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Downstream Training

Downstream Training. Transportation & Distribution. Objectives. In this section, participants will:. Examine crude oil & refined products distribution systems Definition and importance of PADDs Discuss marine, pipeline and overland movements Examine transportation modes and costs

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Downstream Training

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  1. Downstream Training Transportation & Distribution

  2. Objectives In this section, participants will: • Examine crude oil & refined products distribution systems • Definition and importance of PADDs • Discuss marine, pipeline and overland movements • Examine transportation modes and costs • Learn the importance of measurement and inventory • Inventory management considerations • Typical terminal operations • Key organization features • Identify key sources of key industry information

  3. Elements of the Downstream Oil Industry Our focus in this section is the distribution portion of downstream... Crude Acquisition and Transportation Refining Supply & Bulk Distribution MARKETING Retailing Final Distribution Terminals & Wholesalers RISK MANAGEMENT

  4. The Crude Oil Distribution System The crude, bulk terminals and transportation network... Crude Oil Marine Terminal Storage TANKER (Export) Domestic Crude Oil Production Tanker TANKER (Import) Barge SPR Refineries Crude Oil Pipelines / Tankage Refinery Crude Oil Tankage Lease Tankage Overland (Import) Wellhead Barge Tank Truck Refined Products Distribution Network Refinery Processing Facilities Tank Car Source: NPC—National Petroleum Council

  5. The Refined Product Distribution Network The bulk products, distributor, rack & consumer network... End User Distribution System Rack Network Bulk Network Refineries Bulk Plants/ Fuel Oil Dealers Product Bulk Terminal Tankage Product Pipelines/ Tankage Refinery Product Tankage and Unfinished Oils Tank Truck Tank Car Retail Outlets Product Marine Terminal Tankage Tanker Imports/exports End User Storage Tanker Auto Barge Tank Truck Factory House Tank Car Source: NPC—National Petroleum Council

  6. Approaching T&D Problem Key is to understand the “tributary” supply network of interest... Refinery • Location • Capacity • Type Movements • Pipeline • Marine • Rail Car • Tank Truck Crude Supply Storage • Domestic • Foreign • Feedstocks • Terminals • Bulk Plants Operations • Inventory • Dispatch Supply, Transportation & Distribution Management Markets • Demographics • Product Types • Seasonal Characteristics Transportation & Distribution "Ties it all Together"

  7. T&D Section Outline T&D covers both crude & refined products in 2 sections... PART I USA Example PADD Supply Centers Refinery Supply/Market Demand Transportation Modes PART II Operations • Scheduling: • Marine • Pipelines Terminal Operations

  8. 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. Hawaii Petroleum Administration for Defense (PADD) Districts PADD’s used to accumulate USA DOE/EIA supply-demand data... ALAS. IV II V I III EIA—Petroleum Supply Monthly

  9. 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. USA Refining Centers 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

  10. Pipeline Marine Exports ALAS. Imports WASH. MONT. N.D. VT. ME. IV ORE. II MINN. IDA. N.H. WIS. MASS. S.D. WYO. N.Y. MICH. R.I. V 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. III GA. ARK. N.M. FLA. ALA. MISS. TEX. LA. Hawaii PADD Crude Oil Movements – 1000 B/D Crude oil movements patterns differ from refined products... 472 135 65 12 16 55 CAN 1712 20 394 3 1 198 283 1 402 75 123 for 59 1056 FOR. 1418 20 49 NOTE: PADD supply / demand may not balance due to unaccounted crude oil quantities. 585 2341 FOR. 10 46 398 FOR. (PADD II) 56 Source: EIA, Petroleum Supply Annual

  11. 1346 135 186 562 160 WASH. MONT. 45 N.D. VT. ME. IV 106 ORE. II MINN. IDA. N.H. WIS. MASS. S.D. WYO. N.Y. MICH. R.I. V 395 60 I CONN. PENN. IOWA N.J. NEB. NEV. OHIO UTAH IND. DEL. ILL. COLO. MD. W. VA. KAN. VIR. CALIF. MO. KY. N.C. 112 TENN. 2258 OKLA. ARIZ. 141 S.C. III GA. 300 ARK. N.M. 84 FLA. ALA. MISS. TEX. LA. Crude Pipeline Capacities MB/D USA crude oil pipelines, excluding gathering, are 108,000 miles... Data Source: NPC—National Petroleum Council,

  12. WASH. MONT. N.D. VT. ME. IV ORE. II MINN. IDA. N.H. WIS. MASS. S.D. WYO. N.Y. MICH. R.I. V 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. III GA. ARK. N.M. FLA. ALA. MISS. TEX. LA. Primary USA Refined Product Pipelines Pipelines historic USA method to get from refineries to markets... Pioneer & Cenex Laurel & Buckeye Texas Eastern Yellowstone Texas P/L & Explorer Southern Pacific Colonial & Plantation The industry’s 27,000 mile products pipeline system reaches from coast to coast and border to border. Interconnections within the system afford access to virtually every market area in North America including Mexico and Canada. Source: NPC—National Petroleum Council,

  13. WASH. MONT. N.D. VT. ME. IV ORE. II MINN. IDA. N.H. WIS. MASS. S.D. WYO. N.Y. MICH. R.I. V 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. III GA. ARK. N.M. FLA. ALA. MISS. TEX. LA. Refining & Market Centers Drive Supply Matching USA refinery centers to the markets… 3.5 Million BCD 42% foreign via P/L: Canada, Venezuela, Mexico, Nigeria, Saudi Arabia 1.6 Million BCD 96% foreign via ship: Nigeria, Venezuela, Angola, Saudi Arabia, Kuwait The USA Gulf Coast (PADD III) is the world’s largest refining center. Crude imported through LOOP… La. Offshore Port 7.7 Million BCD Texas & Louisiana plus 67% foreign via ship: Saudi Arabia, Venezuela, Mexico, Kuwait, Nigeria

  14. Distribution Modes for Petroleum In the most markets... • Crude and petroleum products are moved by: • Marine • International • Inland or Coastal • Pipelines • Overland by Rail Cars and Tank Trucks Distribution is accomplished by a variety of land and marine modes including pipelines, rail tank cars, tank trucks, barges, and oceangoing tankers. On a volume basis, pipelines and marine carriers are predominant, but trucks and rail tank cars have essential functions.

  15. Petroleum Products Transported – by Mode USA product pipeline movements are the majority of shipments... Barrels Barrel-Miles Railroads 3% Trucks 6% Railroads 3% Water Carriers 13% Trucks 43% Pipelines 56% Water Carriers 35% Pipelines 41% 1990 Data Source: Gasoline Marketing in USA-API 1593

  16. U.S. INLAND WATERWAYS(25,000 MILES) Bellingham Seattle Tacoma Portland MINNEAPOLIS ST. PAUL Portland Boston Buffalo SIOUX CITY Bay City CHICAGO PITTSBURGH New York Toledo Oakland San Francisco CINCINNATI Baltimore ST. LOUIS Norfolk Estero Bay Santa Barbara Ventura CAIRO Atlantic Intercoastal Waterway Los Angeles TULSA San Diego LITTLE ROCK Savannah Mobile LEGEND Baton Rouge Jacksonville Port Arthur Tank Terminal Area Location of Refineries Pascagoula Houston Freeport Lake Charles New Orleans Corpus Christi Controlling Depths 9 Feet or more Under 9 Feet Miami Port Isabel Gulf Intercoastal Waterway Marine Transportation – Inland Commercially navigable waterways of the USA... Source: Adapted from Final Environmental Impact Statement, Title XI; U.S. Department of Commerce, Maritime Administration, 2/79

  17. T&D Section Outline This section presents scheduling, terminal & bulk plant operations... PART I USA Example PADD Supply Centers Refinery Supply/Market Demand Transportation Modes • Scheduling: • Marine • Pipelines PART II Operations Inventory Terms & Concepts Terminal Operations

  18. Crude Transportation – International Marine Crude/products marine movements are largest portion of international freight tonnage... Persian Gulf World's Largest Crude Center PADD III World's Largest Refinery Center Movements of crude by water

  19. Marine Transportation – Scheduling Brokers facilitate the operations of the tanker market... Size/Capacity Category (1,000 DWT) Owners Owner’s Broker Charterer’s Broker Charterers Available Capacity to Lease Need Capacity to Move Oil • Telephone • Telex • Facsimile GP: 16-25MR: 25-45 LR1: 45-80LR2: 80-160 AFRAMAX: 75-110SUEZMAX: 110-150 VLCC: 160-320ULCC: 320-550 • E-Mail • Personal Contact Negotiate Timing World Scale Rate Source: Oil & Gas Journal

  20. Marine Transportation – Rates Tanker rates affected by: • 1. Composition and age of the fleet • 2. Worldwide supply/demand for crude - products • 3. Scrapping and new building rate • 4. Environmental pressures; e.g. double-hulled equipment availability • 5. Contracting terms and methods Tanker Data Sources: Annual Survey: Drewry Shipping Consultants, Ltd. - London Annual Survey: Clarkson Research Studies - London Appendix Reference: Oil and Gas Journal

  21. Crude-Oil Tanker Market Crude tanker availability and applicability varies by region... SHIP TYPE PRINCIPAL LOAD AREAS Arabian GulfWest AfricaRed SeaNorth SeaMediterranean PLUS Combined carriers 179 ships of 18.8 million dwt VLCC tanker fleet(200,000 dwt);439 vessels of126.4 million dwt Suezmax tanker fleet (120,000-200,000 dwt); 283 vessels of 40 million dwt MediterraneanWest AfricaBlack SeaNorth Sea North Sea MediterraneanCaribbean Persian Gulf Southeast Asia Black Sea China Aframax tanker fleet (80,000- 120,000 dwt); 464 vessels of43.3 million dwt Source: The Clarkson Shipping Review & Outlook, London,

  22. Oil-Products Tanker Market Product tanker rates vary by type: clean vs. dirty... CLEAN PRODUCTS Chemicals Vegetableoils Lube oils MTBE* Naphthas Clean condensates Jet fuels Kerosine Gasolines Gas oils Diesels Cycle oils Fuel oils More sophisticated ship types work at this end of the market. Most products tankers can switch between clean and dirty products when the tanks are carefully cleaned. Gas oil is a good cleanup cargo when switching from dirty to clean. Crude oil Older products tankers gravitate to this end of the market. DIRTY PRODUCTS *Methyl tertiary butyl ether. Source: The Clarkson Shipping Review & Outlook, London.

  23. Marine Transportation: Typical Rates Platt’s Oilgram publishes tanker rates on a daily basis… Dirty Tankers: Chartering Rates Clean Tankers: Regional Price Differences Route WS Assess. Rate/$MT Route WS Assess. Rate/$MT 30,000 MT MED/UKC 148 8.08 70,000 MT CARIB/USAC 130 5.54 MED/USAC 160 11.90 80,000 MT MED/MED 93 3.96 MED/MED 148 5.54 UKC/USAC 155 10.48 AG/FE 100 7.31 UKC/UKC 135 4.91 MED/USG 100 9.56 BSEA/MED 130 8.90 UKC/UKC 98 4.01 AG/INDIA 235 12.29 130,000 MT MED/USG 80 7.71 AG/JAP 230 25.12 WAF/USG 75 7.04 SING/JAP 230 13.27 UKC/USG 80 6.68 CARIB/USAC 165 6.06 AG/MED 85 12.28 CARIB/USG 165 5.96 250,000 MT AG/USG 58 10.24 CARIB/UKC 150 15.78 AG/FE 55,000 MT AG/JAPAN 183 19.73 60 4.91 Dirty Products:CR: Crude oil, FO: Fuel oil, DY: Dirty petroleum products Clean Products:CO: Condensate, DS: Diesel, GO: Gasoil, JT: Jet, KR: Kerosene, LD: Leaded, NA: Naphtha, UN: Unleaded, CL: Clean petroleum products Rate assessments are made daily. Rates are based either on the Worldscale system or a US dollar lumpsum quote. Lumpsums, the cost of fixing a tanker expressed in dollar terms, are used more often in assessing clean tanker rates. Fixtures can be made using either method, but there isn’t necessarily a precedent to follow. Cargo sizes that do not exactly match those listed within the rates table may be pro-rated and the equivalent rates used as a guide to any relevant rates change. Source: Platt’s Oilgram

  24. Marine Transportation – Tanker Transportation Costs International marine costs driven by supply/demand of tankers... Crude Tanker Transportation Costs (Annual Averages) US $ per Barrel Freight Cost = Flat Rate x World Scale Rate (%) Fixed Published Rates (once a year) by AFRA "American Freight Rate Association" Charter rates are expressed in terms of percentage of Flat Rate (based on supply & demand of tankers for particular route). 46.0% of landed oil price... Prior to crude price increases Source: Arthur Andersen/Cambridge Energy Research Associates

  25. Pipeline Movements – Operations Pipeline operations can vary by pipeline... • USA Pipeline types are primarily fungible or segregated. This difference affects: • Scheduling • Quality Control • Transfer of Title • Ownership of Product Fungible Pipelines Like Kaneb & Williams do not have a transit time associated with the movement… Put it in today at refinery, take it out today at market. Segregated Pipelines Like Colonial & Buckeye require a "transit" time…in Colonial's case - 10 days from US Gulf Coast to Baltimore.

  26. Pipelines: Product Movements Batching of different grades is done in all producer pipelines... • A pipeline company takes care of many shippers and their various products, so batching is a very important aspect of products pipelining. One company, for instance, handles as many as thirty different grades of products. PRODUCT FLOW UNLEADED REGULAR GASOLINE UNLEADED REGULAR GASOLINE SUPER GASOLINE MID-GRADE GASOLINE KEROSENE JET FUEL DIESEL FUEL HEATING OIL COMPATIBLE INTERFACES TRANSMIX (interface material which must be reprocessed)

  27. Petroleum Product Overland Movements Overland movements are the most expensive product moves... • I. Trucks • Most expensive means of transportation per mile. • 43% of total product moved in 1990 was by truck. • But it only equaled to 6% of the total bbl-miles transported. • Mostly used to transport refined products from terminals to end users. Also used to transport crude from fields to central storing facilities. • Safety risk. • NAFTA • II. Rail Cars • 3% of total product moved from terminals

  28. D 5 4 C 3 Transport Cost B TRANSPORTATION COST (CENTS PER GALLON) Cents per Gallon Cents per Mile-Gallon No. of Miles 2 Transport Segment A-B Pipeline to N.Y. Harbor 1,500 2.3 0.0015 B-C Barge to Boston 250 1.2 0.0048 C-D Truck to Service Station 40 1.5 0.0375 1 A 0 TOTAL 1,790 5.0 0.0028 500 1000 1500 1800 2000 DISTANCE MOVED (MILES) Petroleum Product Transportation Costs Cost/mile increases as size and distance of shipment decreases... • Illustrative cost to transport gasoline from US Gulf Coast to a Boston service station NOTE: Barge 3 times Pipeline Cost for 250 Miles Truck 25 times Pipeline Cost for 40 Miles PIPELINE A GULF COAST B NEW YORK HARBOR C BOSTON HARBOR D GAS STATION BARGE TRUCK Source: NPC

  29. Petroleum Inventories and Storage Terms Common definitions of industry inventory terms... Tank tops and safety allowance Unavailable space: Space in excess of the maximum operating inventory required to maintain a workable operating system in the event of abnormal operations Contingency space: Space in excess of the minimum operating inventory level. Available for holding additional inventories while still maintaining a workable system (includes seasonal inventories) Operating space: Shell capacity of tankage in operation Actual inventory Net available shell capacity Total system capacity Required to maintain a workable operating system and avoid problems and runouts Working inventories: Maximum operating inventory Minimum operating inventory Unavailable inventory inside of tankage: Tank bottoms + fuel use + crude oil lease stocks Total unavailable inventory Unavailable inventory outside of tankage Unavailable inventory Outside of tankage: Pipeline fill + refinery equipment fill + in transit by water from domestic sources

  30. Petroleum Inventories and Storage Terms Inventory reduction objectives and impact... • Inventory can be reduced by: • Removing excess stock: • Reduce demand per cycle • Reduce demand variability • Reduce supply delays • Remove tank heels • Allow customer runouts Safety Ullage Excess Tankage WorkingVolume Demand Per Supply Cycle Excess Stock Demand Variability Safety Stock Supply Delays Undrawable Tank Heel Undrawable System Volume

  31. Estimated Gasoline Storage Cost 2005 1985 1982 1988 78. 6 6.0 15.0 6.0 13.0 Product Value (¢ /gal.) 90.9 78.4 51.6 Interest Rate (%) 14.9 9.3 8.6 Holding Cost (¢ /gal./yr.) 14.0 7.0 4.0 Tankage Cost (¢ /gal./yr.) 7.0 6.0 7.0 Total Storage Cost (¢ /gal./yr.) 21.0 13.0 11.0 Petroleum Inventory Storage – Cost of Storing Product The price of oil and level of interest rates are the two major factors affecting the cost of holding inventory... Estimated cost of holding one gallon of gasoline in inventory, which was about 0.14 per gallon per year in 1982 is about 0.04 per gallon per year in 1988. The cost today is related to product price & interest rate. The estimated total annual holding and tankage cost of gasoline has declined as interest rates have fallen. However, compnaies continue to manage their inventories so that only minimum economic levels are held. Source: NPC, Industry Study Vol IV

  32. 160 140 120 100 80 60 40 20 0 REFINERY BULK TERMINAL PIPELINE Primary Distillate Inventories – by Location There has been a general reduction in USA inventories over the years... 1977 1982 1987 Source: EIA Petroleum Supply Annual

  33. Days’ Supply of Inventory Above Unavailable Inventory Total Inventory - Minimum Operating Inventory = Current Daily Demand Days’ Supply of Inventory Calculation Days’ supply is another way to measure inventory... Inventory Levels To judge the adequacy of inventory levels we look at how much inventory is accessible above the minimum required to run the system:

  34. Custody Transfer Points Metering and measurement drive accounting accuracy.. Product Outflows (Liftings) Product Inflows (Receipts) Pipelines Pipelines Marine Marine Tank Car Tank Car Storage Tanks Storage Tanks Truck Truck 1) Test quality and measure individual shipments 2) Record in terminal ops. system 1) Settle product in tank 2) Test product quality for entire tank 3) Release tanks 4) Tank valuation FIFO/LIFO 1) Measure individual shipments 2) Record in system Source: PwC Internal Document

  35. Operations – Product Measurement Methods Terminal/operations – product measurement methods... • What is Measurement? • Gross product volume • Product temperature • Product density - API or specific gravity • Other product quality tests and checks

  36. Terminal/Bulk Plant Operations Terminal – end of day operations ... • System Reports: • Product Inflow Detail • Product Outflow Detail • Physical Inventory Detail • Calculated Ending Inventory • Inventory Reconciliation (Calculated vs. Physical) • Gain/Loss Computer Storage Tanks • Measure end of day tank inventory • Record in system Source: PW Internal Document

  37. Operations – Inventory Reconciliation Reconciliation ... Physical Book May 11th May 11th Beginning Physical Inventory 1,000 (Yesterday’s Ending Physical) Total Product Inflows (System) 500 Total Product Outflows (System) (600) Calculated Ending Inventory 900 (Perpetual) Actual Physical Inventory 875 (Operated at Terminal) Operational Gain/(Loss) (25) Loss Percentage of Thruput* 25/600% Beginning Physical 1,000 Thruput for Others (300) Total Inflows 500 Inflows In Transit 200 Total Outflow (600) Closing Book 800 (Actual Inventory Owned at Terminal) *

  38. Inventory Importance Accurate inventory is key to supply – transportation function... Supply Processes Trading & Contracts Oil Movements Invoicing Inventory Management Position Management Pricing

  39. T&D Organization – Typical USA Marketing Marketing organizations usually have the T&D responsibility... Vice President Marketing Terminal & Operations Planning & Analysis Wholesale Marketing Retail Marketing Order & Dispatch Environmental Compliance Tech Product Support & Lab Brand Advertising & Promotion Distribution Accounting National Accounts Facilities & Real Estate Fleet Management Tax & Credit Commercial & Industrial Regions Site Maintenance & Repair Safety & Training Pricing Aviation Sales TBA & Credit Card Support Customer Service Lubes, Specialties & Asphalt Sales Regional Sales Management Territory A Cargo & Refinery Sales Territory B Territory C Territory D

  40. To Dig Deeper References to assist in your future work… • Websites: • Shipping – www.clarksons.co.uk • National Petroleum Council – www.NPC.org • References: • Pennwell Publishing, Tulsa OK. 74101, Oil & Gas Journal

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