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The Value of Empty Space

David Forest
January 28th, 2010
www.piercepoints.com
dforest@piercepoints.com

Here's an interesting one in the realm of oil security.

As we've discussed, Japan is using a lot less oil these days. In the last year, Japanese consumption dropped 800,000 barrels per day.

That's leaving the country's petroleum infrastructure under-used. Nippon Oil plans to idle 20% of its refineries by 2015.

Oil storage facilities are also sitting empty. And the Japanese government is getting creative in putting this "empty space" to productive use.

The plan is to use spare storage to guarantee secure oil supply.

The pilot for this scheme came in June 2009. Japan's Ministry of Economy, Trade and Industry signed an agreement to "borrow" 600,000 kiloliters (3.8 million barrels) of oil storage from Nippon Oil (no terms have been released for the agreement).

The government then turned around and offered the storage space to Abu Dhabi National Oil Corporation. On very favorable terms (it's unclear if ADNOC is being charged at all for the space).

On December 21, ADNOC delivered its maiden shipment of 300,000 kiloliters of Abu Dhabi crude to the facility. The firm will use Japan as a "foothold" in Asia to conduct oil trading. Having oil stocks closer at hand to China, Japan and other Asian nations allows ADNOC to act quickly when attractive prices appear in these markets.

Here's the kicker. In exchange for providing storage, Japan gets priority purchase rights in case of an energy emergency. If oil suddenly gets scarce, the Japanese have dibs on nearly 4 million close-at-hand barrels.

Not a bad use of empty space.

Here's to making something from nothing,

David Forest
January 28th, 2010
dforest@piercepoints.com

Note: The information provided in this newsletter is based on the independent research of Dave Forest and Notela Resource Advisors Ltd. and is intended solely for informative purposes and is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade any securities or commodities named herein. Information contained in this newsletter is obtained from sources believed to be reliable, but is in no way assured. All materials and related graphics provided in this newsletter and any other materials which are referenced herein are provided "as is" without warranty of any kind, either express or implied. No assurance of any kind is implied or possible where projections of future conditions are attempted. Readers using the information contained herein are solely responsible for verifying the accuracy thereof and for their own actions and investment decisions. Neither Dave Forest nor Notela Resource Advisors Ltd., make any representations about the suitability of the information delivered in this newsletter or any other materials that are referenced herein for any purpose whatsoever. The information contained in this newsletter does not constitute investment advice and neither Dave Forest nor Notela Resource Advisors Ltd. are registered with any securities regulatory authority to provide investment advice. Readers are cautioned to consult with a qualified registered securities adviser prior to making any investment decisions.The information contained in this newsletter has not been reviewed or authorized by any of the companies mentioned herein.