coast.
When producers have a bit too much oil on hand, or want to wait for prices to improve, they often lease space in a Cushing tank. Because of its central role in the US oil distribution system, the storage level in Cushing is closely watched by traders worldwide and can be a proxy for the market: When prices are high, storage volumes tend to be low. In February, Cushing was less than half full. Now, it’s completely sold out. If you don’t already have space leased there, you’re out of luck.
Lease space in the Strategic Petroleum Reserve
Last week, President Trump said he wants to take advantage of low oil prices to get the SPR “filled up pretty soon.” A network of massive salt caverns on the Texas and Louisiana coasts, the SPR has open space equal to about the total volume of Cushing; the Department of Energy touts it as the world’s largest emergency oil supply.
So far, Trump has been unable to get the appropriation he needs from Congress to buy the oil outright. Instead, the administration is allowing US companies to lease about a quarter of the open space in the SPR, which several companies have taken advantage of in the last week. But while the SPR might help a few individual companies, even filling it completely would be a drop in the bucket compared to the total volume of oversupply, Ladislaw said.
Shell out for a tanker
One of the winners of the oil glut has been the tanker ship industry. Usually these massive ships haul oil between ports, but they’re just as happy to park offshore—for the right price. Charter rates in the neighborhood of $125,000 per day before the crisis are now well above $200,000. Even at that price, the amount of oil idling in ships offshore globally has jumped 40% since the beginning of April. Satellite images show tankers piling up off of beaches around the world.
Still, it’s not a solution that is affordable for many smaller oil producers—and it assumes that you’ll even be able to move your product from a well to a port, which may be impossible if pipelines are also filled up.
“It would be great if they could somehow teleport it,” said David Livingston, a senior oil analyst at Eurasia Group, “but if the pipeline is shut there’s nothing you can do.”
Cram it into barges, trains, pipelines, caves, wherever
With all the usual spots filling up, some producers are turning to unconventional solutions, including parked trucks, train cars, tiny river barges, pipelines themselves, off-brand depots in places like Chicago, and even Swedish salt caverns. “People are really desperate to fill whatever they can,” Ladislaw said. All of these options have costs that are unlikely to be offset with oil prices as low as they are.
Leave it in the ground (gasp!)
The most obvious solution might be to do what climate activists have long dreamed of: not extract the oil in the first place. That’s a worst-case option for producers, because the cost of turning off a well is usually more than foregone production. Shut-off wells (known as shut-ins) are easily damaged, and may never produce the same volume, or anything at all, once they’re re-opened.
There are hundreds of mom-and-pop oil companies that each operate a handful of so-called “stripper wells,” low-producing sites where “if they stop producing, they’re done,” Ladislaw said. “There’s no going back into business.” Meanwhile, many oil leases contain a production mandate, essentially a “use it or lose it” requirement that puts the producer at risk of forfeiting their drilling rights if they shut down.
In the US, another last-ditch solution could be for the administration to buy producers’ underground reserves, essentially writing them off as remote extensions of the SPR. But that, again, would require money the president doesn’t yet have.
Ultimately, as the cost of storage continues to rise, space fills up, and pipelines shut down, many producers, especially smaller ones, will inevitably be forced out of business.
“The most severe shut-in activity is yet to come,” Livingston said.
Abraham van Helsing on Fri, 1st May 2020 10:14 am
While some still worry about oil, yesterday the first turbines of the largest offshore Borssele wind farm in the world (1.5 GW, in status nascendi) have begun producing electricity:
https://www.offshorewind.biz/2020/04/29/borssele-1-2-generates-first-power/
“Borssele 1 & 2 Generates First Power”
https://www.offshorewind.biz/2020/05/01/nhv-helicopters-begin-borssele-12-duty/
“NHV Helicopters Begin Borssele 1&2 Duty”
This is the future, not lame oil. That had it’s day.
Abraham van Helsing on Fri, 1st May 2020 10:21 am
“China’s Father of Electric Cars Says Hydrogen Is the Future”
https://www.youtube.com/watch?v=dba6qyFr39k
100 MW hydrogen plant in the works for Amsterdam:
https://www.youtube.com/watch?v=gAXlNZhZpn8
Many GW’s offshore wind will be installed in the North Sea by 2030. Something has to be done NOW.
whoa supremacist muzzies jerk on Fri, 1st May 2020 10:23 am
supertard,
but electricity for recreational sex is not the only thing that runs a modern society
don’t we need portable high density power sources? we can’t just avoid addressing (((supertard))) alice friedmann’s contention forever by yelling “wind” in a crowded theater. That only makes for soundbites
Molecules of Fifedom on Fri, 1st May 2020 5:20 pm
Heil Abe doesn’t get that no oil => no wind turbines, PV panels, or much of anything else. Green energy is a fraud.
makati1 on Fri, 1st May 2020 5:25 pm
Start shutting down the fraking wells and tar sands. Then the off shore wells. Then…
Only nationalizing/communizing the Amerikan oily corporations will save them.
Add in the communizing of Boeing. And the meat packers. And Big Pharma. And……
How quick that little virus is taking down “exceptional” Amerika! Go for it bug!
Abraham van Helsing on Fri, 1st May 2020 5:29 pm
“Heil Abe doesn’t get that no oil => no wind turbines, PV panels, or much of anything else. Green energy is a fraud.“
That’s what most Americans think, these days. America-2020, that’s something between Europe and Africa. No worries, we’ll show you how, after the break.You better worry about saving your white ass, if any.
Zeke Putnam on Fri, 1st May 2020 5:29 pm
This all makes me think of a time. I’m no religious man but have done a lot of professional flying. Nothing like being on final approach is shitty weather, anxious as hell and wishing for someone or something to save my sorry ass. That’s where I think we are now. Flying blind in shitty weather.
penury on Fri, 1st May 2020 5:41 pm
At this time I really miss Rockman, and others who knew something about the oil industry.
Rockman on Fri, 1st May 2020 6:02 pm
Penury, I’ve been here all along, in spirit.
Now I dont want to say most of you know absolutely nothing about how the oil industry works, so I am going to start by saying most of you know absolutely nothing about how the real oil industry really works. Thats because none of you, are the Rockman. Speaking of, that reminds me of something that happened to me one time.
Did I ever tell you about the time I spent a grueling 2 days filling out required paperwork for the Texas Railroad commission? I went through 3 pens during that. I will never forget those two days. After I filled out all the require forms (in triplicate), I then put them in a envelope. Then I put the envelope in the OUT tray. Once that was done, I do what all good Rockmans do. I reached into the back of the lower drwawer of my desk, you know the big drawer on the bottom and not the smaller, regular sized one up top, and pulled out the bottle of whiskey all us Rockmen in the industry keep handy at all times. After a few shots, I feel asleep at my desk. Which was better than falling asleep behind the wheel of my Ram50000 pickup truck.
I hope this story helps those of you with little or no knowledge of life in the oil patch, to understand what it takes to be in the oil business.
makati1 on Fri, 1st May 2020 6:05 pm
penury, knowing what? The lies they publish every day? Only the stupid, that have their careers or life savings/retirement tied up in the oily casino, could care. I don’t. Go for it! Take it down, along with the terrorist US.
whoa supremacist muzzies jerk on Fri, 1st May 2020 6:22 pm
aboe not supetard rock obv.
Duncan Idaho on Fri, 1st May 2020 6:28 pm
The proletariat is exhibiting clear thinking:
https://img.huffingtonpost.com/asset/5eac7ad2300000a112155482.jpeg?cache=ffrZq4JRha&ops=800_450
whoa supremacist muzzies jerk on Fri, 1st May 2020 6:29 pm
Prime Minister Justin Trudeau cited numerous mass shootings in the country, including the rampage that killed 22 in Nova Scotia April 18 and 19, while banning more than 1,500 firearm models.
this will makes northern us smuggling zones
meanwhile soul crushing muzzie speakers blazing
Canada: Mississauga amends noise bylaw to allow muzzie call to prayer
Cloggie on Sat, 2nd May 2020 9:50 am
Portugal and the Netherlands will build a 1 GW hydrogen plant in the South of Portugal, scheduled to be operational by 2023. Input will be electricity from a new solar park nearby. Portugal has excellent solar conditions.
https://deepresource.wordpress.com/2020/05/02/portugal-plans-hydrogen-plant/
Even I am surprised at the speed with which hydrogen plants are scaled up. The largest plant I was aware of is in Shell-Germany, with 10 MW, build by ITM.
It looks like we need “post-stamp countries” to get things going.
/snikker
TinyTim on Sat, 2nd May 2020 11:03 am
I don’t think that was the real Rockman but that was a hilarious read whoever wrote that. 😀
whoa full woke supremacist muzzies jerk on Sat, 2nd May 2020 12:00 pm
guyes
tinytim is supertard’s sock
please respect supertard and his sock
tinytim is supertard’s sock please respect supertard and his sock on Sat, 2nd May 2020 12:30 pm
😀
tinytim is supertard’s sock please respect supertard and his sock on Sat, 2nd May 2020 12:52 pm
juanPee
tinytim is juanPee’s sock puppet please respect juanPee and his sock on Sat, 2nd May 2020 7:57 pm
😀 😀