What is Oil Storage?
Oil storage is part of the midstream sector of the oil industry. Oil is first extracted upstream from companies that conduct the exploration and production. The midstream sector involves the transportation, storage, and wholesale marketing of petroleum products following extraction. Oil storage is a means of collecting products before being distributed downstream to refineries and retailers. Downstream operations might also use storage tanks to collect oil for further processing and marketing.
Oil storage tanks vary in capacity and design. Early storage tanks were built of wood and metal bands that essentially formed large barrels. As technology advanced, storage tanks increased in size and capacity to safely store oil.
There are various tank designs depending on the needs and usage – fixed roof and floating roof. open top and closed top, flat bottom, cone bottom, slope bottom and dish bottom and single walled and double walled. The design will be chosen specifically to handle pressure conditions of the liquid being stored, prevent leakage and corrosion, and manage fumes and ventilation1.
Multiple storage tanks are called an oil depot, oil terminal or tank farm.
Companies use oil storage as a strategic tool to increase returns in the global market. Companies can purchase oil at low prices and wait until prices rise before selling. A ‘contango’ is a condition in the oil market where it is expected that people will be willing to pay more in the future than at the current price2. When this happens, the price differential can make it profitable to purchase and store oil for a given period of time before selling at a higher price. This is a high-risk trading strategy that involves gambling with the ever changing world oil price.
On a national level, governments use storage tanks to increase energy security. In the context of global concern for ‘peak oil’ and decreasing crude oil reserves, storage tanks pose a unique strategic opportunity. On example is China, which, in 2013, emerged as the second-largest consumer of crude oil with plans to build an additional 245 million barrels of oil storage capacity. With development expected to increase, China is using storage as a means of stockpiling oil in preparation for supply disruptions, a major issue for the country since half of total consumption is from imports3.
Despite advancements in technology, important health, safety and environmental concerns remain. Oil storage tanks have the potential to leak crude oil into the soil and water. A worst-case scenario leakage could trigger an explosion if the oil ignites. At oil depots, the threat of ignition is intensified. To prevent any accidents, oil storage tanks can be constructed horizontally with double walls or vertically with double bottoms.
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