Gibson Energy plans to add 2 MMBO of storage over the next few years

Gibson Energy (ticker: GEI) has received committed shipper support to proceed with the construction of 2 additional crude oil storage tanks at the Hardisty storage hub. The two tanks will have a combined capacity of 900 MBO, with one tank holding 0.5 MMBO and the other holding 0.4 MMBO. The 0.5 MMBO storage tank is backed by a long-term agreement with Teck Resources Limited (ticker: TCK), according to a press release.Hardisty in Alberta

The two storage tankers announced today are expected to be in-service by the middle of 2017. The company has already commissioned four storage tanks since 2012 with a capacity totaling 1.7 MMBO. Including the two new tanks, the company plans to add five more tanks, giving the company an additional 2.0 MMBO of storage capacity. The expansions since 2012 will give GEI a total storage capacity of 8.0 MMBO at Hardisty.

Rick Wise, Gibson’s Chief Operating Officer, said the long-term agreement with Teck represents the resilience of growth plans in the Canadian oil sands. “Despite today’s depressed oil price environment, a robust growth profile remains in place for oil sands related production volumes,” said Wise.

GEI is looking to increase storage capacity as more companies sell their oil on the futures market. Storage in Canada comes with some disadvantages though, according to Brian Busch, director of oil markets at Genscape, which tracks oil storage in North America.

“Canada is not the ideal place to do a storage play to take advantage of contango,” says Busch. Storing in hubs like Hardisty means that traders need to arbitrage the difference between the discounted price of Canada’s heavy Western Canadian Select against West Texas Intermediate (WTI), says Busch. The lack of pipeline export capacity also contributes to a “basis risk,” because producers need to lock in a contract to get their oil to market.

“If you can, you’d much rather move the barrels out of Canada to take advantage of above-ground storage along the Gulf Coast – if you possibly can – or to take advantage in Cushing.”

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