NuStar Energy’s Storage segment holds steady through a rough patch

Avik Chowdhury

NuStar Energy's 1Q14 earnings release: Key takeaways (Part 5 of 9)

(Continued from Part 4)

Additional capacity

In February 2014, NuStar completed the construction of a new dock at the Corpus Christi North beach terminal. The company will now have to load crude oil simultaneously on all three docks above capacity. The additional capacity will allow the company to handle the South Texas Crude Oil Pipeline expansion project. In February 2014, NuStar signed a long-term agreement to lease five million barrels of idle storage tankage at its St. Eustatius terminal facility. These tanks had been idle since late 2013. In 2013, NS was able to reduce its inventories as a result of a new bunker fuel supply agreement that reduced the inventory carried in the St. Eustatius bunker fuel operations.

However, NuStar has expressed some concern over its bunker operations. Tom Shoaf, the EVP & CFO of NS, said in the 1Q14 conference call, “Our bunker operations are expected to continue to perform better than last year but results are not expected to be as strong as the first quarter due to the reduced sales volume. First quarter bunker sales volumes benefited from seasonal increased demand associated with the cruise line business in St. Eustatius and also from higher margins in Texas City.”

However, continued backwardation of the forward pricing curve has resulted in reduced demand for storage at certain of the terminal locations. Backwardation is when forward or futures prices (that is, derivative) of oil are lower than the spot (that is, market price). This situation gives little or no incentives to store oil, which negatively affects the companies that provide storage and terminal facilities such as NuStar. The reduced demand is putting downward pressure on storage rates in certain markets as some of the older storage contracts come up for renewal, negatively affecting its earnings. For example, a customer at the St. Eustatius terminal vacated a significant portion of its storage in the fourth quarter of 2013.

NuStar Energy (NS) is a master limited partnerships operating in the midstream energy space. Other major companies operating in the same sector as NS include Boardwalk Energy Partners (BWP), Plains All American Pipeline (PAA), and Energy Products Partners (EPD). Most of these companies are components of the Alerian MLP ETF (AMLP) and MLP ETF (MLPA). NS is part of the Multi Asset Income ETF (CVY).

Continue to Part 6

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