By Nia Williams and Devika Krishna Kumar
CALGARY, Alberta/NEW YORK, June 9 (Reuters) - Upheavals inthe Canadian crude market are providing unique opportunities forfirms with sizeable long-term leases on Alberta storage tanks, acluster that sources say includes Mercuria Energy Group and oilmajor BP Plc's trading arm.
Canada holds the world's third-largest crude reserves, butyears of delay in building new pipelines has led to oilproduction outpacing takeaway capacity. A glut of crude has thusbeen created, increasing demand for storage tanks in the oilsands province of Alberta, which this year introduced productioncuts to deal with the oversupply.
The opportunity for traders comes from monthly pipeline"apportionment", when demand to ship crude on certain pipelinesexceeds capacity, forcing pipeline operators to ration thenumber of barrels each shipper can move.
The practice is a long standing source of frustration forCanadian producers but offers a lucrative, though risky, playfor traders able to swoop in and capitalise onpost-apportionment price volatility.
Bulging storage tanks are contributing to high apportionmenton Canada's main conduit to the United States, the 2.85 millionbarrel-per-day (bpd) Enbridge Mainline network.
Even with the Alberta cuts, oil inventories in westernCanada hit a record 37.1 million barrels in April and are closeto 34 million barrels in May, according to energy informationprovider Genscape.
One Calgary-based trader said that 37 million barrels is asfull as storage can get and that anybody with tankage has beenmaking money.
Genscape monitors roughly 62 million barrels of storage inwestern Canada but at most only 67% is utilized because ofpipeline operations and the need to separate grades.
Some traders and storage companies are benefiting.
Mercuria holds leases on about 3 million barrels of westernCanadian storage capacity, according to a source familiar withthe matter. Mercuria declined to comment.
BP does not disclose its storage lease position in Canadabut the company owns large refineries in the U.S. Midwest whichrun Canadian heavy crude. BP also declined to comment.
Traders with access to space in tanks can snap up cheapbarrels, store them for a month, and sell them on at the startof the next trade cycle when prices are typically stronger.
Storage rates are not publicly disclosed and vary widely,with long-term tankage cheaper than short-term. One tradingsource said three-month deals were being offered at around $2per barrel per month.
A four-year deal in Canada costs about $1.50 a barrel amonth compared to 30-40 cents per barrel in the U.S. Gulf Coast,other sources said. Monthly storage rates at the U.S. futureshub of Cushing, Oklahoma, are about 30 cents a barrel.
Rates in Canada are expensive, said another source, "but Iguess if you can make that all back after apportionment, it'swell worth it."
Companies including Gibson Energy Inc, Enbridge Incand TC Energy Corp own most of the storage in westernCanada, and are also benefiting from high demand to lease theirtanks.
Gibson is the dominant storage owner in Hardisty, with 10million barrels built and this year sanctioned another 2.5million barrels. Its storage contracts are all long-term leases,averaging 10 years, and its main customers are large oil sandsproducers.
"We get requests all the time for short-term storage but wedo not have tanks to do that," Gibson Chief Executive OfficerSteve Spaulding said.
Delays building pipelines mean Canadian production is likelyto remain above takeaway capacity, keeping tanks in high demand,said Genscape analyst Mike Walls.
"Storage is so valuable because you need somewhere to putbarrels right now. That's what Gibson is taking advantage of,"Walls said.(Reporting by Nia Williams in CALGARY and Devika Krishna Kumarin NEW YORK; Additional reporting by Julia Payne in London;editing by Grant McCool)
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