Operational constraints limit crude storage at US refineries

(MENAFN- Arab News) LONDON: US commercial crude stocks are still close to their highest levels in over 80 years but operational requirements prevent refineries filling on-site storage facilities to their maximum capacity.
An increasing proportion of US crude oil stocks is held in off-site tank farms some owned or leased by refiners themselves but many owned or leased by marketers and traders.
According to the Energy Information Administration (EIA) which surveys storage capacity every six months total crude in storage at the end of March was 475 million barrels and the country had capacity to store up to 660 million.
Only 182 million barrels of storage capacity around 28 percent was on site at oil refineries. The rest was off site at tank farms or in pipelines railroad tank cars barges and oilfield tanks.
Most of the crude at refineries and tank farms is stored in giant cylindrical tanks with a roof that floats directly on the surface of the oil.
Storage tanks need to be kept filled to a minimum of around 20 percent to support the roof and operate the pipes and other equipment.
Adjusted for these tank bottoms the effective or 'working' capacity of refinery storage tanks was 150 million barrels according to the EIA ('Working and net available shell storage capacity' May 2015).
But at the end of March US refineries were storing only 104 million barrels equivalent to just 69 percent of their maximum working capacity and 57 percent of the total storage volume.

STORAGE TANKS

Refinery storage is subject to various operational constraints that make it hard for refiners to fill tanks to the top.
Refinery tanks are commonly divided into storage tanks which receive the crude oil and charging tanks which feed crude into the atmospheric distillation units.
Storage tanks receive the oil via a pipeline or pumped in from railroad tank cars or ships. Crude must normally be allowed to stay in the storage tank for a minimum of 24 hours to allow any water mixed with the oil to separate.
In general storage tanks cannot receive crude from the pipeline and transfer oil to the charging tanks at the same time.
Most tanks will contain a mix of different crudes from different sources and added to the tank at different times and refineries track the average composition of crude in the tank.
When a tank is discharged it cannot be emptied completely and the remaining oil known as the 'heel' is mixed with the next crude parcel added.
To maximize profit margins it is better to fill a storage tank with similar crudes to reduce the amount of value lost through mixing and degradation.
In other words refiners try to avoid putting a premium light crude into a storage tank that has previously held heavy oil.

CHARGING TANKS

Once the crude has settled in the storage tanks it can be pumped over to the charging tanks which then feed the distillation units.
Charging tanks receive crude from several storage tanks which means they can be used to blend different crude oils to achieve an optimal mix for the set-up of the distillation tower.
Like the storage tanks charging tanks cannot normally receive and send crude at the same time. But efficient operation of the refinery requires that the charging tanks feed the distillation units continuously with no breaks.
Refineries are set up so that each charging tank can supply multiple distillation units and each distillation unit can normally receive crude from more than one charging unit. But efficiency requires the number of distiller feeding switches be kept to a minimum.
With so many constraints on charging and discharging minimum residence unintended mixing of crudes and continuously feeding distillation units refineries cannot operate with their storage and charging tanks anywhere near full.

PLAN AND SCHEDULE

Each refinery will have a plan that specifies what crudes the plant will buy and refined fuels it will produce to maximize profitability. The plan will normally cover operations over the next few months.
In addition refineries have a separate scheduling function which handles short-term operations determining which crudes to put into which tank how to blend them and the rate at which to feed the blended crude into the distillation units.
Schedulers react to short-term deviations from the plan such as the late arrival of ships to ensure the refinery operates continuously and as profitably as possible while respecting all the operational constraints.
Refineries are prevented from filling all their tanks to the brim by the need to preserve some flexibility for scheduling changes ('Crude oil scheduling in refinery operations' 2003).
It is easy to see why US refineries were storing only 104 million barrels at the end of March even though they had working capacity to store 150 million and total capacity of 182 million.

TANK FARM FLEXIBILITY

The amount of crude stored in the US has been rising since around 2005. But the working storage capacity at US refineries has remained roughly unchanged. Most of the extra capacity has been added at tank farms.
Tank farm capacity has grown rapidly to meet both the refineriesi need for more operational flexibility and heightened demand for medium-term storage from crude marketers and traders.
Some of the tank farms are owned or leased by refiners themselves to give them access to more off-site storage options.
Others are owned or leased by traders who use them for speculative storage especially when the futures market is trading in contango.
At the end of March tank farms held almost 240 million barrels of crude more than twice as much as the refineries.
Tank farm storage is subject to many of the same constraints that affect operations at refineries. Tanks cannot normally receive and send crude at the same time need to minimise the amount of unintentional mixing and must generally be kept at least 20 percent full.
But because one tank farm can hold crude that can be used at a number of refineries the space can be effectively shared providing important flexibility at lower cost than on site at a single refinery.
There is often no space to increase the size of a refinery's own on-site tank farm. Off-site tank farms are typically in areas where there is more land available such as around Cushing Oklahoma.
As US refineries increasingly process a mix of very light domestic shale crudes and heavy imported oils tank farms are being used to meet the requirement for more blending capacity.
Refineries tend to hold crude for immediate use because space within the tank farm is at a premium: filling a tank with crude and leaving it idle for weeks or months at a time significantly reduces the refinery's scheduling flexibility.
Tank farms are more suitable for medium-term storage of crude because they can hold oil for months at a time with no operational penalty.


John Kemp is a Reuters market analyst. The views expressed are his own