OPIS Headlines

February 22, 2017
PBF Will See Crude Storage Swell at Chalmette

A new 625,000-bbl tank will be constructed to handle sour crude at PBF's refinery in Chalmette, La., after a deal was reached between the refiner and its master limited partnership affiliate. The additional tank is a reminder that refiners with publicly traded MLPs are motivated to add storage that can yield a nice earnings stream for logistics and afford the refining company more agility with crude supply or refined products marketing.

A 10-year storage services agreement was signed last week between PBF Holding and PBFX (the master limited partnership) for tankage that should be ready by Nov. 1, 2017 or earlier. PBF affiliate Chalmette Refining along with PBFX Operating (a PBFX affiliate) have entered into a 20-year lease on the premises where the tank will be located and Chalmette Refining will manage the construction of the tank.

Under the storage agreement, which is typical between refiners and their logistics affiliates, PBFX will provide the parent company (PBF Holding) with storage services in return for storage fees. The agreement requires the parent company to pay a monthly fee of 60cts per barrel of shell capacity and the lease can be extended for various terms.

The project underscores how independent refiners and their MLPs can be much more nimble than major oil companies such as ExxonMobil. Among major oil companies in the U.S., only Shell has a master limited partnership affiliate, whereas nearly every publicly traded independent refiner has a publicly traded MLP.

Beyond leverage for refining operations, the additional crude oil storage could pay off when there is deep contango in crude oil prices. Much of the crude that is in U.S. tanks was put there as part of "carry plays" by public and private trading companies.

New for 2017! The 19th Annual OPIS Supply & Transportation Summit is now part of CERAWeek, the industry's premier gathering of global energy industry leaders, experts and government officials. Get all the details here.

February 22, 2017
NATSO, Large Retailers Drum Up Support to Keep RFS Point of Obligation

On the last day of the public comment period on the Renewable Fuel Standard (RFS) at the Environmental Protection Agency (EPA), comments from opposing sides on the petitions to move the point of obligation are flying in fast and furious before the deadline.

NATSO, representing America's travel centers and truckstops, said on Wednesday that it is encouraged by the vast support to keep the current compliance structure under the RFS. NATSO is opposed to moving the point of obligation.

NATSO's opposition to keep the current compliance requirements is backed by major retailers, including Boyett Petroleum, Circle K, Cumberland Farms, Guttman Energy, Kwik Trip, Murphy USA, Pilot Travel Centers, QuikTrip, RaceTrac, 7- Eleven, Sheetz and Wawa.

NATSO, in collaboration with other industry stakeholders, has engaged a diverse group of more than 35 organizations and companies representing downstream blenders, fuel retailers, marketers and end users at the federal and state levels. These groups speak on behalf of a majority of the fuel sector, which opposes the shift, NATSO said.

"NATSO is heartened by the overwhelming number of stakeholders who are urging the EPA to keep the RFS compliance with refiners, importers and manufacturers," said Lisa Mullings, CEO of NATSO. "We urge the EPA not to shift compliance onto thousands of small business fuel retailers, which would inject massive disruption into fuels markets and raise fuel prices, ultimately harming the economy and hard-working Americans."

The RFS has been an ongoing point of contention between major players in the fuel industry, NATSO said. A handful of refiners and investors have petitioned the EPA to shift compliance requirements down the supply chain, it said.

"Doing so would undercut the program's efforts to sustain the use of renewable fuels in gasoline and diesel fuel. The current structure creates a strong incentive for blenders, retailers and marketers to integrate renewable fuels into the supply chain," NATSO said.

"The RFS is working as intended by creating stable gas prices and encouraging renewable fuels in our gas supply," said Tim Columbus, general counsel of the National Association of Convenience Stores and SIGMA. "But if the EPA shifts compliance, it would unnecessarily complicate the program, needlessly disrupt the markets for motor fuels, and hurt consumers most."

In addition to undermining the purpose of the program, this change would increase gas prices for consumers as downstream players' ability to satisfy their obligations would be dictated by upstream counterparts, who have the leverage and incentive to raise prices, NATSO said.

A recent Penn Schoen Berland (PSB) survey released earlier this year revealed that 86% of voters agree that a compliance shift would increase gas and diesel prices at the pump, according to NATSO.

The change would also add significant compliance costs and burdens to freight shippers, which would ultimately raise the cost of consumer goods through higher shipping costs, the study said.

For example, if the compliance changes, Class I railroads would need to expend between $112.5 million and $214 million just to acquire Renewable Identification Numbers (RINs) to comply with 2016 Renewable Volume Obligations (RVOs) -- based on 2016 numbers. California's enactment of the Low Carbon Fuel Standard is a cautionary tale. In light of the market's experience in California, it would not be implausible for the railroads to have to pay between $260 and $447 million more for fuel.

OPIS notes that the point of obligation for the RFS has been a contentious issue at different market levels in the past year, with some refiners and retailers requesting a move of the point of obligation from the refineries to the racks.

It is a case of the haves versus have-nots. Some refiners with a small or no retail footprint are incurring heavy RINs costs due to an inability to blend ethanol and generate RINs. Some other refiners and large retailers are able to generate more RINs from their large retail networks, which they have invested in over the years. These refiners could use the RINs from their large retail operations to cover their RINs obligations, while larger retailers like Sheetz and Wawa are able to benefit from selling RINs or use the RINs benefits to be more competitive in retail pricing.

Become a better fuel buyer without ever leaving your desk – sign up now for the OPIS Basics of Fuel Buying eLearning course. Taught by 30+ year industry veteran Scott Berhang, this 11-module online training program will guide you through everything you need to know about purchasing physical fuel. Visit www.opisnet.com/events/fuel-buying-online.aspx or call our eLearning team toll-free at 888-301-2645 for more details and to get started. Also available en español.

February 13, 2017
Western Refining Yet to Finalize Voting Date for Tesoro Merger

Western Refining said that it set a record date of Feb. 10 for company stockholders who will vote on a proposal to adopt a previously announced merger plan with Tesoro during a special meeting.

A Western spokesman told OPIS on Monday that the company has yet to finalize a date for that special meeting.

Western said that Western stockholders of record at the close of business last Friday will be entitled to receive notice of the special meeting and to vote at the special meeting.

OPIS notes that the pending merger deal is subject to customary closing conditions, including approval by the shareholders of both companies and the receipt of regulatory approval.

Tesoro and Western said on Monday that the U.S. Federal Trading Commission has requested more information on the merger agreement, but both companies still expect the deal to close in the first half of 2017, subject to approvals.

On Jan. 25, Western Refining said that the integration process between Tesoro and Western is ongoing ahead of the potential closing of the deal.

Following the announcement of the acquisition, many at Tesoro and Western have been preparing for the potential closing, Western said.

Tesoro's Enterprise Integration Office comprises a team of business and functional work teams led by Keith Casey, executive vice president, Marketing and Commercial, while Mark Wilson, vice president, Enterprise Integration, manages the effort on a day-to-day basis, Western said.

In January, the joint Western and Tesoro Integration Planning team met for two days in San Antonio to kick off their work, Western said.

On Nov. 17, OPIS reported that Tesoro would acquire Western at an implied current price of $37.30 per Western share in a stock transaction, representing an equity value of $4.1 billion based on Tesoro's closing stock price of $85.74 on Nov. 16, 2016.

This represents an enterprise value of $6.4 billion, including the assumption of approximately $1.7 billion of Western's net debt and the $605 million market value of non-controlling interest in Western Refining Logistics.

Tesoro will add Western's refineries in Texas, New Mexico and Minnesota to Tesoro's existing refineries in California, Washington, Alaska, Utah and North Dakota, which will expand the combined company's operational capabilities and improve access to advantaged crude oil and extended product regions.

Combined, the company will have 10 refineries, with a refining capacity of over 1.1 million b/d.

The merger deal brings together 12 retail and convenience store brands to better serve a customer base and regional preferences and provides improved ratable supply from the entire refining system, Tesoro said. The combined retail operations will comprise over 3,000 branded retail stations operating under a variety of brands including ARCO, Shell, Exxon, Mobil, SuperAmerica, Giant and Tesoro.

New for 2017! The 19th Annual OPIS Supply & Transportation Summit is now part of CERAWeek, the industry's premier gathering of global energy industry leaders, experts and government officials. Get all the details here.

February 1, 2017
Demand for Global Fuel Additives to Grow; Mixed Impact From Regs: Kline

Consumption of global fuel additives is expected to grow at a compound annual growth rate of 1.9% from 2015 to 2020 despite mixed impact from biofuels mandates and fuel regulations, according to market research and management consulting firm Kline.

Consumption is about 820 kilotons (537,496 bbl) in 2016, according to the recently published Global Fuel Additives: Market Analysis and Opportunities report issued by Kline.

North America is the largest fuel-additive-consuming region in the world due to its high fuel consumption for transportation, as well as supported by the mandated additive usage for gasoline in the United States, Kline said.

Fuel additives are categorized into three key segments: blending, shipping and storage; performance additives; and the aftermarket.

The blending, shipping, and storage segment represents additives that are added at the refinery and is the largest segment, accounting for more than two-thirds of the total fuel additives market.

Performance additives applied by fuel marketers to differentiate themselves in the market is the second-largest segment of the market. This segment can be further divided among gasoline performance additives, diesel performance additives and other fuels.

Aftermarket additives are those bought and applied by vehicle owners. The distribution channels are also different for this segment. Gas stations, workshops and auto-parts stores are some of the channels used to sell additives in this segment.

Diesel is the most consumed fuel globally, Kline said. Therefore, additives such as cetane improvers and cold flow improvers, used for diesel, are among the most consumed fuel additives in the market.

Additive consumption depends on several factors, such as fuel consumption, treat rates, fuel grade and regulations.

The larger the share is for premium fuels sold in the market, the higher the consumption of additives is expected for that market. With the anticipated rise in sales of premium fuel in Asia as a portion of customers switch to premium fuels, consumption of additives will also increase in the region.

"Tightening fuel economy norms globally are expected to slow down the growth in the fuel consumption, adversely affecting fuel additive demand growth. Furthermore, regulations can also have both a positive and negative impact on the consumption of fuel additives. Regulations such as the 'Total Additivation Program' in Brazil mandating minimum treat rates are expected to boost the demand for fuel additives if implemented," according to Kunal Mahajan, a project manager in Kline's energy practice.

"Regulations mandating minimum ethanol blending with gasoline and biodiesel blending with diesel could have a positive impact on additives such as corrosion inhibitors and anti-oxidants but a negative impact on additives such as lubricity improvers," he said.

Biodiesel improves lubricity, but has poor oxidative stability, Mahajan said. This will adversely impact the demand growth of lubricity improvers if the governments around the world, especially in Asia, are successful in implementing the biofuels mandate, he said.

On the other hand, such mandates will favor the growth of anti-oxidants and corrosion inhibitors, Mahajan said. Ethanol absorbs moisture, which could cause corrosion, due to which the demand for corrosion inhibitors will increase, he added.

Become a better fuel buyer without ever leaving your desk – sign up now for the OPIS Basics of Fuel Buying eLearning course. Taught by 30+ year industry veteran Scott Berhang, this 11-module online training program will guide you through everything you need to know about purchasing physical fuel. Visit www.opisnet.com/events/fuel-buying-online.aspx or call our eLearning team toll-free at 888-301-2645 for more details and to get started. Also available en español.

January 25, 2017
Zenith Energy to Develop Fuel, LPG Rail, Storage Terminals in Mexico

Zenith Energy, an international liquids and bulk terminaling company, said on Wednesday that it has signed an agreement with one of the largest companies in Mexico to market and develop existing logistics assets for oil storage and distribution in Mexico to support the growing demand for oil products.

The agreement provides for the use of certain facilities in Mexico of CEMEX, S.A.B. de C.V., a global building materials company. Zenith has been awarded the rights to develop these sites for fuel and LPG storage and distribution.

These terminals will receive fuel and LPG primarily from the Gulf Coast and Texas via rail but Zenith believes there are some marine facilities that could be available for international delivery by vessel, Jay Reynolds, chief commercial officer of Zenith, told OPIS.

This is the first time Zenith is working in Mexico, but the Zenith management team has previous Mexican experience, he said. Zenith has established a company in Mexico with an on-the-ground representative and former terminal manager for Exxon Mobil in Mexico.

CEMEX's facilities in Mexico include more than 90 storage and distribution locations, in both inland and coastal cities, most of them connected to the Mexican railroad network, many with unit train capability, and include both operational and dormant locations. The development of these sites will not interfere with CEMEX's normal business activities in Mexico.

Zenith's preliminary plans and layouts include significant development at the terminals in Mexico, Reynolds said. The work will include building tanks together with associated infrastructure such as loading and unloading facilities. "We have had a number of initial conversations with potential customers which have been very positive and the next step is to fine tune our plans. It is worth noting that we are developing these assets because of their potential and the significant market demand," he said.

"Our development time is likely to be significantly less than other competitors, primarily because we will not have to add rail tracks. Depending on the final plans, we could have a facility fully operational in 12-18 months. This is clearly dependent on permitting and customer requirements," Reynolds said.

The capacity is flexibility and location dependent with some locations having capacity of up to 1 million barrels and unit train handling and other locations being smaller with manifest rail capabilities, he said.

The total capacity will be driven by customer demand and market size, Reynolds said. If all locations are developed, Zenith could have several million barrels of storage in Mexico over the next couple of years. The pace and scale of development will necessarily depend on the evolution of related regulations and other external factors.

"Based on the advantaged locations in major metropolitan areas and the customer demand for reliable operating facilities in Mexico, we believe that this solution will be very attractive to the market, particularly those looking for alternatives to uncertain and expensive pipeline projects," said Reynolds.

Jeffrey Armstrong, CEO of Zenith, said, "we are excited to announce this initiative at this important time in Mexico's ongoing energy reform. We see a growing number of promising opportunities to invest in the country's developing midstream sector, particularly with the ability to utilize existing assets in key distribution markets inside the country." With headquarters in Houston, Zenith Energy is an international liquids and bulk terminaling company that owns and operates over 15 million barrels of crude oil and petroleum products storage in Amsterdam, Ireland and Colombia.

Zenith is pursuing opportunities to buy, build and operate terminals primarily in Latin America, Europe and Africa. The company is focused on the storage and distribution for petroleum, refined products, natural gas liquids and petrochemicals. The company also will acquire and operate logistics and distribution assets that support terminals, such as pipelines, truck racks and barges.

In August 2014, Warburg Pincus, a leading global private equity firm focused on growth investing, led a line-of-equity commitment in Zenith of up to $600 million.

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