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 There may be no better place to witness what a world awash in crude
looks like, and the 9 square-mile (23.3 square km)complex seems to
bear out oil traders' fears that the industry is running out of
space to contain a historic supply glut that has hammered prices.
Such worries make weekly estimates of Cushing stockpiles from the
Energy Information Administration one of the hottest market
indicators. These inventories peaked in mid-March and have edged
lower since then. Some traders reckon they are unlikely to exceed
those records for years as refiners rumble back from seasonal
maintenance and demand rises. Others warn the stockpile could rise
again.
Up close, from a 24-hour bunker that controls a quarter of tank
space here, the ‘pipeline crossroads of the world’, reveals its
secret - there is some spare room left.
On March 24, the day after U.S. government data showed Cushing’s
tanks held a near-record 66.23 million barrels of crude, Mike
Moeller, manager at Enbridge, explained how the largest Cushing
operator uses every last inch of usable space.
Operators and technicians make it possible by moving a half-million
barrels per day in internal pipelines that link the major pipelines
and tanks of its 20 million barrel terminal.
Enbridge's capacity has risen about a third over the past five
years, but the volume of oil coursing through the jungle of pipes,
valves and tanks that connects suppliers from as far away as
Alberta’s oil sands to the Gulf of Mexico refiners has quadrupled.
“We are fuller than we have ever been,” Moeller told Reuters.
Customers tell Enbridge every month how much crude is coming, but
Moeller and his team leave some space at the top of each tank that
might be needed in an emergency.
Every day, up to 6 million barrels of oil flows through Cushing's 13
major pipelines in or out of steel tanks – some the size of a
football field - towering above the prairie otherwise studded with
ranches and nondescript residential neighborhoods.
The U.S. government estimates their operational limits at around 83
percent of their ‘shell,’ or design, capacity.
In reality, the limit may be somewhat higher. Moeller says Enbridge
can fill its storage space up to 85 percent capacity thanks to
maneuvers orchestrated from its control room.
"CONDOS" AND VALVES
One is shifting crude into and out of "condos" - tanks where
capacity is leased out to multiple companies and crude mixed
together, leaving the operator to track the exact volumes each has
on hand.
While all storage space is rented out, its actual use can vary in a
12-hour period, Moeller explains.
Enbridge has also increased the number of connections to the other
13 Cushing terminals, circumventing valves that can curtail how much
crude can be moved to large pipelines.
With oil-flow acrobatics getting exceedingly complex, workers can
ill-afford any lapse in concentration.
The lights in the control room building get dimmer or brighter as
the day or night progresses to keep workers alert through their
shifts. An exercise bike is on hand if their energy starts to wane.
Moeller, an Enbridge veteran of more than 15 years, arrived in
Cushing in 2012 when the shale drilling and pipeline boom opened the
latest chapter in its history as an oil town.
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It started in 1912 when an oilman named Tom Slick discovered the
area's first crude. While production ceased in 1920s, the town,
halfway between Tulsa and Oklahoma City, has served as a storage
location and in 1983 was picked as the settlement point for the West
Texas Intermediate futures contract.
The shale boom and the rapid rise of the Canadian oil sands industry
transformed Cushing from a way station for imported crude headed to
refineries in the north into a blending hub for light and heavy oil
moving south.
"People joke that our crop is pipelines," said Sam Withiam, a local
lawyer and landowner, whose 1200-acre (485.62 hectare) elk ranch
comes up to the fence line of one of the oil storage terminals.
Pipeline right of ways cross his land, and even more are on the way
in, he said. As a lawyer, he has guided businesses trying to expand
in this town of 7,826 that happens to be at the center of the oil
world.
HELICOPTER VIEW
Cushing's terminals operated by Enbridge, Plains All American ,
Magellan Midstream Partners, Rose Rock Midstream LP have hundreds of
employees and contractors on the ground, according to the town's
chamber of commerce.
Market estimates of current storage rates suggest the tanks can
bring over $500 million in annual revenue.
To get timely estimates of Cushing's storage levels, energy
information provider Genscape flies twice a week a helicopter over
the tanks with an infrared camera onboard.
It has registered some decreases in recent weeks, but Brian Busch,
Genscape's director of oil markets and former oil trader, calls it
an operational variance.
"There's no reason to unwind a hedge yet," said Busch, adding the
observations do not support yet some traders' view that crude prices
should start recovering soon.
One cannot see the vast tanks from Cushing's Main Street, a typical
thoroughfare with auto parts stores, diners, fast food stops, a
Walmart Super Center and Best Western Plus hotel.
Yet there is ample evidence that the fortunes of the town and the
global oil industry are closely connected.
The Lazy-L motel, which rents rooms for $39 a night, did a brisk
business peaking in 2013 when oil fetched over $100 a barrel and new
pipeline construction was under way, bringing in contractors from
Texas and Louisiana. Now, a single room is rented to a local
security worker. House rents have fallen too from $1,000 a month
just over a year ago to about $600 today.
"It's always boom or bust - Cushing is strictly an oil town," said
Kay Koble, a realtor who has lived in town for 60 years.
(Reporting By Jessica Resnick-Ault; Editing by Tomasz Janowski)
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