Storage Terminal Financial Models
Executive Summary
Key Takeaways
- ✓ Storage terminal revenue is typically based on capacity reservation fees for tank space rather than pure throughput volume, providing a different revenue certainty profile than a pipeline's throughput-linked tariff.
- ✓ Working capacity, the tank volume actually available for active use, is distinct from total shell capacity, and the model should size revenue potential against working capacity rather than nameplate shell volume.
- ✓ Forward curve shape affects underlying storage demand. Contango (future prices above spot) increases demand for storage as market participants buy now and store for future delivery, while backwardation (future prices below spot) reduces it, a market dynamic relevant to uncontracted terminal capacity.
- ✓ Terminalling agreements, long-term capacity reservation contracts, provide the revenue certainty that typically underlies terminal project financing, similar in structure to pipeline firm capacity contracts.
Objective¶
This guide sets out how storage terminal financial models are structured, within Oil & Gas Financial Modelling.
Capacity Reservation as the Primary Revenue Basis¶
Storage terminal revenue is typically based on capacity reservation fees for tank space, paid regardless of actual usage, rather than throughput volume alone, a revenue structure that should be modelled explicitly against working capacity, the tank volume actually available for active use once minimum operating levels and other operational constraints are accounted for, rather than the tank's total nameplate shell capacity.
Forward Curve Effects on Storage Demand¶
Storage demand is influenced by the shape of the forward commodity price curve. In contango, where future prices trade above the spot price, market participants are incentivised to buy product now and store it for later delivery, increasing demand for available storage. In backwardation, where future prices trade below spot, this incentive disappears and storage demand falls. This dynamic is most relevant to any terminal capacity not already committed under a long-term terminalling agreement, and the model should reflect it as a factor affecting uncontracted capacity utilization rather than contracted revenue.
Terminalling Agreements¶
Long-term terminalling agreements, under which a customer pays for dedicated tank space over a defined period, are structurally similar to a pipeline's firm capacity contract and provide the revenue certainty that typically underlies terminal project financing, addressed alongside the comparable contracted revenue structures in Pipeline Financial Models.
Common Structuring Pitfalls¶
- Sizing revenue potential against total shell capacity rather than the working capacity actually available for use.
- Modelling terminal revenue as throughput-dependent when the underlying contracts are capacity reservation-based.
- Ignoring forward curve dynamics when projecting utilization and pricing for uncontracted terminal capacity.
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Frequently Asked Questions
How is storage terminal revenue typically structured?
Predominantly through capacity reservation fees for tank space, paid regardless of how much of the reserved capacity is actually used, rather than fees based purely on the volume of product moved through the terminal.
What is the difference between working capacity and shell capacity?
Shell capacity is a tank's total physical volume, while working capacity is the volume actually available for active use once minimum operating levels and other operational constraints are accounted for. Revenue potential should be modelled against working capacity, not nameplate shell volume.
How does the forward price curve affect storage demand?
In contango, where future prices are above the spot price, market participants have an incentive to buy product now and store it for future delivery, increasing demand for storage capacity. In backwardation, where future prices are below spot, this incentive disappears, reducing storage demand, a dynamic relevant to any uncontracted terminal capacity a model represents.
What is a terminalling agreement?
A long-term capacity reservation contract under which a customer pays for dedicated tank space at a terminal over a defined period, structurally similar to a pipeline's firm capacity contract, and the primary source of revenue certainty terminal project financing typically relies on.
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