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Oil and Gas Industry: A Research Guide

Storage

Storage of oil and natural gas helps smooth out supply and demand discrepancies. Companies store more when the prices are lower than they would like, and withdraw when prices are high. The cheapest storage method is underground spaces, such as depleted reservoirs. This method is primarily used for natural gas; finished oil products cannot be stored in underground natural spaces per regulations. Above ground tanks are used for crude and refined oil, finished oil products, and natural gas. At retail locations, like gas stations, tanks are stored underground for safety reasons. Tanker ships are used for temporary storage when land storage is at capacity, making it the most expensive option.1 There is a minimum operating level of crude oil that cannot be removed from pipelines, refinery tanks, overall system without difficulties.2 In 2020, the coronavirus pandemic dramatically reduced the demand for oil, which was coupled with an oversupply due to Saudi Arabia increasing oil production and OPEC and non-OPEC countries failing to come to an agreement on reducing oil production.3 This meant storage tanks were near capacity. In response, oil storage companies drastically increased their storage rates. In one example, tankers were charging around $25,000 per day in February of 2020, but by April had risen rates to $300,000 per day.4

U.S. Strategic Petroleum Reserve (SPR)

Governments require producers and refineries to carry a larger storage than they would otherwise for security purposes. In some countries, like the United States, the government stores the oil reserves instead of a commercial company.5 Emergency crude oil is stored in the United States Strategic Petroleum Reserve (SPR) the world's largest supply of emergency crude oil. These stocks are stored in huge underground salt caverns along the coastline of the Gulf of Mexico. The President, under the authority of the Energy Policy and Conservation Act (EPCA), can make the decision to withdraw crude oil. The need for a national reserve dates back to 1944 when Secretary of the Interior Harold Ickes advocated stockpiling emergency crude oil, but the idea was not put into practice until President Gerald Ford signed the EPCA in 1975 after the 1973-74 oil embargo intensified the need for a strategic oil reserve.6

External Resources

Notes

  1. Morgan Downy, Oil 101 (Wooden Table Press, 2009), 268-272. Back to text
  2. Downy, Oil 101, 273. Back to text
  3. Philip Brown and Michael Ratner, "Low Oil Prices and U.S. Oil Producers: Policy Considerations" Congressional Research Service Insights, IN11246, April 1, 2020. Back to text
  4. Costas Paris, "Oil Traders Are Scrambling to Book Tankers for Storage" External Wall Street Journal, April 21, 2020,; Stanley Reed, "The Oil Industry’s Glut Has a Bright Spot: Tanker Storage," External New York Times, April 23, 2020. Back to text
  5. Downy, Oil 101, 274.Back to text
  6. U.S. Department of Energy, Office of Fossil Energy, Strategic Petroleum Reserve.. Back to text