The Bahamas is well-known as a resort and cruise-ship resting spot, located just 80 miles off the Florida coast. But for crude and fuel oil traders, the most important part is a terminal in Freeport, valued for its 20 million barrels of storage, strategic location and deep-draft jetties.
The Bahamas Oil Refining International Limited, or BORCO, is a subsidiary of the Venezeulan state-owned oil company PDVSA. It was built by Chevron in 1968, began operation in 1970 and was sold to PDVSA in 1990. And just this week, it was purchased by a private equity company named First Reserve, and will be operated by global terminalling giant VOPAK.
What do the traders say? Well, first of all -- they are thrilled not to be dealing with PDVSA. PDVSA would go through periods of using much of the storage for their own blending operations, and not renew leases.
The tanks themselves were not in the best shape, owing to lack of maintenance. The operation was run just as part of the supply chain, not as a profitable enterprise, traders say. During a hurricane in 2005, some empty tanks fell apart, and were never replaced or restored.
What will the effect of a profit-driven enterprise be? First Reserve and Vopak seem ready to expand "clean" product storage -- for distillate and gasoline -- which could be more profitable. And, in general, rates are likely to rise. Some old contracts were for as little as 25-30 cents/barrel per month, and could rise as high as 50-60 cents/barrel per month, which is a more typical value.
One thing is not in doubt -- traders are very interested to line up storage at the facility, mainly due to its central location. On the dirty side, fuel oil from Russia, Europe and the Caribbean can be blended for end-users on the US Atlantic Coast, including Florida, which is a large consumer of oil for power generation. High sulfur from the Caribbean and Gulf Coast can be put onto VLCCs for shipment to Asia. Having available crude storage a very short distance from the US Gulf Coast may allow crude importers to optimize their shipping options and delivery schedules.
On the clean side, the growing markets in the southeast US will be in easy reach of vessels from Europe, possibly allowing larger ships to transit the Atlantic and then split up for different destinations and qualities.
All in all, it should make the US spot trading market more active, with new players entering the business.
What does PDVSA get out of it? Some $900 million in cold hard cash, if the estimates of the sale price are correct. It will be interesting to see the effect on Venezuela's fuel oil sales. Without the blending and transshipment facitilies in BORCO, there may be more direct sales to China, or more blending at PDVSA's refineries.
Leave a comment