Oil Terminal Owners Seek to Defer Inspections as Tanks Fill Up

(Bloomberg) -- Oil terminal owners are seeking to delay out-of-service inspections required under federal law as storage fills up across the nation.

With tanks rapidly approaching full capacity due to a massive glut of crude and refined products caused by the lockdown measures designed to slow the spread of the pandemic, operators have been unable to drain them in order to carry out internal checks.

As a result, they’re asking the U.S. Environmental Protection Agency to defer certain inspections until oil demand recovers and storage levels return to normal. Normally, owners remove around 10% of their tanks from service every year for the inspections that are carried out every 10 years. Unprecedented demand from producers to store oil is hindering that effort.

“Technically, to be in compliance is a physical impossibility,” said Kathryn Clay, president of the Washington-based International Liquid Terminals Association, by telephone. “We need to be able to defer those out-of-service inspections to a time when it’s physically possible to conduct them.”

There are about 1,500 terminal facilities in the U.S., and the association represents about 85% of total capacity.

The EPA, which has been responsive to other industry requests tied to the collapse in fuel demand, said its COVID-19 enforcement policy states that regulated entities are expected to make every effort to comply with their obligations. A spokesperson said the policy recognizes that, in some cases, compliance may not be reasonably practicable.

To the extent that operators have been able to consolidate existing stocks to free up space, that’s pretty much already been done. “The truth is there’s not a lot of room for creativity,” Clay said.

That’s because storage tanks are built in response to long-term commitments from producers for set volumes. Also, it takes 12-18 months from the initial permitting request to be in a position where the product can be delivered. In the meantime, the group isn’t asking for all inspections to be deferred; it’s willing to step up checks of terminals that are in operation to appease regulators, with the aim being to resume the more-thorough checks once the crisis passes.

With commercial storage quickly filling up, the industry welcomes government efforts to allow drillers to stash some of their output in the nation’s emergency oil stockpile, known as the Strategic Petroleum Reserve, with one caveat. “Once we stabilize, it’s not appropriate in a long-term sense for the federal government to be in the business, or any state government for that matter, of providing, in essence, a subsidized storage service,” Clay said.

With record demand for storage, it might be expected that the industry would be in line for bumper profits this year. But Clay said that’s not necessarily the case.

“The real key to the profitability of the storage terminal facility is the throughput, and the blending, the services that they provide as that product is coming in and going out of their facility,” according to Clay. Given there’s no demand for the oil in storage, owners will hardly be in a position to capitalize on that, she said.

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