As U.S. Energy Industry Booms, Oil Hubs Run Out Of Storage Space

Transcript

ROBERT SIEGEL, HOST:

The U.S. energy industry is booming. Increased drilling has led to a spike in oil production that's nearing all-time record. The success has helped to drive down prices, and it's created an interesting problem - where to put all that oil. As Joe Wertz of StateImpact Oklahoma reports, one of the biggest oil hubs in the U.S. is on track to fill up completely.

JOE WERTZ: Cushing, Okla., in the Northeast part of the state, is really known for one thing - oil. This is an oil hub outside town. Field after field after field are filled with hulking storage tanks. The newer ones are so big they could hold a 747 jumbo jet. Day in and day out, trucks line up to drop off their crude.

(SOUNDBITE OF TRUCK)

WERTZ: Nearby, pumps, compressors and valves hum and shutter. Sci-fi chirps echo as welders and workers drag cables inside tanks they're rushing to build.

(SOUNDBITE OF CABLES)

WERTZ: Cushing has room for 71 million barrels, 20 percent of the U.S. commercial crude oil storage capacity. But that's still not enough.

STEVE AGEE: There's actually some thought by Memorial Day, if this doesn't somehow correct itself, we could be essentially at a limit of having full storage.

WERTZ: Economist Steve Agee is business school dean at Oklahoma City University. He's never seen this much oil stockpiled in the state. Right now, there's about 54 million barrels stored here. That's the most ever. If all that oil was refined into gasoline, it could fuel every vehicle in the U.S. for almost three days.

AGEE: Kudos to the oil and gas industry, but they're kind of their own worst enemy by doing this.

WERTZ: Agee says the U.S. oil industry has been so effective at using horizontal drilling and fracking to unlock oil from shale rock, the supply of crude has outpaced worldwide demand. That's one reason why oil prices have plummeted.

ANDREW LIPOW: We're at the highest national inventory level in nearly 80 years.

WERTZ: Andrew Lipow is president of Lipow Oil Associates, a Houston-based consulting firm.

LIPOW: North American oil production are looking for a place to go.

WERTZ: Low oil prices can be an opportunity for energy companies and traders. Some are stashing oil in tank farms, like Cushing, or in railcars and even tanker ships. They're betting on buying cheap oil, storing it and selling it later when prices increase.

LIPOW: Which means anyone who has tanks is going to fill them up.

WERTZ: Lipow says the U.S. energy industry has gone into stockpile-mode a few times in recent years. A decade ago, traders tried to profit as oil prices increased rapidly. Not all stockpiles are intentional. In 2011, a much smaller Cushing oil hub was approaching capacity. Lipow says that was because of a market bottleneck, not traders trying to bank money.

LIPOW: One of the differences this year compared to years ago is we've got several major pipelines that now connect Cushing to the Texas Gulf Coast.

WERTZ: For the energy industry, the Oklahoma oil hub is symbolic. Cushing is a location where the primary U.S. crude price is set. If the hub fills, Steve Agee, the economist, says it would be a milestone that could have practical and psychological effects.

AGEE: Prices would most definitely fall. To what level, you know, we don't know.

WERTZ: Oklahoma's oil hub may not reach capacity. Agee says this spring refiners may need more oil to make summer blends of gasoline, or the flow could stall as low oil prices force energy companies to continue to idle rigs and lay off more workers. For NPR News, I'm Joe Wertz in Oklahoma City. Transcript provided by NPR, Copyright NPR.