NEW YORK/HOUSTON (Reuters) - The newest threat to a vulnerable U.S. oil refining industry may be looming 80 miles off the coast of Florida, on the Island of Grand Bahama.
There, a huge oil storage terminal is expanding capacity to handle millions of barrels of fuel shipments that could hit the U.S. market at a time when refiners are bleeding cash and fuel demand has fallen.
The Bahaman terminal, known as Borco, is planning to add 6 million barrels in light fuel storage tanks by the end of 2011, a company executive said in an interview.
"If you're on the East Coast, you better be ready for competition," said Tim Day, managing director at First Reserve Corp, the Connecticut-based private equity firm that bought the site in 2008 with Dutch partner Vopak (VOPA.AS).
"A light sweet refiner making gasoline on the East Coast could suffer long term," he told Reuters.
First Reserve has decided to move ahead with the expansion after it received project bids and major interest from customers in late January, Day said. Borco is in talks with customers to lease the new space.
An oft-ignored patch of the oil industry compared with high-profile exploration and production, oil storage is now gaining marquee status. A rapid expansion of Asian and Middle East refineries is lifting fuel trade between regions, and in turn, demand for terminals like Borco that handle the flows.
Since the new owners bought Borco from Venezuela's PDVSA in 2008, they have spent $150 million refurbishing it, expanding usable capacity by 80 percent to 21.5 million barrels -- enough to meet a quarter of the world's daily oil demand.
Borco's usable capacity had dropped to as little as 12 million barrels before the sale, as PDVSA used the terminal to handle mostly Venezuelan crude, allowing many of its tanks to fall into disuse.
The 40-year old terminal known among oil traders as Borco has been officially redubbed Vopak Terminal Bahamas.
But unlike most of Borco's existing storage of heavy fuel oil or crude oil, which is often shipped to U.S. refineries for processing, the new "clean" tanks will hold already-refined light products such as gasoline, diesel, jet fuel, heating oil or naphtha.
Borco's capacity to store these lighter products would rise to near 8.8 million barrels, or enough tank volume to supply the United States with gasoline for a full day, based on recent demand.
With the new tanks, Borco would grow to 27.5 million barrels -- about double the size of the next-largest regional facility -- putting First Reserve in control of around a quarter of the oil tank capacity for commercial lease offshore from eastern and southern U.S. fuel markets.
Many of the light refined products could be shipped from new overseas refineries to Borco, from where they often are sent to U.S. markets, Day said.
First Reserve, which has invested over $12.5 billion in energy projects worldwide, may soon have interests in refining light fuels itself. It is also a partner to legendary refiner buyer Tom O'Malley in PBF Investments, a $2 billion U.S. refinery buyout fund looking to snap up cheap plants.