• Home
    • Company Values
  • Services
    • Government
  • Contact
  • Industry News
  • Careers
Info@GlobalOneEPC.com
713-909-0106

The Truth About Gasoline Prices

8/28/2015

0 Comments

 
Picture
Author: William Edwards

In a recent post Marita Noon posed the question "Oil’s Down, Gasoline Isn’t. What’s Up?" My first inclination was to answer her question in the "comments" sections. Then I realized that the question has enough widespread interest to justify presenting the answer in a wider post rather than just in a comment. Here is my answer to her question. Refiner's profits are up.

We deal with a host of misconceptions on a daily basis. The subject of gasoline prices is no exception. It is commonly believed, almost to the point of universal acceptance, that the price of gasoline at the pump is a direct function of either supply or demand or refiners' cost. It can be shown that, in reality, it is neither. I shall provide proof thereof.

The simple, undeniable fact is that the price of gasoline is, basically, whatever the refiner and the retailer can impose upon the public. Neither cost, availability, nor reason dictate that price. If threats of shortage, or impending hurricanes, or wars in the Middle East or assassinations of dictators allows the seller to convince the public that the price must go up, up it will go. And the public, referred to by our Oilpro associate Paul Jackson as "sheeple", will throng to the pumps to pay the inflated price. Further, when the esteemed CEO's of our major oil companies are called upon by Congress to explain the high prices, they will point to "the market" as the determinant of price, thereby shunning any responsibility for the prices that they, themselves, approve for the company's sales.

As prima facie evidence that my assertions are valid, I present the following chart covering the past dozen years. This chart displays the difference between the price of domestic crude, expressed as WTI, and the wholesale price of gasoline in the US. This differential is commonly referred to as the "refiner's margin". By utilizing margin rather than price I eliminate any impact of rising and falling crude prices.

This refiner's margin embodies two main elements -- operating cost and profit. For practical purposes, the operating cost element can be considered to be essentially constant since the cost of the raw material, crude oil, has already been deducted. Quantitatively this operating cost is on the order of 10-15¢/gal, shown as a solid horizontal line on the chart. The difference between this 15¢ and the value represented by the line, the wholesale margin, is the refiner's profit.


























Two facts are immediately obvious. 1) No constant relationship, or even a pattern, exists between the refiner's cost and his selling price. It appears to be random. Some of the spikes are identifiable, such as hurricane timing, but some are essentially random in nature. 2) The refining profit portion of the margin appears to be dramatically excessive for long periods of time. If a 10-20¢/gal margin is a reasonable level, how can the industry justify profit levels of 50-75¢/gal which occurred numerous times for months on end? I suspect that if a CEO appeared before a congressional committee and the questioner knew enough to ask incisive and probing questions, the CEO would end up with the proverbial egg on his face.

The end of the line on the right hand side of the chart represents today's numbers. Refiners have recently been charging prices that result in margins of 60-70¢/gal, which produces profits of 45-60¢/gal -- pure profit. That number is more than $20/B, or half of some producers' total selling price for their production. Does something seem amiss?

This extraordinary refiners profit is the answer to Marita's question of "What's up?" Refiner's profit is up. Costs aren't up, but profits are up.

I expect some blowback to my simple explanation. I only request that any dissenting responder provide data, as I have done, as substantiation of your position. You might provide, in addition, your explanation for the dramatic margins that the data display.


Source: OilPro.com

0 Comments

Oil’s Down, Gasoline Isn’t. What’s Up?

8/28/2015

0 Comments

 
A little more than a year ago, oil prices were above $100 a barrel. The national average for gasoline was in the $3.50 range. In late spring, oil was $60ish and the national average for gas was around $2.70. The price of a barrel of oil has plunged to $40 and below—yet, prices at the pump are just slightly less than they were when oil was almost double what it is today.

Oil and gasoline prices usually travel up or down in sync. But a few weeks ago the trend lines crossed and oil continued the sharp decline while gasoline has stayed steady—even increasing.

Oil’s down, gasoline isn’t. Consumers are wondering: “What’s up?”

Even Congress is grilling refiners over the disparity.

While, like most markets, the answer is complicated, there are some simple responses that even Congress should be able to understand. The short explanation is “refineries”—but there’s more to that and some other components, too.

Within the U.S. exists approximately 20 percent of the world’s refining capacity. Fuel News explains that “on a perfect day,” these domestic facilities could process more than 18 million barrels of crude oil. But due, in large part, to an anti-fossil fuel attitude, it is virtually impossible to get a new refinery permitted in America. Most refineries today are old—the newest major one was completed in 1977. Most are at least 40 years old and some are more than 100. Despite signs of aging, refining capacity has continued to grow. Instead of producing at 70 percent capacity, as they were as little as a decade ago, most now run at 90 percent. They’ve become Rube Goldberg contraptions that have been modified, added on to, and upgraded. The system is strained.

To keep operating, these mature refineries need regular maintenance—usually done on the shoulders of the busy driving seasons and when systems need to be reconfigured for the different winter and summer blends. Even then, things break. Sometimes a quick repair can keep it up and running until the scheduled maintenance—known as “turnaround.” Sometimes, not. Fixing the equipment failures on the aging facilities can take weeks.

This year, several unexpected maintenance issues happened in the spring. Other refineries worked overtime to make up the shortage. That, plus low crude prices, means that many refiners didn’t shutdown for the usual spring turnaround. Fuel News notes, potential profit encouraged refiners to “get while the getting’s good.”

This pedal-to-the-metal approach is catching up with the sagging systems. On August 8, BP’s Whiting, IN, refinery, the largest supplier of gasoline in the Midwest, faced an unplanned shutdown due to a leak and possible fire hazard in its Pipestill 12 distillation unit—which processes about 40 percent of its 413,000 barrel per day capacity.

The closure of the largest of Whiting’s three units caused an immediate jump in gasoline prices in the Midwest. Stockpiles were drawn down to fill demand during summer’s peak driving season. Gasoline has been moved—via pipeline, truck, and train—from other parts of the country to balance out supply. So, while the biggest price increase was in states like Minnesota, Michigan, and Illinois, prices raised nationwide beginning on August 11.

Meanwhile, because the Whiting plant wasn’t sucking up crude oil, its supplies grew and drove crude prices down further—hitting a six-year low. The Financial Times reports: “An outage at Whiting’s main crude distillation unit could add almost 1m [million] barrels to Cushing [The OK oil trading and storage center] every four days as long as it is out.”

Making matters worse, another Midwest refinery, Marathon’s Robinson, IL, 212,000 barrels per day facility is down for repairs that are expected to take two months.

Others smaller outages include Philadelphia Energy Solutions and the Coffeyville Resources’ refinery in Kansas. BloombergBusiness states: “As many as seven other Midwest refineries could shut units for extended time this fall.” Though, other reports indicate that some of the planned maintenance may be put off due to profit margins that are at a seven-year high.

Adding to the price increases due to refinery issues, are two other factors—both having to do with the calendar.

First, we are almost to Labor Day, which is considered the end of the summer driving season. It is when families make that one last trip to the lake or to visit grandma—which always causes a jump in demand that tightens supplies. This year, with two big refineries down, the usual spike could well be exacerbated.

The other is hurricane season. While we are just past its peak, we’ve only had one hurricane so far: Hurricane Danny—which last week was barreling toward the Northern Caribbean islands, with potential to hit the refinery-rich Gulf Coast. On Friday August 21, it moved from Tropical Storm Danny to Category 3 Hurricane status. It has since weakened, but its presence caused risk and supply concerns.

High summer-driving demands and unscheduled refinery repairs have combined to reduce supply of gasoline, and raise the price, thus the need for crude oil—especially in the Midwest—is down. Crude oil inventories at the Cushing hub continue to increase and add to the current oversupply and slide in oil prices.

While there’s some other contributing factors, the current mix of supply and demand explains: “what’s up?” The lack of new refineries punishes the whole system. Gasoline prices are up—hurting consumers. Crude prices are down—hurting producers.

The author of Energy Freedom, Marita Noon serves as the executive director for Energy Makes America Great Inc. and the companion educational organization, the Citizens’ Alliance for Responsible Energy (CARE). She hosts a weekly radio program: America’s Voice for Energy—which expands on the content of her weekly column. Follow her @EnergyRabbit.


Source: OilPro.com
0 Comments

Subsea 7 Win $500M Contract with BP

8/10/2015

0 Comments

 
Picture
Subsea 7 announced the award of a contract with a value of approximately $500 million by BP, and partner DEA, for the development of the Taurus and Libra subsea fields offshore Alexandria, Egypt.

The contract is the first phase of Egypt’s West Nile Delta project where field development will be at depths of approximately 800 metres.

According to Subsea 7, the contract scope includes the engineering, procurement, installation and pre-commissioning of subsea infrastructure required to develop the hydrocarbon resources from nine wells including 75 kilometres of umbilicals and 100 kilometres of pipeline.

The company said that engineering and project management work will start immediately and will be undertaken at Subsea 7’s Global Projects Centre in London. Fabrication of the subsea structures and spools will be carried out at the Petrojet Maadia yard near Alexandria.

Furthermore, offshore installation is scheduled to start in the second half of 2016 using the Subsea 7 pipelay vessel, Seven Borealis, and heavy construction vessel, Seven Arctic.

Øeyvind Mikaelsen, Executive Vice President Southern Hemisphere and Global Projects said: “This large contract awarded by BP for the first phase of the West Nile Delta field development recognises the value we bring to our clients through early engagement with them to engineer, design and deliver cost-effective solutions for complex field developments. We look forward to expanding our presence in Egypt and building on our long, successful and collaborative relationship with BP.”

This follows the recent news of Subsea 7 cost cutting measures of $550 million, including staff redundancies and a reduction of vessels within there fleet

Source: www.offshoreenergytoday.com


0 Comments

The First Post-Sanctions Iran Oil Contract Has Been Signed

8/10/2015

0 Comments

 
Eni's chemicals subsidiary Versalis has become the first European company to ink a contract with Iran after the July 14 deal between the P5+1 and Iran, according to an official report issued by National Iranian Petrochemical Company (NIPC) cited by mehrnews.com.

The Technology Transfer Deal



The Technology Transfer Contract comes after Versalis, Italy's largest chemical company by production volumes, sales and headcount, agreed to join a trilateral contract of Technology Transfer (TTC), together with two commissioning agencies - Italy's Tecnimont and an Iranian firm- with Iran's NIPC.

Versalis says on its website that it manages the production and marketing of an extensive portfolio of petrochemical products and is a leading manufacturer of intermediates, polyethylene, styrene and elastomers.

The company also says it recently repositioned its business with a greater focus on a market-oriented product portfolio, the strengthening of research and licensing and the expansion of its global presence by focusing more on the development and optimization of business, in particular elastomers, with a portfolio that will be enhanced by an integrated offer with products from renewable sources.

The Italians Meet With The Iranians


Eni CEO Claudio Descalzi, Italian Foreign Minister Paolo Gentiloni, and Italy's Minister of Economic Development Federica Guidi were among the hundreds of representatives who visited to Tehran last week. The representatives held meetings with two ministers of Hassan Rouhani's cabinet, mehrnews.com reports.

The Italian major had a $550 million agreement to help the Islamic Republic develop its Darkhovin oil field, anticipated to produce 160,000 bpd, prior to halting operations in 2010 due to sanctions pressure.

No Interest Expressed By American Companies Yet...


Iranian Oil Minister Bijan Zanganeh said last week that new contracts for potential IOCs will be formally outlined in December during an investment conference in London. Per the new terms, the National Iranian Oil Company will establish joint ventures with foreign companies, which will be compensated with a portion of the output.

Over the weekend, Zanganeh said that "all international" oil companies will be able to submit bids for projects in the country's oil sector. He said, however, that no interest has yet been expressed by American firms: "We have received no requests from any American company so far." US firms are prohibited from bidding on participating in Iran's oil sector until sanctions are lifted, which could be sometime this December or early next year.


Source: OilPro.com
0 Comments

What Is Procurement?

8/10/2015

0 Comments

 
Procurement, in the simplest sense, involves a series of activities and processes that are necessary for an organization to acquire necessary products or services from the best suppliers at the best price. Such products or services that are procured include raw materials, officer equipment, services, and supplies, furniture and facilities, technical equipment and support, telecommunications, printed collateral, contingent worker recruitment, testing and training, and travel-related services, among many others.

Part of an Organization’s Corporate Strategy

Procurement is nuanced and intertwined with several core business functions, and as such, it should be considered a core component of a company’s corporate strategy. For example, if a company’s identity is based on being environmentally conscious, then the procurement specialist’s strategy must focus on engaging green suppliers. If a company has specific goals, it needs to procure the right workers to help it achieve them.

Why It’s so Important in Business


Because an organization can end up spending well over half of its revenue on purchasing goods and services, proper procurement management is vital. Even the slightest decrease in purchasing costs can have a significantly direct impact on profits, while a lack of strategic decisions can sink an otherwise financially healthy company. It can make the difference between success and failure. High purchasing costs or a high degree of wastage in the supply chain can affect an organization’s bottom line and reputation.

The Need for Visibility


You can’t control what you can’t see, which is why visibility is vital in the procurement process. Organizations need full visibility into their internal processes and spending. The most effective way to achieve this is with spend segmentation. By segmenting spend and suppliers by specific categories, organizations can better understand exactly where their money is going and why, and how to reduce costs. 

Steps in the Process


Having a systematic process allows organizations to be strategic when procuring goods and services from external vendors. It helps them manage supplier relationships, determine which vendor to buy from to receive the lowest cost and best quality, determine what specifications and quantities are needed, streamline the shipping and delivery timeframes and methods, review and accept the items purchased, approve payments, review supplier performance against contract, and identify and resolve performance issues. In short, having an effective management process can allow firms to increase efficiencies and cut costs when purchasing from vendors.

This process can include numerous steps, which include the following:
  • Identifying requirements
  • Authorizing and approving a purchase request
  • Identifying suppliers
  • Making inquiries
  • Receiving quotations
  • Negotiating terms
  • Selecting a vendor
  • Creating a purchase order and goods receipt
  • Managing shipping
  • Receiving invoices
  • Making payment

Procurement versus Purchasing


Many people use the two terms interchangeably, but there are differences. Purchasing consists of the last explicitly transactional steps found at the end of the overall procurement process. Procuring deals with sourcing, negotiation, and strategic selection, which must occur before the purchasing of any products or services can be had.

How Technology Can Help


With the help of the right software, organizations can streamline their supplier selection and rate management. They can create new job postings in just a few clicks that give bidding suppliers complete job requirements, which include rate structures, certifications, and qualifications. They can manage relationships, monitor performance, and process payments. By optimizing the process with a management solution, companies can protect their profit margins and significantly cut costs.

A Vital Process


Procuring is about more than just the purchase of goods, services, or works from external sources. It requires strategic planning in order for organizations to acquire these things at the best possible cost, which meet their needs in quality, quantity, location, and time. It is a vital part of any company’s overall business strategy.

Source: hcmworks.com

0 Comments

    Author

    Billie Hanley, Managing Director of GlobalOne EPC.

    Contact Us
    Info@GlobalOneEPC.com
    Phone: 713-909-0106
    Picture

    Archives

    October 2015
    September 2015
    August 2015
    July 2015

    Categories

    All
    Alternative Power
    Baker Hughes
    BP
    Chevron
    Condensate
    Discovery
    Duke Energy
    Eagle Ford
    Energy
    Energy Credit
    Energy Reform
    Fracking
    Funding
    Gas
    Halliburton
    Houston
    Iran
    Job Cuts
    Low Oil Prices
    Marines
    Mexico
    Military
    Net Metering
    Nigeria
    North Carolina
    Offshore
    Oil
    Onshore
    Permian Basin
    Petrobras
    Private Equity
    Procurement
    Profit Fall
    Rate Increase
    Renewable Energy
    Rig Count
    Saudi Arabia
    Shale
    Solar Farm
    Solar Power
    Statoil
    Wind Farm
    Wind Power

    RSS Feed

    © 2012-2015 GlobalOne EPC. All Rights Reserved.
    Terms of Use
Powered by
✕