No Place to Go: Oil Storage Filling Up Amid Collapsing Demand Excess Production
Energy Partner Seth Belzley spoke with S&P Global Market Intelligence about mounting concerns that the U.S. soon may not have enough oil storage to absorb a collapse in demand caused by the Coronavirus. The evaporating transportation fuel demand has significant implications for the pipelines and their customers. Mr. Belzley said the crisis at hand could lead to contract disputes by way of declaring force majeure. While he expects pipeline shippers to invoke that legal provision to get out of take-or-pay agreements if refiners are forced to shut down, the strategy may not prove successful.
"It's generally not going to be considered a force majeure because… it's understood that the shipper's obligation under that contract is either to use the shipping capacity or just to pay the minimum fees that are due," Mr. Belzley said. "I've personally been involved in several cases where… the shippers will declare a force majeure to try and avoid their take-or-pay obligations, and that at least puts them in a position to negotiate or litigate."