Repost from The Economist [Editor: An interesting European perspective on the future of world oil production and sales. Note references to Valero near the end. – RS]
A fuel’s errand
Making the most of a difficult business
| RUNCORN
THE sprawling acres of pipes, towers and tanks, which smash and rebuild hydrocarbon chains to turn crude oil into petrol, diesel and other useful stuff are vast and complicated. But the impressive scale of oil refineries is not matched by their profits. Refining in Britain is a miserable business these days.
In the 1960s big oil companies were so sure that demand for petrol would rise forever that they built the refineries to match. But demand for road fuels has peaked and is now falling—by 8% between 2007 and 2011. High fuel prices and stalling sales of vehicles that are anyway far more efficient are to blame. The result is wafer-thin margins and closures. Since 2009 two British refineries, at Coryton in Essex and in Teesside, have shut down. All but one of the remaining seven has been sold or been put up for sale in recent years.
Refineries operate in a global market. Petrol and diesel can be sent by tanker around the globe as readily as crude. Competing with sparkly, super-efficient new refineries in Asia and the Middle East is hard. Moreover, Britain’s older refineries were designed to produce petrol, which is increasingly the wrong fuel. Petrol sales by volume fell by 34% in the decade to 2011 while diesel grew by 73%. Around 40% of diesel is now imported. Nor do British refineries produce enough kerosene, which powers passenger jets, to supply the home market.
Big oil firms have sold up, preferring to invest in exploration and production. But why was anyone buying? For one thing, refineries are going cheap. Shell sold Stanlow to Essar Oil, an Indian firm, in 2011 for $350m (then £220m). In the same year Valero, an American refiner, bought Pembroke from Chevron for $730m.
The efforts to squeeze more returns from Stanlow show how refining can pay. Independent refiners like Essar and Valero are prepared to spend more time and money than big oil firms. Expertise and investment has put Stanlow, a 75m barrels-a-year refinery, well on the way in its plan to improve margins by $3 a barrel by 2014.
Essar aims to make Stanlow at least break even in bad times (in 2011 two-thirds of European refineries were losing money) and make decent profits when conditions improve. Generating energy using gas and tweaking technology to take crude from sources other than the North Sea, at better prices, is helping. Stanlow also has some natural advantages. It is the only refinery in the north-west and the closest to Liverpool, Manchester and Birmingham. Though refined fuel can be moved by pipeline, some 55% of the refinery’s output goes “off the rack”, loaded into road tankers to feed a big local market. More distant refineries, with higher transport costs, would have trouble competing.
But the market for fuel is still shrinking and tiny margins mean profits can be wiped out by small shifts in the price of crude or other costs. In the past five years Europe has lost 2.2m barrels a day (b/d) of refining capacity. Volker Schultz, Essar Oil’s boss in Britain, reckons that another 1m b/d needs to go. But that is not his only concern. Efforts in Britain to introduce a carbon floor-price will put its refineries at a disadvantage to European ones, and European environmental legislation will make the whole continent’s refineries even less competitive. It must seem to the industry as if it has a large hole in its tank and a small patch to fix it.
Valero Energy Corporation Provides Second Quarter 2014 Interim Update
Jul 14, 2014
SAN ANTONIO, July 14, 2014 /PRNewswire/ — Valero Energy Corporation (NYSE: VLO, “Valero”) announced today that the company expects to report income from continuing operations in the range of $1.10 to $1.25 per share for the second quarter of 2014.
Valero’s refining segment operating income is expected to be higher in the second quarter of 2014 versus the second quarter of 2013 primarily due to higher throughput volumes, as well as wider discounts on sour crude oil and certain types of North American light crude oil, which offset weaker year-over-year gasoline and distillate margins in most regions. In addition, Valero’s ethanol segment operating income is expected to be higher in the second quarter of 2014 versus the second quarter of 2013 mainly due to higher gross margins.
Valero also expects to report a loss from discontinued operations of $63 million, or $0.12 per share, related primarily to a noncash charge associated with recognizing an asset retirement obligation for the Aruba refinery.
As a reminder, Valero management will host a conference call on July 30, 2014 at 10:00 a.m. ET to discuss the quarterly earnings results, which will be released earlier that day, and provide an update on company operations. Persons interested in listening to the presentation live via the internet may log on to Valero’s web site at www.valero.com.
About Valero
Valero Energy Corporation, through its subsidiaries, is an international manufacturer and marketer of transportation fuels, other petrochemical products and power. Valero subsidiaries employ approximately 10,000 people, and assets include 15 petroleum refineries with a combined throughput capacity of approximately 2.9 million barrels per day, 11 ethanol plants with a combined production capacity of 1.3 billion gallons per year, a 50-megawatt wind farm, and renewable diesel production from a joint venture. Through subsidiaries, Valero owns the general partner of Valero Energy Partners LP (NYSE: VLP), a midstream master limited partnership. Approximately 7,400 outlets carry the Valero, Diamond Shamrock, Shamrock and Beacon brands in the United States and the Caribbean; Ultramar in Canada; and Texaco in the United Kingdom and Ireland. Valero is a Fortune 500 company based in San Antonio. Please visit www.valero.com for more information.
Valero Contacts
Investors: John Locke, Executive Director – Investor Relations, 210-345-3077 Karen Ngo, Manager – Investor Relations, 210-345-4574
Media: Bill Day, Vice President – Media and Community Relations, 210-345-2928
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Safe-Harbor Statement
Statements contained in this release that state the company’s or management’s expectations or predictions of the future are forward-looking statements intended to be covered by the safe harbor provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The words “believe,” “expect,” “should,” “estimates,” “intend,” and other similar expressions identify forward-looking statements. It is important to note that actual results could differ materially from those projected in such forward-looking statements. For more information concerning factors that could cause actual results to differ from those expressed or forecasted, see Valero’s annual reports on Form 10-K and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission and on Valero’s website at www.valero.com.
[Editor: The following studies were recommended to me by a neighbor who supports Valero’s crude by rail proposal. Both are loaded with valuable information, useful to anyone who wants facts to back up an argument for or against Valero’s project. You can download the document by clicking on the green text. Thanks, neighbor! – RS]
By David Pumphrey, Lisa Hyland, and Michelle Melton, March, 2014
Summary
In the last several years, rail has come to play an important role in the transportation of growing U.S. crude oil production. Over the last seven months, a number of serious accidents have resulted in intense review of the safety of shipping large quantities of oil by rail. The focus has been on classification of the oil, the integrity of tank cars, and rail operations. Regulatory processes have been initiated to attempt to deal with these issues in a timely manner. This issue analysis provides facts that illuminate the players, concerns, current status of regulatory action, as well as the potential issues going forward.
Further regulation of crude by rail is a near certainty, but the ultimate scope and pace remains unclear. Whether regulatory action actually slows down what has become a burgeoning transportation option for crude oil producers and refiners is an open question. It is increasingly unlikely that regulatory action—unless truly drastic—will stop shipment of crude by rail. However, moving forward, regulatory action such as phasing out older tank cars, rerouting trains, or imposing stringent requirements for testing, could impact the economics of crude by rail. [MORE – a 9-page report in PDF format]
by Anthony Andrews, Specialist in Energy Policy, February 18, 2014
Summary
The dramatic increase in U.S. crude oil production, coupled with the increase in crude oil transport by rail, has raised questions about whether properties (e.g., flammability) of these crude types—particularly Bakken crude oil from North Dakota—differ sufficiently from other crude oils to warrant any additional handling considerations. The U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA) issued a Safety Alert to notify emergency responders, shippers, carriers, and the public that recent derailments and resulting fires indicate that the type of crude oil transported from the Bakken region of North Dakota may be more flammable than traditional heavy crude oil. The alert reminds emergency responders that light sweet crude oil, such as that coming from the Bakken region, pose significant fire risk if released from the package (tank car) in an accident. PHMSA has expanded the scope of lab testing to include other factors that affect proper characterization and classification of crude oil such as volatility, corrosivity, hydrogen sulfide content and composition/concentration of the entrained gases in the material.
All crude oils are flammable, to a varying degree. Further, crude oils exhibit other potentially hazardous characteristics as well. The growing perception is that light volatile crude oil, like Bakken crude, is a root cause for catastrophic incidents and thus may be too hazardous to ship by rail. However, equally hazardous and flammable liquids from other sources are routinely transported by rail, tanker truck, barge, and pipeline, though not without accident.
A key question for Congress is whether the characteristics of Bakken crude oil make it particularly hazardous to ship by rail, or are there other causes of transport incidents, such as poor maintenance practices, inadequate safety standards, or human error. [MORE – a 13-page report in PDF format]
A warning placard on a tank car carrying crude oil. | Associated Press
By NATASHA KHAN, PublicSource, July 13, 2014
More trains carrying crude oil to East Coast refineries mean a greater risk of accidents. Derailments in Pennsylvania and throughout the country are a signal to some that an accident could be disastrous.
Why is more crude oil moving through Pennsylvania?
North America is now the biggest producer of crude oil in the world, partly as a result of fracking in North Dakota and other Western states. Without pipelines to move the oil, much of it has been pushed onto the rails. In 2013, U.S. railroads carried more than 40 times what they carried in 2008. Refineries processing much of the crude from the Bakken formation in the West are in the Philadelphia area.
Are these trains dangerous?
As crude-by-rail traffic increased, so did its accidents. Some lawmakers and public safety groups are concerned that as production surges, people near railroad tracks are exposed to more danger. And some believe the crude boom has outpaced the necessary regulations to ensure safety.
There have been at least 12 significant derailments involving crude since May 2013 in North America. Some involved explosions, evacuations, environmental damage and injuries. The most devastating was in Lac-Mégantic, Quebec, in July 2013, when 47 people died after a train carrying crude exploded. Since January, Pennsylvania has had derailments involving crude in Philadelphia, Vandergrift and McKeesport. There were no injuries in any of the accidents.
How much crude oil do these trains carry?
Right now Norfolk Southern and CSX, the major railroads in the state, move as many as eight trains of crude oil a day combined through the state.
Dubbed “virtual pipelines,” these trains can have more than 100 tank cars and can carry millions of gallons of crude.
Is Bakken crude more volatile than other types of oil?
North Dakota Bakken crude is potentially more volatile, corrosive and flammable than other kinds of crude oil. Investigations found that the Bakken crude that exploded in Quebec was classified as a less dangerous type of oil. In February, the U.S. Department of Transportation issued an emergency order requiring testing of all Bakken crude to determine its explosive nature.
Are other types of crude oil dangerous?
Other types of crude from the U.S. and Canada also could pose a threat. All crude oil is flammable and can cause environmental damage, Christopher Hart, acting National Transportation Safety Board Chairman, told the Associated Press in June.
What’s wrong with the rail cars?
Sometimes referred to as the “Ford Pinto of railcars,” the DOT-111 tank cars used to ship crude have been known to be a safety hazard for decades, according to federal safety investigators. Designed in the 1960s, they are prone to puncture and “catastrophic loss of hazardous materials” when trains derail, according to the NTSB.
The derailments have caused an outcry by state and federal officials and safety groups demanding that the cars be taken off the tracks. Canada has already ordered railroads to stop using them by 2017, but U.S. regulators have been slow to act. The U.S. DOT did advise railroads in May to stop using the cars to carry crude oil. The White House is reviewing new standards for tank cars, but it could take months before rules are in place.
How are trains carrying crude oil regulated?
Two federal entities regulate railroads carrying crude: The Federal Railroad Administration (FRA) and the Pipeline and Hazardous Materials Safety Administration (PHMSA). The FRA has about 400 inspectors who sometimes work with state inspectors. In Pennsylvania, the state’s Public Utility Commission does spot inspections of tracks and rail equipment.
Emergency planning is largely left up to counties. A state agency oversees 67 Local Emergency Planning Committees, which can request general information from railroads about hazardous materials coming through their counties. That information is not public.
Can you find out when crude oil trains come through your neighborhood?
Officially, no. Railroads are not required to share information about hazardous materials under federal law. Norfolk Southern and CSX, for example, said they don’t give out that information, citing possible security incidents and competition.
In May, the DOT said it no longer viewed information on crude oil from the Bakken as security sensitive. The agency told railroads with trains carrying more than 1 million barrels of Bakken crude to give the information to states. At least six states, including Washington, California and Virginia, made the information available. Pennsylvania didn’t. The Pennsylvania Emergency Management Agency refused to release the information to PublicSource. The agency denied our Right-to-Know request, calling the information “confidential” and “proprietary.”
Bakken and other crude oils are believed to be shipped through Pittsburgh and other Pennsylvania cities on a regular basis on their way to Philadelphia refineries. A spokeswoman for the Pennsylvania Public Utility Commission told PublicSource that Bakken crude is shipped through Pittsburgh.
What has been done to improve safety?
U.S. regulators asked railroads to comply with a number of voluntary actions. The railroads agreed to slow crude trains to no more than 40 mph in high-risk urban areas. (However, a train that derailed in Lynchburg, Va., in April was traveling at just 24 mph.)
Recent proposed rules for crude oil, including new standards for tank cars, drew comments from the public representing more than 100,000 people.
In March, CSX agreed to give PEMA access to its real-time monitoring system that tracks crude’s movement through the state. Cory Angell, the agency’s spokesman, said it is working with Norfolk Southern on a similar agreement.
Are first responders prepared for a significant derailment in Pennsylvania?
Daniel Boyles, the emergency services coordinator for Blair County, told PublicSource he thinks railroads are doing everything in their power to prevent accidents. However, he said, first responders need more training. Trains carrying Bakken crude roll through his county twice a week, he said.
Emergency officials in Beaver, Allegheny and Dauphin counties said that awareness has increased and railroads have given emergency responders more training.
A PEMA spokesman said the state is prepared in the case of a major derailment. He added that Pennsylvania will soon use a DOT grant to train county hazmat teams and first responders.
Who doesn’t think first responders are prepared?
“No community is prepared for a worst-case event,” Deborah Hersman, former chairwoman of the National Transportation Safety Board, told a Senate subcommittee in April.
Under voluntary safety measures effective July 1, railroads will contribute $5 million for training for emergency responders. And they will develop a list of emergency-response resources in case of a derailment.
But federal safety officials have questioned whether voluntary actions are enough. Currently, railroads don’t have to provide comprehensive emergency plans for the crude oil being transported. That’s what’s needed, Hersman said.
In a Jan. 23 letter to federal regulators, she said that without comprehensive crude oil response plans “(rail) carriers have effectively placed the burden of remediating the environmental consequences of an accident on local communities along their routes.”
Which officials are talking about this in Pennsylvania?
Sen. Bob Casey, D-Pa., endorsed a bill he said would boost safety. The bill would include $3 million for track inspections and hire 20 new inspectors.
Philadelphia Mayor Michael Nutter backed a proposal to charge a federal freight fee to crude-oil producers and industrial consumers. The money would be used to improve tracks.
Christina Simeone, director of PennFuture’s energy center, said other states have shown leadership on the issue — but not Pennsylvania.
New York Gov. Andrew Cuomo commissioned a safety report for his state. The report laid out actions the state should take. Minnesota lawmakers allocated $6.4 million for more inspectors, specialized training for first responders and fixes for highway-rail grade crossings along crude routes.
Republican Gov. Tom Corbett has been silent about the safety issue, said Simeone, who commented that there is interest in “minimizing the issue” because of concerns about the refinery business in Philadelphia and gasoline prices in the region.
Pittsburgh Mayor Bill Peduto has not been part of the conversation. In a recent meeting with PublicSource, Peduto said that he is “aware of the reality of what is coming through.” In the case of an accident, Pittsburgh could call on the PA Region 13 Task Force, he said. The task force is an initiative that allows counties to pull resources from the entire region in case of an emergency.
