HUB MARKETS- Hub markets are the large regional refining centers that tend to act as swing capacity for the global market and the location for most spot market trade in refined products.
The three main hub markets are:
- Northwest Europe, centered around the refineries in the ports of Amsterdam, Rotterdam, and Antwerp (ARA).
- US Gulf Coast, centered around the refineries on the coast of Texas and Louisiana.
- Singapore.
ARA- Also known as: Amsterdam-Rotterdam-Antwerp
- ARA refers to the ports of Amsterdam, Rotterdam, and Antwerp in the Northwest Europe refining hub market.
- Spot transactions for refined products in these ports are commonly used as indicators for the Northwest Europe market overall, and are thus called “ARA basis.”
- These ports are used as a reference because they all have deep, active trading markets and are close enough to each other to be considered interchangeable.
NORTHWEST EUROPE — Also known as: NWE
- Northwest Europe is a major refining center and oil spot market trading hub.
- The coastal refineries in Northwest Europe are swing suppliers for the broader European market as well as major product exporters, especially of gasoline.
- The Northwest Europe spot market is centered around the ports of Amsterdam, Rotterdam, and Antwerp, typically referred to as ARA. The market is active in both ocean-going cargoes and river barges.
GULF COAST- Also known as: US Gulf Coast, USGC, PADD 3
- The US Gulf Coast is one of the major refining supply centers and spot market trading hubs.
- The Gulf Coast is typically defined to include the refineries located along the US coast of the Gulf of Mexico running from southern Texas to southern Alabama. This includes refining clusters in Corpus Christi (TX), Houston (TX), Beaumont/Port Arthur (TX), Lake Charles (LA), along the Mississippi River of Louisiana, and on the coast of Mississippi and Alabama.
- The Gulf Coast spot trading market generally includes trading of crude and oil products in the ports of Houston, Corpus Christi, and Beaumont/Port Arthur. This includes transactions of tanker and barge cargoes on the water and transactions at the injection point of key product pipelines such as Colonial, Plantation, and Explorer.
SINGAPORE- Singapore is a major refining center in Asia and main spot market trading hub for the region.
- Singapore has several large, complex refineries that give it capacity well beyond the needs for the small local market. This capacity acts as swing capacity for the rest of Asia.
- The spot market in Singapore is deep and active due to the high volume of refined products exported and the number of players producing and buying refined product cargoes.
INVESTMENT DYNAMICS PER HUB
- In the world, there are considered to be four major oil trading hubs: ARA, Houston, Singapore, Fujairah. These four port areas have their own different identity and their own local trading dynamics. For investment intensity in these locations comparison purposes in ARA, we have split ARA in only Rotterdam and Antwerp.
- In these 5 ports combined there are 146 terminal companies active. Most of the companies are situated in Houston (53), followed by Rotterdam (31), Antwerp (24), Singapore (21) and Fujairah (17). Looking at the capacity, these ports sum up to 76.35Mcbm. Most capacity is available in Houston (25Mcbm), followed by Rotterdam (19Mcbm), Singapore (15.28Mcbm), Fujairah (9.35Mcbm) and Antwerp (7.65Mcbm).
- When we divided total storage capacity with the number of terminals we can calculate the average capacity per terminal. Biggest average tank size is in Singapore (0.73Mcbm), followed by Rotterdam (0.62Mcbm), Fujairah (0.55Mcbm), Houston (0.47Mcbm) and Antwerp (0.32Mcbm).
- This calculation says something about the local storage footprint and the port’s specialty. For instance, Singapore is an Asian bunker hub which facilitates fuel oil storage. There are a number of big underground caverns there. Antwerp is focused on specialty chemical storage which need smaller tank sizes and lower average storage capacity per terminal.
- For these five port areas, it is believed that around 22 expansions projects (existing greenfield, brownfield and planned additions) will add almost 8Mcbm to current capacity. Fujairah has 7 projects, followed by Houston (6), Antwerp (5), Singapore (3) and Rotterdam. Looking at the growth per capacity, port that shows the largest storage additions is Fujairah (29%), Antwerp (11%), Houston (9%), Rotterdam (7%) and Singapore (5%).
- The conclusion of these statistics is that the major oil trading hubs have different strengths, serve a different purpose and show their own investment dynamics.
Rotterdam
- A well established European trading hub which acts as both an arrival and distribution point for oil and gas as well as one of the largest industrial and logistic clusters, ensures that various sources of energy commodities converge. As a European gateway for oil and gas transition, Rotterdam provides a perfect location with its economy of scale and reliable services.
- Thanks to the half-century experience of well-developed knowledge in the sector, Rotterdam has laid foundations for game-changing innovations and research and development in the oil and gas sector.
- The total length of transmission network in Netherlands is around 12,050 kilometers and as of 2015, overall gas storage capacities reached 13.3 billion cubic meters (bcm). Gas storage facilities are dispersed in different parts of the country in places like Norg, Alkmar, Epe, Bergermeer, Grijpskerk.
- According to 2015 figures provided by the Dutch Ministry of Economic Affairs of the Energy Market Directorate, the total volume of exports reached 58 bcm. While the Netherlands consumed 31.8 bcm of gas, 43 bcm was produced in 2015, according to BP’s statistical review of world energy 2016.
- The Netherlands has been one of the key gas producers and one of the main distribution centers for Northwestern Europe for the last fifty years. Although, it is estimated that production from one of the major gas production fields in Netherlands, the Groningen field, is set to continue for decades to come, total production has been in decline. As well as the Groningen field, numerous other offshore and onshore gas fields contribute to overall gas production.
- According to the Dutch Energy Market Directorate’s projections, the overall production of the Groningen field in 2020 is expected to be 39 bcm while this number precipitates a decline in volumes to 26 bcm by 2025 and falling off to 12 bcm in 2030. However, it should be noted that large volumes of gas reserves in storage are not a requirement for an energy hub but rather there is a vital need to have great volumes of gas flowing to the hub, which has been the case for Baumgarten in Austria (see my previous analysis).
- Rotterdam provides optimum grounds for an energy hub with its liberalized market and number of active players in the gas sector. Combined with a high transmission network supported with underground storage reservoirs, and with the largest Title Transfer Facility (TFF), which offers the opportunity to transfer gas that is already in the system, as well as a well-functioning APX-Endex gas exchange, Rotterdam is a pioneering gas trading center.
- As a well-established gas trading hub, Rotterdam is linked to the global gas market and operates as both producer and trader. Currently, many of the gas consuming countries in Northwestern Europe have been benefiting from TTF as a virtual trading hub and a benchmark that allows gas to be transferred to another party — a network that outpaces other trading centers. The system ensures the balance between supply and demand, and buyers can take delivery at any time while the vendors can supply gas at any point to the network. An advanced level of networking and transfer facilities is a must to provide safe and secure supply to the end user.
- Additionally, the formation of an APX-Endex gas exchange for a secure, transparent electronic trading environment facilitates gas trading on the sport market and in future markets. The establishment of this exchange has contributed to the integration of the gas market in the EU.
- The establishment of a virtual trading point, created through APX-Endex and the TFF as benchmarks for a gas trading hub, should benefit other countries which are seeking to become genuine energy trading hubs and integrated, consolidated energy exchanges. Therefore the development of an integrated and liberalized gas market that ensures a balance between supply and demand and functions in line with other major gas hubs in Europe, would help countries that have ambitious plans in becoming an energy trading hub. By working towards having these optimal market conditions, a country’s position can be elevated from solely serving as a transit point for gas and oil.