Vopak Considering LNG Storage in Asia as Demand Grows

12.06.2013 -

Dutch oil and chemicals storage company Vopak is considering building more liquefied natural gas (LNG) storage terminals, including its first in Asia, to meet rising demand as spot trading grows, its chief executive said on Tuesday.

With the U.S. shale oil and gas boom, the company expects LNG supply to rise, allowing the commodity to be traded more freely on a spot basis. That will mean more demand for LNG storage facilities similar to those that now facilitate global oil trading in hubs such as Rotterdam and Singapore.

"This opens up opportunity for independent storage. That's exactly the role that we've been playing," Vopak Chief Executive Eelco Hoekstra told Reuters on the sidelines of an industry conference. He declined to comment on locations being considered.

Oil and natural gas production has rocketed in the United States due to the emergence of horizontal drilling and hydraulic fracturing, or fracking, unlocking decades of supply from U.S. shale deposits, and the country is expected to start exporting LNG later this decade.

Most LNG is traded on long-term agreements controlled by major oil companies and a few producer countries, but as new supply comes onstream commodities traders such as Glencore Xstrata and Vitol are betting that there will be space for new entrants in more liquid spot markets.

Vopak already owns two LNG terminals in Europe and Mexico and is looking to build more.

"A lot of countries are developing LNG terminals for import so there is the possibility to see more LNG being traded, Hoekstra said.

Demand for LNG is rising not only for power use, but also in the transportation sector such as for trucks and ships, and that could mean a need for smaller, satellite terminals, he said.

The United States is also expected to export more oil products and chemicals due to output from shale developments, and that change in trade flows could mean opportunities to build new storage facilities or add tanks at existing terminals, Hoekstra said.

The world's largest independent storage tank operator plans to add 4.9 million cubic meters (cbm) of oil storage capacity in the next three years and increase its global capacity to about 35.2 million cbm at the end of 2015.

In Asia, it is adding 3 million cbm of capacity and will have more than 10 million cbm by end 2014 as projects, including a $620 million deepwater storage terminal for petroleum products in Pengerang, Johor, are on schedule.

Hoekstra said oil storage demand remained healthy in the Asian trading hubs Singapore and Malaysia, even though trading companies such as Vitol and Trafigura have brought new capacity onstream and others have given up fuel oil storage after losses.

"We already have a nice geographical spread in Asia and obviously there are few spots left that we would like to enter," Hoekstra said, although new markets are not Vopak's main focus.

"We would like to strengthen our existing locations in China and the rest of Asia," he said.