ILTA Files Testimony To Senate ENR on Energy Impacts of COVID-19

Written Testimony Submitted by the

International Liquid Terminals Association (ILTA)

Committee on Energy and Natural Resources

United States Senate

Washington, D.C.

Hearing to Examine the Impacts of COVID-19 on the Energy Industry

June 16, 2020

Chair Murkowski, Ranking Member Manchin, and Members of the Committee, thank you for the opportunity to contribute this written testimony for today’s hearing on the effects of the COVID-19 pandemic on the U.S. energy industry. 

The International Liquid Terminals Association consists of nearly 90 companies operating over 600 liquid terminal facilities across all fifty states and in 37 foreign countries.  Our members connect producers, manufacturers, retailers, and consumers around the world in the bulk trade of liquid commodities, including petroleum and refined products. Collectively our membership accounts for over 80 percent of the bulk liquid storage capacity in the United States.

Terminal storage greatly enhances the flexibility of the supply chains for both petroleum and refined products and allows all players along these supply chains to respond to market fluctuations.  Most liquid storage terminals do not own the crude oil and petroleum products stored at their facilities.  Storage is a contracted service offered to those that own and sell the product, such as petroleum producers, distributors, or commodity traders.  Under normal market conditions, imbalances between oil supply and demand are readily addressed using storage provided by crude oil terminals and tank farms located throughout the country.  The United States has over 250 crude oil storage terminal facilities with a net storage capacity of about 500 million barrels.

Beginning this past spring, several developments caused a “perfect storm” that dramatically increased the demand for petroleum storage. First, gasoline demand fell precipitously due to lessened economic activity caused by COVID-19 stay-at-home orders.  Second, foreign petroleum producers such as Russia and Saudi Arabia flooded markets with supply.  Had it not been for these extraordinary events, which occurred nearly simultaneously, it is almost certain that the enormous storage capacity provided by our industry would have been extensive enough to balance supply and demand and provide valuable flexibility to oil markets.

 Ordinarily, the United States has ample storage space even during oversupply events or periods of lax demand.  According to the Energy Information Administration, the historical storage utilization rate of our crude oil terminals ranges from 45 to 55 percent. Even at last year’s peak rate of 13 million barrels per day, the liquid storage industry would have sufficient capacity to completely absorb three weeks of total domestic oil production.

Even now at the beginning of summer, crude oil storage inventories persist at record levels – at, or very near, capacity at commercial terminals across the country. Although our members have taken every opportunity to consolidate existing stocks at all available storage facilities, there is little to no extra availability beyond existing contracts.  Physically expanding storage capacity is a lengthy process that varies by the size of tank and permitting jurisdiction. Typically, however, it takes 12-18 months to permit and construct a new tank for a petroleum product terminal.

Meanwhile, these extraordinary circumstances have also placed unforeseen regulatory burdens on our industry.  Most tanks used to store crude oil and refined products must undergo two kinds of inspections.  In-service inspections are performed regularly, on an ongoing basis, with no need to drain a tank and move its contents elsewhere.  Separately, terminal operators perform an out-of-service inspection on each tank every ten years.  These inspections require draining and completely shutting down a tank to inspect inner areas normally not accessible.  Because of this 10-year cycle, most terminal operators plan to take roughly ten percent of their tanks out of service for inspections in any given year.

The current, unprecedented demand for storage has meant that terminal operators have been unable to take tanks out of service. As a result, they have not been able to conduct the required out-of-service inspections. The Environmental Protection Agency seems to acknowledge the difficulty faced by terminal operators, particularly during the COVID-19 pandemic, but its guidance to date has been sparse and has not provided adequate certainty for terminal operators.

An even bigger concern arises when terminal operators contemplate what will happen when oil and refined product markets come closer into balance. While it will then be possible to take tanks out of service to perform the required inspections, there will almost certainly be a substantial backlog of tanks requiring these decadal inspections.Depending on how EPA approaches this problem, it could cause additional hardships for the industry.

Our goal in raising this issue today is to draw attention to the need for transparent guidance from EPA to ensure that our members are not penalized for circumstances beyond their control – either during the COVID-19 pandemic, or afterward when they will face a backlog in out-of-service inspection requirements.  We need a plan that is fair and achievable, on a timeline that is agreed between members of our industry and their regulatory partners.  At the same time, our members would welcome the opportunity to work with EPA to allow for the use of alternative approaches to compliance that do not require taking tanks out of service during this period of extreme oversupply.

Thank you for using today’s hearing to highlight the importance of the energy sector during these challenging and unprecedented times.  If we can provide any further information related to the issues raised in this testimony, please do not hesitate to contact either ILTA President Kathryn Clay at kclay@ilta.org, or ILTA Vice President for Legislative Affairs Andy Wright at awright@ilta.org.