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Asian Petroleum Review : Jan-March 2011
38 For the region as a whole, utilisation was not much higher than in PADD III, where 66 percent of all stor- age was in use. But capacity pressure was much higher around Cushing, with almost 82 percent of all working tank space full. Moreover, storage characteristics in the two regions are very different. In PADD III storage capacity is split 70:30 between tank farms (167 million barrels) and on-site storage at refineries (73 million barrels). In PADD II almost all storage is on tank farms (125 mil- lion) including Cushing (46 million) with only limited storage at refineries themselves (19 million). In PADD III, most capacity in operation is for the ex- clusive use of the operating company (69 percent) with only a small percentage leased to others (31 per- cent). But in PADD II, more than half is leased to oth- ers (53 percent) and an even higher proportion is leased out around Cushing (59 percent), according to the EIA. Bloated stocks have pushed prices in the Mid- west to a substantial discount to Brent and other seaborne crudes along the Gulf Coast, such as Louisi- ana Light Sweet and Mars , which have access to in- ternational markets and now are tracking Brent rather than NYMEX. Pressure on storage is driving up fees and driving the market to discount prompt crude and bid up deferred delivery, with NYMEX moving into a hefty contango of more than $1 per barrel for carrying crude over the February-March period and 80 cents for March-April . It also leaves holders of long positions in NYMEX crude futures and options unable to take delivery at Cushing and vulnerable to a long squeeze on the de- livery system. PIPELINE PROPOSAL NYMEX's discount to coastal crudes and Brent is unlikely to disappear soon. In previous years, PADD II stocks have stabilised in January and February but then risen steadily through March and April as a result of refinery mainte- nance during the shoulder period between the end of the winter heating season and the start of the summer driving period. If past years are a guide, the PADD II glut will not start to dissipate until May or June, keeping prompt prices for landlocked crudes under pressure until at least the sum- mer and possibly beyond. Inland Cushing prices will continue to de-link periodically from the price of crude on the Gulf Coast and interna- tional markets until there is more flexibility to deliver Ca- nadian crudes to other destinations. The proposed Keystone XL pipeline would expand the ability to bring Canadian barrels to PADD III (specifically to the Gulf Coast at Port Arthur) with about 510,000 bar- rels per day of new capacity "south of Cushing". Approval is being sought from the U.S. State Department, but the proposal faces objections from the Natural Re- sources Defence Council and other environmental groups. If the State Department approves the pipeline, the bottle- neck would ease around 2014, according to analyst Robert Johnston at Eurasia Group. If not, Canadian oil sands producers will have to curtail production, find other routes into PADD III, or develop outlets to Asia. (Editing by Jane Baird) Thomson Reuters Asia Petroleum Review JOHN KEMP ON THE MARKET