PBF Doubles East Coast Fuel Tank Space, Keeping a Third for Itself

 U.S. refiner PBF Energy's logistics arm is doubling its nationwide fuel storage capacity with over 4 million barrels of tanks in the Philadelphia area, giving it greater freedom to trade in a key market.

PBF Logistics LP will buy four oil product terminals from Plains All American Pipeline LP for $100 million, it said on February 2. The purchase is among the biggest since its general partner, PBF Energy Inc bought refiners in Delaware and New Jersey roughly five years ago.

About two-thirds of the revenue from the terminals is expected to come from leasing out capacity to other companies, PBF Logistics said, potentially cashing in on record-high seasonal inventories. That suggests it may keep around a third of the capacity for itself. Most of PBF's existing terminal assets are on-site at its refineries.

The terminals, which provide connections to major pipelines like Colonial and Buckeye, truck racks and marine facilities, will give PBF more flexibility to swap, blend and market products in a broader geography, market sources said.

That may be more important following PBF's purchase of the Chalmette, Louisiana, refinery last year, a plant that ships products along the Colonial pipeline

"To the extent that PBF uses third party terminals to move product in the Philly market, this purchase will allow them to bring these barrels in house and provide them some with some optionality - which can be a competitive advantage," said Ernie Barsamian, founder and CEO of The Tank Tiger.

The deal also offers some immediate revenue upside as storage lease rates have risen sharply in recent months along side inventories. Storage companies on the East Coast are getting 50 cents a barrel per month or more on storage contracts, up from 20 cents a few years ago, a market source said.

It may also squeeze out some traders and blenders who previously used the Plains assets to move products. It was not clear what proportion of the storage capacity PAA had committed under third-party leases, but Plains was not a significant participant in physical gasoline or diesel markets.

Even after the deal, PBF will be a modest player in the PADD I East Coast area, which has some 196 million barrels of terminal and tank farm storage for gasoline, diesel and jet fuel, according to Energy Information Administration data.

The terminals are frequently used by the region's refiners to store and move products to customers, and market sources did not expect much to change with PBF Logistics at the helm.

The deal marks a major withdraw for Plains All American's from oil product storage, though it still retains significant crude and natural gas liquid terminals. The firm, one of many master-limited partnerships whose shares have plummeted lately, announced last month that it slashed capital spending and was seeking to sell non-core assets.