Report from Budapest: tanks are expensive to buy

There are a lot of factors driving the market, Quinn told the conference, which is formally titled Creating Value in European Storage. Trading companies are getting into the business, for example, with Quinn citing acquisition by Vitol and Morgan Stanley as examples. The industry also is consolidating, putting upward pressure on prices. "It's getting out of hand," he said. Venezuela's long-running possible sale of its Borco storage facilities in the Bahamas is said to be talking at 15-16 times EBITDA, according to Quinn. (Morgan Stanley and Valero spinoff NuStar are said to be in hot competition for the site.)

Update: Platts reported the following November 30: Venezuela's state-owned oil company PDVSA has drafted a contract to sell its BORCO crude and products terminal in the Bahamas to US-based investment bank First Reserve for $900 million, a company source told Platts Friday. "They drafted the contract Monday," the source said. "It has not yet been signed." The $900 million figure is much higher than the $600 million to $700 million range reported in Bahamian media, and exceeds the best bid PDVSA president and Venezuelan oil minister Rafael Ramirez told Platts his company had received for BORCO before the sale process was suspended in August.

He added that his own firm had not paid more than 8.7 times EBITDA for any of its properties. Quinn is the principal advisor for bulk liquid storage at Challenger Financial Services of Sydney.

Quinn also joked, "What's going to happen when the contango comes off?" A contango in a commodity market, where future prices are higher than spot prices, is a market structure that encourages storage. But in this tight market, the contango in virtually all markets has been replaced by backwardation, its opposite. Backwardation discourages building inventories.

Another reason for the exorbitant prices: a high cost of entry. As Quinn said, storage is not just "cubes of steel." Building new storage involves getting permits, buying land, fighting local opposition, and so on. Outside of China, there just aren't too many good places where you can get that done. The prices relative to earnings are a sign of that.

These sort of prices are going to make it tough for the new owners to produce the generally-accepted level of profitability. "You wonder how you are expected to perform at this level," he said.