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Page added on February 15, 2016

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UAE Offers India Free Oil To Ease Storage Woes

Consumption

In an oil sector first, the oil-rich United Arab Emirates (UAE) has offered free oil to India in return for a storage deal at India’s planned underground facility as the supply glut worsens and some analysts predict that ‘’peak storage” could sending prices crashing further.

The UAE’s Abu Dhabi National Oil Company (ADNOC) has agreed to store crude oil in India’s maiden strategic storage facility, sweetening the deal by saying India could take two-thirds of the oil for free.

It’s a great deal for India, which is almost fully reliant on imports to meet its crude oil needs.

India has lured Abu Dhabi in with the building of a massive underground storage facility system that will be able to take on 5.33 million tons of crude as a bulwark against global price shocks and supply disruptions.

ADNOC is eyeing half the storage capacity at one of the new underground facilities, Mangalore, which has a 1.5-million-ton capacity on its own. Abu Dhabi plans to stock 0.75 million tons, or 6 million barrels of oil, here, and 0.5 million tons will belong to India.

The deal is reflective of a wider, global storage panic and talk of what could happen when we reach ‘’peak storage’’. A number of analysts have suggested that oil prices might crash to $20, or even $10 a barrel, if storage tanks become full.

Storage is now at the highest level in at least a decade.

In the U.S., crude storage levels hit 487 million barrels in early November, closing in on the 80-year high of 490 million barrels hit earlier this year.

According to the U.S. Energy Information Administration (EIA), about 60 percent of the U.S.’ working storage capacity is filled.

Globally, the picture isn’t much better, with the International Energy Agency (IEA) saying that 1 billion barrels were added to storage in 2015 alone. OPEC has reported that crude oil stockpiles in OECD countries currently exceed the running five-year average by 210 million barrels.

This has given impetus to more creative storage ideas and will at least be a boon to massive storage projects such as India’s.

Floating storage—a more expensive option—is now looking more attractive as well. But to make this work, the math has to be in order, which means that front-end crude spreads would have to be wide enough to cover the cost of storing oil in pricey floating facilities.

Late last month, Bloomberg reported that trading giant Glencore had chartered four very large crude carriers (VLCCs) to store oil off Southeast Asia. But there’s still onshore storage capacity, and we’re not quite to the point where the floating option is widespread.

The U.S. still has 100 million barrels of available storage, and we should see more storage capacity by the end of this year. The Middle East is also slated to add capacity in the coming years, with the UAE specifically planning to expand its capacity to take on another 10 million barrels.

The analytical panic is perhaps premature. We’re not facing ‘’peak storage’’ just yet, but Abu Dhabi is playing it smart and safe.

Still, the UAE estimates the oil glut at 2 million barrels a day and growing, and its own storage expansion plans will benefit from this. After all, it houses the biggest oil storage port on the Persian Gulf—Fujairah Oil Terminal FZC—on the Hormuz Strait.

Fujairah received its first shipment just this month of 1 million barrels, and storage capacity is slated to increase 75 percent this decade.

OilPrice.com



18 Comments on "UAE Offers India Free Oil To Ease Storage Woes"

  1. shortonoil on Mon, 15th Feb 2016 3:06 pm 

    We have been saying for some time that the world would never again be able to acquire all the oil that is produced. You thought we were kidding!

    http://www.thehillsgroup.org/

  2. rockman on Mon, 15th Feb 2016 3:11 pm 

    They aren’t “giving” India any oil. They are paying them in bbls (which cost the UAE the relatively low expense of lifting expenses…probably less than $10/bbl) for the use of three storage facilities that cost the Indian govt $600 million.

  3. Dredd on Mon, 15th Feb 2016 3:30 pm 

    Free Oil” and “Free Willy

    (The Supremes Are Well Oiled – 4 ).

  4. Nony on Mon, 15th Feb 2016 7:27 pm 

    “the world would never again be able to acquire all the oil that is produced.”

    Yet global demand is increasing year over year. It will increase again this year. The fact that supply exceeds demand does not validate your Etp model. The fact that you think it does is indicative of your idiocy.

  5. Davy on Mon, 15th Feb 2016 7:36 pm 

    Global demand growth is stalling in many sectors and nations:

    http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/02/09/gasoline%20demand%20.jpg

  6. Plantagenet on Mon, 15th Feb 2016 8:04 pm 

    UAE has so much surplus oil that they can’t sell they are giving it to India!

    WOW—if that doesn’t convince people that we are in an oil glut, I don’t know what will.

    Cheers!

  7. Apneaman on Mon, 15th Feb 2016 8:50 pm 

    Planty, maybe they can store it in that massive void between your ears? WOW!

  8. Truth Has A Liberal Bias on Mon, 15th Feb 2016 9:25 pm 

    Paying for storage fees with oil is not the same as giving it away for free. Only a retard would not understand this. Hey can I store my shit at your place and I’ll give you some stuff for free. Lol fucking retards. This lame blog is definetly the special Ed class of the peak oil blogosphere. You know, he short school bus with the kids who have to wear a helmet all the time. I’m am time and time again consistently amazed how fucking stupid Americans are.

  9. Truth Has A Liberal Bias on Mon, 15th Feb 2016 9:26 pm 

    PS only retards read zerohedge.

  10. Davy on Tue, 16th Feb 2016 3:04 am 

    “China Created A Record Half A Trillion Dollars Of Debt In January”
    http://www.zerohedge.com/news/2016-02-15/china-created-record-half-trillion-dollars-debt-january

    “Yes, you read that right. Amid a tumbling stock market, plunging trade data, weakening Yuan, and soaring volatility, China’s aggregate debt (so-called total social financing) rose a stunning CNY3.42 trillion (or an even more insane-sounding $520 billion) in January alone.”

    “In fact, since October, China has added over 1 trillion dollars of credit… and has nothing but margin calls, ghost-er cities, and over-supplied commodity-warehouses to show for it… oh and even-record-er debt-to-GDP ratio. In the process of this gargantuan debt creation, China has smashed its recently record debt/GDP of 346% pushing it to even more ridiculous levels.”

  11. Davy on Tue, 16th Feb 2016 4:09 am 

    Pretty lame considering the economic demand destruction that is everywhere now. This leads to the question where is the oil going to go in a declining economy? Also pretty lame because Russia and KSA are pumping flat out as best I can see. What is impressive that the two countries met and talked considering what is up in Syria.

    “Saudi Arabia and Russia Agree Oil-Output Freeze in Qatar”
    http://www.bloomberg.com/news/articles/2016-02-16/saudi-arabia-and-russia-agree-oil-output-freeze-in-qatar-talks

    “Freezing output at January levels will be “adequate” and the nation still wants to meet the demand of its customers, Saudi Oil Minister Ali Al-Naimi said in Doha after talks with Russian Energy Minster Alexander Novak.”

  12. rockman on Tue, 16th Feb 2016 5:32 am 

    Truth – So true. And a great trade for the UAE IMHO. Not just that they get to utilize a $600 million in storage facilities but the time factor: it would have taken years for them to build such storage facilities. And that’s if they had access to a usable site. And again think what they are actually paying India: they are paying them with $10/bbl oil (their lifting cost)…at most. So a simple model: they 100 million bo oil. Market price: $3 billion…UAE cost: $300 million. They give India 66 million bo: current market price – $1.98 billion…UAE cost – $660 million (at most). Value of the UAE share: 33 million bo – $990 million at current price. If oil increases only $20/bbl the UAE share of the oil gains: 33 million bbls X $20/bbl = $660 million. And SHAZAM!!!…under this model it cost the UAE nothing to store their oil in India. Additionally it takes oil out of the market place which would give some momentum for prices to increase.

    Looking at this model makes me wonder if the KSA et al might also be looking for significant and quickly available storage. Unfortunately for the Rockman et al there isn’t enough floating storage available to make a dent…and what there is isn’t relatively cheap compared to maintaining cavern storage.

  13. shortonoil on Tue, 16th Feb 2016 7:09 am 

    “Paying for storage fees with oil is not the same as giving it away for free.”

    That would only be true if the UAE thought that they would eventually have a market for the oil. If the UAE has come to the same conclusion that we have, that inventories will continue to go up, that oil they are trading is worth absolutely zero. There is a paradigm shift going on, and a whole lot of folks have so far completely missed it! That situation will be self correcting.

    http://www.thehillsgroup.org/

  14. JuanP on Tue, 16th Feb 2016 7:42 am 

    I agree with Rock on this one. Regardless of what happens in the future, this is nothing more than a classic bartering deal. Give me some storage space and I give you some oil

    What Short says may apply in the present and the future, and things may end up the way he suggests, I tend to agree with Short’s conclusions, but this would remain a barter trade anyway. People trade things they have no use for for things they need all the time. So even if UAE has no use for this oil, this is still a barter trade, and a good deal for India.

    I like the fact that this deal totally bypassed the US dollar.

  15. rockman on Tue, 16th Feb 2016 8:51 am 

    “… oil they are trading is worth absolutely zero.” Mucho thanks!!! I love starting the day off with a good laugh.

  16. shortonoil on Tue, 16th Feb 2016 4:38 pm 

    “… oil they are trading is worth absolutely zero.” Mucho thanks!!! I love starting the day off with a good laugh.

    World wide, inventories have been growing for two years. Part of the world’s producers’ production is not selling. Unless it is processed into a finished product that is purchased by the consumer it is inventory. Like with store merchandise, its value goes to a couple of cents on the dollar, or it is hauled to the dump. That is what is happening to an increasing amount of the world’s crude production, and it will get worse with time.

  17. GregT on Tue, 16th Feb 2016 4:48 pm 

    “… oil they are trading is worth absolutely zero.”

    Actually, if they have to give some of it away just to store it, it is a liability. Essentially worth less than zero, for the time being.

  18. Rick Bronson on Tue, 16th Feb 2016 8:45 pm 

    Why not they just close the tap and cut the oil production. They should have known about this when they sold the Oil at $ 120 / barrel.

    India has few million vehicles running on CNG & LPG and they continue to move towards alternatives.

    Every country is moving towards alternative fuels. Still Oil consumption will increase as 100’s of 1,000’s of vehicles are added to the World’s roads every day.

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