Ships, trains, caves: Oil traders chase storage space in world awash with fuel

As onshore storage runs out, oil producers, refiners and traders are turning to tankers and floating facilities to hold excess supply. (AFP)
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Updated 23 April 2020

Ships, trains, caves: Oil traders chase storage space in world awash with fuel

  • Desperate brokers weigh up ‘oddball options’ amid plunging global demand

LONDON: Oil traders are struggling to find enough ships, railcars, caverns and pipelines to store fuel as more conventional storage facilities fill up amid abundant supply and plummeting demand due to the coronavirus crisis.

Dozens of oil tanker vessels have been booked in recent days to store at least 30 million barrels of jet fuel, gasoline and diesel at sea, acting as floating storage, as on-land tanks are full or already booked, according to traders and shipping data.

That adds to about 130 million barrels of crude already in floating storage, sources said.

Demand for oil and its products has tumbled as much as 30 percent as governments around the world have told citizens to stay home to prevent the virus spreading — grounding planes and leaving cars parked up. But the world remains awash with oil supplies.

OPEC, Russia and other major producers have forged a deal to curb production, but it will only reduce supply by about 10 percent and it does not kick in until May.

It is hard to gauge the world’s total oil storage capacity, but signs that the limit is being reached are increasingly obvious. Rising sea storage is one indicator, as it is more expensive than storing onshore and can be technically complex.

HIGHLIGHTS

•Traders books dozens of tankers to store oil at sea.

•Tankers with diesel diverted from Europe to US.

• Most European capacity already booked.

Oil producers, refiners and traders are also turning to more unusual tactics, such as storing crude and fuel in railcars in northeastern US or in unused pipelines.

Europe’s northwestern refining and storage hub still has space, but experts say most of the remaining capacity has already been booked.

Salt caverns in Sweden and other Scandinavian countries were either full or fully booked.

“We are now working on the most oddball storage locations, really tough locations where there are operational constraints,” said Krien van Beek, a broker at ODIN — RVB Tank Storage Solutions in Rotterdam.

The US has some refined products storage space left in the area from the mid-Atlantic to the Southeast and along the Gulf Coast, said Ernie Barsamian, CEO of the Tank Tiger, a US terminal storage clearinghouse.

But he said more preferable product storage sites, such as deepwater ports in New York Harbor and Houston, which are close to the demand centers, were no longer available.

“The big tanks where you pull a ship in and empty the whole thing, that’s all gone. What you have is pots and pans,” he said.

In the US, onshore storage tanks are mostly reserved for local refineries which are using railcars to store crude, as well as gasoline and diesel.

“Even the railcars are going to get stacked with product,” said a US-based broker who asked to remain anonymous.

In hubs with a little space left, such as Chicago, tank operators can charge a premium. 

With the market oversupplied, oil prices have plunged to their lowest levels in two decades. This week, US Western Texas Intermediate made an unprecedented dive into negative territory, so sellers had to pay people to take it.

Despite the plummeting crude price, some refineries which are able to find space can still make money producing fuel.

“Margins are OK because there is more flexibility in the products market relative to crude,” a senior official at a European refinery said.

And nimble traders are creating new storage options. Tanker vessels carrying more than
1.5 million barrels of diesel have been diverted in recent days from their European destinations to the New York region to anchor in storage.


INTERVIEW: CEO Maaz Sheikh sees business soar as Saudi viewers turn to streaming services

Updated 05 July 2020

INTERVIEW: CEO Maaz Sheikh sees business soar as Saudi viewers turn to streaming services

  • All eyes on Starzplay as lockdown reaps rewards

Maaz Sheikh has had a good lockdown.

The founder and CEO of Starzplay, the Middle East’s leading entertainment streaming channel, saw his business soar as curfews, social distancing and travel restrictions left people with little to do apart from slump in front of a TV and binge watch for hours on end.

“I think when the whole situation was unfolding, we were trying to think which way is up and which was down, both on a personal level and also as a company — what it means for our subscribers. It was nerve-wracking in the beginning,” Maaz Sheikh told Arab News.

In the region, it was Starzplay subscribers chose to watch, rather than Netflix or other streaming services, in English and in Arabic.

“What we benefited from, of course, was all the people staying home, but one of the things that worked in our favor was that we are an organization based and headquartered here, and we were able to adapt and localize our services much faster than anyone else,” he said.

“In Saudi Arabia, you can sign up for Starzplay via STC, Mobily or any of the other services. You can sign up with your mobile phone number. Netflix came to this region with a very US-centric mindset, thinking that everyone had a credit card and that having a credit card is a norm in the world. In fact, the reality is different, especially in Saudi. Not everyone has a credit card,” he added.

“So, through one bill where you pay your landline and your broadband, you can also have access to Starzplay on the same bill. You can just download onto your smart TV,” he added.

Starzplay has been in business for five years, and while it is probably not as well known as Netflix, it has been making big inroads into the region, especially Saudi Arabia.

The Kingdom accounts for 40 percent of total revenue, while almost half of all consumption in the Middle East and North Africa region comes from Saudi viewers.

And what have they been watching during the long weeks of lockdown? 

Lots of “Vikings,” “The Office” and Turkish-made romantic soap “Jusoor Wal Jamila.” 

Saudis on average watched more than 18 hours of Starzplay in May, compared with less than 12 a year before.


BIO

BORN: Islamabad 1970.

EDUCATION

  • Schooling in Dubai, UAE.
  • Oklahoma State University, US.
  • University of Kansas, MBA.

CAREER

  • Various executive roles in media and communications, US.
  • Chief sales and operations officer, OSN, Dubai.
  • CEO and founder, Starzplay.

“The beauty is that everyone has a mobile phone. We were there in the market with the right product, the right content, but also the right distribution so the masses can actually sign up for our service. It really benefited us.

“It was not just that we were a streaming service. The whole category benefited from the lockdown, but we were the only one in the market that had this kind of distribution and payment arrangements. We were the only one available to the masses,” Sheikh said.

It is not just the distribution platform that is different from Netflix. Starzplay takes a distinct stance on content, too, as Sheikh explained.

“Our industry is evolving in a simple and predictable way. What is happening is that the more Netflix has gone into its own originals, the more studios see them as a competitor. So studios have been pulling their content away from Netflix.

“Until now, with what comes out of Hollywood and the UK, 95 percent of English-language content was produced by seven or eight studios. In the UK it’s the likes of the BBC and ITV, while in the US it’s Warner, Disney, Sony, Showtime, CBS, all the major studios,” he said.

“So, the way the industry is evolving is that if you want Netflix originals, you go to Netflix, if you want anything else you go to Starzplay,” he said.

Sheikh reeled off an impressive list of top shows on his platform. “Big Bang Theory,” “Billions,” “Grey’s Anatomy” and “Britannia” are among them, while younger viewers soak up “The Flash,” “Supergirl” and other DC titles made by Warner Studios.

Starzplay has also made its first foray into original content, tailored for a Middle East audience, with the series “Baghdad Central.”

“Data is the new oil, they say, and ‘Baghdad Central’ was the result of our experience over five years of consumption history, with billions and billions of minutes consumed. So based on what people were consuming in our key markets and with those insights, we produced our first original,” Sheikh said.

“Baghdad Central” was launched in March with a big name Hollywood actor — Corey Stoll from the award-winning series “House of Cards” — as well as top British and Arab actors.

“We wanted to bring a show to the region that combined the best of the three. It was shot in Morocco in partnership with UK and US producers,” he explained.

That kind of content has pulled in the viewers during lockdown. The figures show Starzplay hit a peak of 6.5 million daily minutes of consumption in Saudi Arabia in the middle of April, compared with about 2 million before the pandemic lockdowns.

Existing viewers are also watching more. The average Saudi spent 28 minutes daily in front of a Starzplay show before the lockdown. That more than doubled to one hour as movement outside the home was restricted.

“To put that into perspective, it took us five years to go from zero to 2 million minutes a day, and it took us six weeks to go from 2 million to 6.5 million. We did more consumption growth in six weeks than we did in the first five years,” Sheikh said.

He is reluctant to forecast how many of these consumers will stay with Starzplay as the lockdowns are eased around the world and the region. 

“I’m expecting some churn, so it’s tough to predict what the base will look like later in the year. We saw tremendous growth, but as the lockdown eases I think we’ll see some churn on those subscribers,” he said.

But even as the lockdown are eased significantly in the region, consumers are not going back to pre-pandemic levels. There is likely to be a permanent shift in demand for Starzplay in the “new normal” environment.

“Unlike Netflix, one of the challenges we had in the region is that the brand awareness and content awareness of our service was comparatively low. One of the things that has happened is that because of increasing demand and awareness, people got to find out about Starzplay. People experienced that and connected the content to our brand.

“That is going to be an enduring and lasting benefit for our company. You cannot unlearn it. I’m expecting some churn in high sign-ups and reduced consumption volumes, but the lasting benefit we’re hoping for is the brand awareness and content awareness that was created,” he said.

That kind of growth is likely to accelerate Starzplay’s evolution from a privately funded startup to a listed public company. It has raised $125 million over its five years, from some pretty impressive investors, including US media giant Lionsgate, the big financial firm State Street Global Advisers, and Nordic investment firm SEQ, which backed Starzplay from the beginning.

With profitability just around the corner, Sheikh does not see the need for further funding, especially as investment sources have dried up during the uncertainty of the pandemic period.

“During COVID times, when consumption and new subscribers were going through the roof, the flip side was that we realized that capital markets were going to be out for 2020. Lucky for us, we are well capitalized, and we are not in a situation where we need to use funds. This is not a good time to be out there raising money,” he said.

“The goal is to serve our customers and also create shareholder value. There are multiple ways of doing that. One is that you generate cash and shareholders benefit from cash dividends. That’s the traditional model. The more high-growth model that is more applicable to companies like us is shareholders push for more growth and expansion to increase the enterprise value of the company,” he said.

Sheikh has set his medium-term sights on a public listing. “In the long run the goal is to continue to grow the business, and in the next three to five years to get into a position where we can list the company on the London Stock Exchange.

“We haven’t absolutely decided that, as it’s so far out. I’d say what we’re looking to do is list ourselves, and if not in London, then other markets, local or London. That’s the ambition, to look to IPO on London or other markets. We’re not there yet. We’re still two to three years away from a decision, but that’s our ambition,” he said.