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Downstream Training. Downstream Overview - Introduction. Historical Perspective: The Seven Sisters. “During research on Shell in the early 60’s, I came in contact with the Italian oilman, Enrico Mattei, who popularized the phrase - The Seven Sisters...”.

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downstream training

Downstream Training

Downstream Overview - Introduction

historical perspective the seven sisters
Historical Perspective: The Seven Sisters

“During research on Shell in the early 60’s, I came in contact with the Italian oilman, Enrico Mattei, who popularized the phrase - The Seven Sisters...”

  • I try to tell, in political and human terms, one of the oddest stories in contemporary history: of how the world’s biggest and most critical industry came to be dominated by seven giant companies; how the western governments delegated much of their diplomatic functions to them; how their control of oil was gradually countered by the producing countries, until in October 1973 it appeared to be suddenly wrestled from them…”
  • Anthony Sampson, September 1975
course objectives
Course Objectives

In this course, participants will:

  • Concentrate on crude oil and refined fuel products
  • Discuss business and operating drivers affecting economics
  • Recognize the importance of a global perspective
  • Go into detail in each downstream segment
        • Refining
        • Transportation & Distribution
        • Supply & Trading
        • Marketing
  • Identify key sources of industry information
the definition
The Definition

For this course…

  • Downstream includes oil refineries, petrochemical plants, petroleum fuel products distributors, retail outlets and LPG, asphalt and lube oil manufacturing and distribution.
  • The downstream industry touches every state and city-- wherever consumers are located -- and provides thousands of products such as gasoline, diesel, jet fuel, heating oil, asphalt, lubricants, synthetic rubber, plastics, fertilizers, antifreeze, pesticides, pharmaceuticals, natural gas and propane.
  • The network of service stations, dealers, and jobber-distributors is one of the biggest franchise systems in the country.
elements of the downstream oil industry
Crude Acquisition and Transportation

Refining

Bulk Distribution

MARKETING

Retailing

Final Distribution

Terminals & Wholesalers

RISK MANAGEMENT

Elements of the Downstream Oil Industry

Downstream materials focus on crude, products and key participants...

characteristics of the downstream
Characteristics of the Downstream

Some downstream business drivers are obvious, some are not...

  • The downstream is a margin business…

in some ways, absolute crude price is irrelevant

  • Complex in manufacturing, chemistry, distribution & retailing
  • A global perspective important…

It impacts supply and price

  • Fuel products are 65% of USA demand
key economic decisions downstream
Which crude, yield, price, demand
  • Which products to produce?
  • What is impact on the environment?

Which Refinery Process?

  • Marine vs. pipeline vs. truck
  • Owned vs. exchange terminals
  • Scheduling and physical trading
  • Spot-term price strategies
  • Value of hedging

What Supply - Distribution Options?

What About Price/Risk?

  • Directly to end-users?
  • Through resellers & jobbers?
  • Which retail strategy?

How to Market?

Key Economic Decisions – Downstream

Key economic decisions to be addressed in downstream...

main drivers of product price and margin
Main Drivers of Product Price and Margin

Crude cost is the most important factor in the price of a gallon of gas...

FY2003 USA Cost Components of Gasoline

Refining 15%

Crude Costs

44%

Distribution & marketing

14%

State Tax

16%

Federal Tax

11%

www.API-ec.api.org

role of imports in domestic product supply
Role of Imports in Domestic Product Supply

USA more & more dependent on foreign sources…

MBCD Avg.

31.6 33.3 31.5 37.9 39.6 42.5 46.2 47.0 46.6 46.3 49.9 50.7 48.8 51.8 54.5 56.6 55.6 58.2 60.4 58.3 61.262.9

Imports as % of U.S. Products Supplied

Source: NPN Market Facts 2005

importance of global perspective
WASH.

MONT.

N.D.

VT.

ME.

ORE.

MINN.

IDA.

N.H.

WIS.

MASS.

S.D.

WYO.

N.Y.

MICH.

R.I.

CONN.

PENN.

IOWA

N.J.

NEB.

NEV.

OHIO

UTAH

IND.

DEL.

ILL.

COLO.

MD.

W. VA.

KAN.

VIR.

CALIF.

MO.

KY.

N.C.

TENN.

OKLA.

ARIZ.

S.C.

GA.

ARK.

N.M.

FLA.

ALA.

MISS.

TEX.

LA.

Importance of Global Perspective

In 2003, the USA received numerous global crudes for USA refineries…

0.5 Million b/cd

45% Canadian crudes balance local USA

3.2 Million b/cd

47% foreign via P/L: Canada, Saudi Arabia, Nigeria, UK, Columbia,Venezuela

ALAS.

2.6 Million b/cd

37% Alaska, California. 33% foreign: Saudi Arabia, Ecuador, Iraq, Canada,Argentina, Mexico

IV

II

V

I

  • In 2003, U.S. refineries got over 60% of their crude supply from abroad:
    • 25% Middle East
    • 32% Mexico/Canada
    • 15% Africa
    • 12% Venezuela

1.6 Million b/cd

98% foreign via ship: Nigeria, Angola, Saudi Arabia, Canada, UK, Gabon

III

The USA Gulf Coast (PADD III) is the world’s largest refining center

7.3 Million b/cd

Major JV’s: 72% foreign via ship: Mexico, Saudi Arabia, Venezuela, Nigeria, Iraq, UK

Source: Energy Information Administration – Petroleum Supply Annual 2003

Oil & Gas Journal 01/05/05

it s really about producing refined products
It’s really about producing refined products

Thanks to National Oceanic & Atmospheric Administration (NOAA)...

downstream section outline
Downstream Section Outline

We will now address each of the major downstream sectors...

Industry & Downstream Overview

Refining

Transportation & Distribution

Supply, Trading & Risk Management

Marketing

to dig deeper
To Dig Deeper

References to assist in your future work...

  • Websites:
    • Oil & Gas Journal – www.ogjonline.com
    • American Petroleum Institute – www.API.gov
  • References:
    • NPC - National Petroleum Council, 1625 K Street, NW., Washington DC 20006, 202-393-6100. US Industry Special Studies done at request of Secretary of Energy.
    • Guide to Petroleum Specifications, Platt’s, Division of S& P, Customer Support: 1221 Ave. of the Americas, 800-4328-6992, New York
    • Pennwell Publishing, POB 21288, Tulsa, OK. 74121 800/752-0764 or http// www.pennwell.com/
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