High-tech surveillance keeps tabs on storage levels, provides market transparency

Until Louisville, Ky.­-based Genscape developed a suite of sophisticated monitoring technologies, there was no reliable way to measure how much crude oil and refined crude was piling up in storage tanks throughout North America and it is piling up.

As a result of the growing volumes of shale oil and oilsands crude being produced in the U.S. and Canada, while pipeline capacity to carry that crude has lagged, tank storage is at record levels, with expansions planned that will substantially increase that capacity.

The U.S. Energy Information Administration (EIA), which monitors storage levels in the U.S., has determined that working storage capacity, which excludes contingency space and tank bottoms, is at more than 521 million barrels, with about 60 per cent of that filled (compared to 48 per cent last year).

Meanwhile, as of late March, according to Genscape, storage in western Canada was bursting at the seams, with inventories at Edmonton reaching the highest level measured since Genscape began monitoring the location in 2010. Though at record levels, the Edmonton terminals were only utilizing 64 per cent of storage capacity short of the record 67 per cent utilization rate due to the vast amounts of storage tanks brought online since 2012. But Genscape predicted in March that a record utilization rate could also soon be met.

More storage is coming as oilsands production continues to grow, with Enbridge, TransCanada and Gibson Energy having announced plans to add a total of about 2.6 million barrels at Hardisty, Alta. In addition, Teck Resources, Keyera Energy and Kinder Morgan announced in early April they would build as much as 4.8 million barrels of new storage near Edmonton, with the potential to expand that to 6.6 million barrels.

Genscape produces a weekly Canadian Storage Report estimating physical crude oil inventories held in above-ground tanks at Hardisty, Kerrobert, Sask., and Edmonton, as well as cavern storage at Hardisty based on actual tank volumes with granularity down to the individual tank levels and in the cavern connected to Brine Lake. Genscape collects data using infrared cameras, aerial diagnostics and other proprietary measurement techniques, which the company says translates into highly accurate estimates of actual oil storage levels.

Infrared cameras are able to peer inside storage tanks, while aerial photos allow analysts to estimate storage levels by using the angle of shadows cast by the tanks floating roofs to calculate, using proprietary algorithms, actual tank volumes. Additionally, electromagnetic monitors placed beneath power lines running to tank farms can measure power usage, allowing the company to estimate how much oil is being pumped into and out of the tanks.

Genscape uses the same methodology at Cushing, Okla.s enormous storage hub and other locations and closely tracks its performance against the EIA data in the U.S., which is derived from voluntary reporting or accounting flows. Published before the EIA data, such information is valuable to banks, hedge funds and oil traders. With no official Canadian storage data, Genscape is the only provider of storage data in the key hubs in Canada.

Genscape was founded in 1999 by former power market traders who had developed and patented electromagnetic field monitors capable of providing real-time analysis of the power grid. Those devices are now deployed worldwide by utilities, municipalities and others to observe electricity flowing across transmission lines.

Using Genscape's technology and market intelligence, with its capability of utilizing analytics to help power users make more informed decisions, Genscape can provide hourly price forecasts, which can help users manage their costs as they draw power from the grid.

In 2009, the company began expanding its footprint, utilizing its technologies to monitor the aboveground storage of crude oil and refined products. Since launching its power sector product, it had spent the previous decade investing heavily in research and development and has since been awarded several patents.

Genscape is considered to have pioneered the field of sophisticated surveillance and data-crunching analysis of the markets it now reaches, helping its thousands of users track everything from oil supplies to crop yields.

It now operates the worlds largest private network of in-the-field monitors and has also added satellite reconnaissance, artificial intelligence and maritime freight tracking to its data acquisition capabilities. It provides monitoring and market intelligence data to the power, oil and gas, petrochemical, agricultural, maritime freight, financial and market trading sectors, and to government agencies.

Brian Busch, director, oil markets and business development, joined Genscape two years ago after working for various companies for 21 years in energy trading and risk management roles. "I joined the company after becoming familiar with their technology," says the Houston-based executive. "I realized they had technology I would have killed for."

The company is owned by London, U.K.-based DMG Information, a London Stock Exchange-listed division of Daily Mail and General Trust. It has 280 employees located in sales and monitoring centres in Louisville; Amsterdam; London; Hamburg, Germany; Singapore; Boston; Boulder, Colo.; suburban Houston and Austin. It has a sales representative in Alberta, where Busch says it has a number of clients.

All customers pay for the company's services on a subscription basis, with rates increasing depending on the amount and frequency of information they receive.

Hillary Stevenson, manager, supply chain network, says its infrared spectrum and other monitoring technologies provide its clients with real-time analysis of the supply chain involved in the crude oil market.

"Monitoring above-ground storage is important, but we allow for analysis of the entire supply chain from pipeline to crude-by-rail to demand by refineries, she says. We can track supplies of diesel, gasoline, petcoke and other refinery products. If theres an issue at a refinery, our intelligence-gathering technology can detect it."

For instance, in May 2013 when the flow of crude through TransCanada's Keystone pipeline from Hardisty to Cushing was interrupted for 21 hours due to a power outage cutting the electricity supply to pumping stations in Alberta--which also stopped planned work at the Hardisty terminal--it was Genscape's proprietary pipeline monitoring technology that detected the pipelines early-morning shutdown. Genscape alerted its customers of the shutdown more than five hours before TransCanada confirmed the outage on the 590,000-bbl/d system.

Busch says the company's employees range from those like Stevenson, a six-year veteran of the fast-growing firm who has a degree in chemistry and a deep understanding of the company's technology, to those with physics and applied math and business management degrees. "We don't have a specific profile of the people we hire just that they need to be very smart and capable."

He says the kind of transparency Genscape's technology offers about crude markets just wasn't there before it entered the market. "In the past, if you had storage capacity at Cushing, you knew what you had stored, but you didn't know how much your competitors had stored," he says.

Previously, that information was available from the EIA, which still provides it, but that data is based mostly on surveys of companies involved in the crude and refined product storage business and is dated and not always reliable.

"We are the only people who measure Cushing [storage] twice a week," he says, adding that it does the same at key refining hubs like the U.S. Gulf Coast, a target market for Canada's bitumen and heavy crude. "If you're a bitumen producer, you want that information."

However, Busch says there are some natural barriers to extending the use of the technology, with access to private property or other areas being the most significant. "I don't think well ever get down to the wellhead level, even though that would be a natural extension of the whole supply chain," he says, adding that producers wouldn't necessarily want its monitors at their well locations.

There are also going to be areas of the world, such as countries in the Middle East, Russia or India, where legal issues would prevent Genscape's monitoring technology from being deployed.

"When you go into countries like Russia or India the laws are very different than they are in North America," he says. "Technology-wise, we could get there, but the legal issues would be difficult to deal with. In the U.S. [and Canada] we have a right to publish that data and to gain access to most sites."

In North America, where the traditions of free trade and free-flowing information are strong, there is the potential to extend its monitoring technologies to cover many of the major players in the energy, power, agriculture and retail sectors, he says.

The company is considering a move into Mexico as well, especially given the energy industry and power sector reforms taking place there and its integration with the U.S. and Canada. For example, most of the natural gas consumed in Mexico passes through cross-border pipelines.

It has a major presence already in Europe, and he says there is also the potential for significant growth there.

Genscape is also playing a growing role in monitoring fuel and bulk goods marine shipments. "We're getting better at tracking the flow of crude and refined products [and other goods] on the water. Eventually that will become a worldwide product, with little in the way of legal barriers," he says.

While its technologies have obvious value for companies involved in transporting and storing various products, he says its role in helping to create a more transparent marketplace is also consumer-friendly.

Stevenson says the growth in crude oil and gas production in North America is causing much of the firms growth in business and revenue of about 20 per cent or more a year. "It's definitely causing demand for more data sets," she says. "We didn't have a crude-by-rail product until the growth in volumes on rail took place, and the same thing applies to the Gulf Coast."

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