January 27, 2015
Knight Warrior OKs $300 Million West Texas Crude Pipeline Project

Knight Warrior LLC, a Texas limited liability company, said on Tuesday that it is moving forward with its 160-mile crude pipeline project in West Texas.

Knight Warrior LLC is a subsidiary of Blueknight Energy Partners, and Vitol owns the general partnership of Blueknight.

The pipeline, which will link the emerging East Texas Eaglebine/Woodbine crude oil resource play to the Houston refining and export markets, is scheduled for startup in the second quarter of 2016.

The project is backed by shipper commitments, including a transportation agreement with Vitol, a diversified multinational energy company, and SEI Energy LLC, a natural gas and crude oil marketer/producer services company with offices in Tennessee, Texas, Virginia and Oklahoma.

Knight Warrior also announced it has awarded contracts to Hatch Mott MacDonald, LLC, Contract Land Staff LLC and Apex TITAN Inc. for engineering and design, land management and environmental services, respectively.

Knight Warrior has assembled a team of industry veterans led by Fred Brown, senior project manager, to manage construction of the pipeline. Brown will be responsible for overseeing all aspects of the Knight Warrior project.

The Knight Warrior East Texas project will consist of a 160-mile, 16-inch diameter pipeline originating in Madison County continuing south through Walker, Grimes, Montgomery and Harris counties.

The pipeline will have an initial capacity of 100,000 b/d, will be expandable up to 200,000 b/d and will serve Eaglebine/Woodbine crude oil producers via two origination stations located near North Zulch and Madisonville, with a third station near Roans Prairie planned to accommodate future production growth in the area.

The pipeline will have the capability to segregate and batch crude oil in order to help producers capture value for this premium product.

The pipeline is estimated to cost approximately $300 million, subject to final pipeline design and shipper commitments, and is anticipated to be financed using a combination of debt and equity.

January 22, 2015
Circle K Enters Houston Retail Fuel Market

Circle K, one of the largest convenience store operators in the U.S., has opened its first retail gasoline station in Houston, Texas, and more new stores are under construction, industry sources in Houston told OPIS on Thursday.

The first retail pump in Northwest Houston is located near the George Bush Intercontinental Airport, marking the third Texas City in which Circle K now operates. Besides Houston, Circle K also operates in El Paso and Dallas.

The company has 42 stores in El Paso and 35 locations in Dallas. The number of stores in Houston could rise to comparable market size as Dallas and El Paso.

Circle K is planning to build its new c-stores and gasoline pumps in Houston from the ground up. The first Houston retail fuel station is flying the Circle K flag and sells unbranded gasoline. All new stores in Houston will follow this same footstep.

Many Circle K locations also sell supplier-branded fuels including Shell, Mobil, Irving, Marathon, BP, Exxon, Conoco and Phillips 66.

A decision to go branded or unbranded gasoline depends on many market factors, including supply cost options, brand differentiation and market shares.

Circle K, a subsidiary of Alimentation Couche-Tard, has more than 3,300 stores in the U.S. and more than 4,000 international locations. In the United States, Couche-Tard is the largest independent convenience store operator in terms of number of company-operated stores.

OPIS reported in July 2014 that Circle K was in the process of sourcing gasoline supply at the racks in Houston to facilitate its retail expansion in Texas.

At the Houston racks, Circle K would have its pick on a number of wholesale gasoline suppliers, including Valero, Phillips 66, Flint Hills, Petrocom, Shell, Global, Musket, Murphy, Citgo, Chevron, Texaco, ExxonMobil, Western and Noble.

Last year, Couche-Tard bought Pantry for $1.7 billion and added 1,512 Pantry stores in the Southeast. This deal was expected to close in the first half of 2015.

As of Oct. 12, Couche-Tard's network comprised 6,303 convenience stores throughout North America, including 4,851 stores with road transportation fuel dispensing. Its North American network consists of 13 business units, including nine in the United States covering 40 states and four in Canada covering all 10 provinces. More than 60,000 people are employed throughout its network and at the service offices in North America.

In addition to North America, Couche-Tard also has expansive retail fuel operations in Europe and Asia.

January 15, 2015
BP Developing Technology Platform for Branded Stations

BP has been working with technology vendors for the past several months to finalize the details of a site technology platform offer for BP marketers and plans to roll the program out in the first quarter of 2015, said BP spokesman Scott Dean.

A prime concern is the approaching deadline for chip card standards known as Europay MasterCard Visa (EMV). Credit card companies are requiring all retailers to install point-of-sale devices that accept chip cards inside their stores by Oct. 1, 2015. Gas stations are required to install chip card technology at the fuel islands by Oct. 1, 2017.

Retailers failing to comply by the deadlines can be held liable for payment card fraud. Chip cards are more secure and trickier to counterfeit than the magnetic stripe technology commonly used in the United States.

"Communicating the final offer to marketers is an absolute priority for us and we plan to do that as soon as possible in the first quarter," said Dean. He said BP also is "working closely" with the BP Amoco Marketers Association (BPAMA) to obtain marketers' insights on EMV compliance and on longer-term technology requirements at gas stations.

An earlier story posted as an alert on Jan. 13 reported that BP marketers listening in on a webinar concerning how to profit from EMV compliance were disappointed because they'd hoped a BP representative would join the webinar to detail BP's technology offer.

The webinar was sponsored by BPAMA, not BP as reported in the story. The session, solely conducted by Chris Santy, president and founder of gas station equipment lender Patriot Capital Corp., encouraged jobbers to use various types of financing to qualify for a potential tax incentive and to retain good dealers or court new ones, marketers said.

January 13, 2015
Vancouver Decision on NuStar Crude-by-Rail Project Expected Late Feb.

The city of Vancouver, Wash., is expected to render a decision in late February regarding NuStar Energy's potential crude-by-rail project in the region, according to The Columbian newspaper.

Members of the Vancouver City Council were briefed on the project Monday by City Attorney Bronson Potter in the wake of residents' expression of safety and environmental concerns to councilors.

The decision, which will be made by the city's director of community and economic development, may be appealed to a hearings examiner, according to Potter, after which it would go to Clark County Superior Court.

According to NuStar's application, the company would retrofit two existing storage tanks at the port (Vancouver No. 1 terminal) to receive crude oil by rail, store it temporarily and transfer it to marine vessels for shipment via the Columbia River. Rail tracks at the location would be modified to accommodate 16 railcars (up from two).

The facility is expected to handle an average of 22,000 b/d of crude oil. Projects with capacity greater than 50,000 b/d are reviewed by the state's Energy Facility Site Evaluation Council (EFSEC) which then makes a recommendation to the governor.

NuStar owns three terminals in the Pacific Northwest, specifically in the Portland-Vancouver area.

The company's Vancouver No. 1 terminal is for chemical storage, and the Portland terminal has 1.19 million bbl of storage for gasoline, distillates, biodiesel, fuel oil and ethanol.

The Vancouver No. 2 terminal has total storage capacity of 437,000 bbl in seven tanks for storing methanol, gasoline, distillates and jet fuel.

As of late October 2014, permitting of Tesoro Corp. and Savage Companies' 360,000-b/d crude oil rail-to-marine terminal in Vancouver was in progress with the EFSEC.

Following approval by the governor and issuance of permits, construction is estimated to take nine to 12 months, although operations could begin within about six months of construction's start, Tesoro said.

Initial expectations for completion of the Tesoro-Savage terminal had been 2014.

January 7, 2015
Three Oil Trading Firms Exit Tough West Coast Cash
Products Market

The niche West Coast oil products market has always been known to be tough to operate in, but a combination of higher trading competition, lower market liquidity and more stringent state greenhouse gas regulations has taken its toll on some oil trading companies.

Three oil companies -- Chemoil, Mercuria and BioUrja -- have shut down their West Coast oil trading operations and offices recently. Prior to the recent exodus, Trafigura, Glencore and Astra have also left the West Coast products market in the past few years. It is noted that SK Energy is to close its Los Angeles office in the first half of this year, but SK Energy will consolidate and continue to trade West Coast oil products out of its Houston office.

While Mercuria had traded West Coast oil products at least for the past few years, Chemoil and BioUrja were relatively new players. Chemoil and BioUrja had entered the West Coast cash products market in the second quarter of 2014. Chemoil and BioUrja had operated out of Los Angeles, and Mercuria was in San Luis Obispo.

These three companies are not expected to return to the West Coast products market in the foreseeable future.

Some West Coast players said that the tough oil trading environment has gotten tougher in the past few years.

The West Coast oil trading environment has seen a significant transformation in the past 10 years, with the stoppage of gasoline imports into the West Coast. Regular diesel imports are scarce, and jet imports are reduced. The lower imports are attributed to a lack of arbitrage opportunities.

Besides reduced imports, the West Coast market has also seen the major merger deal between Tesoro and BP in Los Angeles last year. This essentially takes BP out of the Los Angeles market and reduces trading liquidity.

The recent exodus of the three companies could also be blamed on the over- reliance on regional gasoline pipeline trading and ethanol-blending economics, some traders said. Cargo players could have more trading flexibility than pipeline players, they noted.

One player noted that the West Coast products market is tough to trade in for a beginner or a non-asset holder.

It is noted that Chemoil has also seen an exodus from its biofuel team in Stamford and Omaha, with many of its biodiesel and ethanol traders joining Noble Group. Besides gasoline pipeline trading, Chemoil had also worked on ethanol blending economics on the West Coast, some sources said.

The new Low Carbon Fuel Standard in California has some West Coast players on the defensive, cutting back on trading volumes.

While some oil companies are prepared for the obligation to buy carbon credits before the January implementation date, there is still some confusion and teething issues in the market on companies' exposures to carbon credits.

"The LCSF obligation has turned the West Coast market upside down. There is some confusion on whether to put carbon credit as a line item or to be embedded in the price," a trader said.

Meanwhile, OPIS reported last year that Musket Corporation is expected to expand its bulk fuel trading and wholesale marketing operations in California early this year, aiming to trade and offer gasoline in the Los Angeles market for the first time in recent memory.

The Southern California expansion is in addition to Musket's existing diesel marketing presence in the San Francisco market. Musket could include diesel offering in Los Angeles as well at a later date to support its vast fuel supply chain for the trucking industry. Musket will have fuel storage capacity in place in Los Angeles by early next year, but details of the exact terminal location are not known so far.

Sources said that the Los Angeles proper rack market is more challenging to operate in, compared with the greater Los Angeles area. This is due to a lack of products pipelines servicing the racks in L.A. proper.

Rack players in L.A. include Valero, PetroDiamond, Tesoro, Phillips 66, Beacon and Shell.

Musket already has a strong fuel-trading and marketing presence in the Midwest, Gulf Coast and East Coast. So far, its West Coast presence is limited to Arizona, Nevada and San Francisco. Musket is a privately held commodity supply, trading and logistics company headquartered in Houston with additional offices in Oklahoma City, Phoenix and Calgary.

West Coast industry sources said that Musket has had a limited trading and marketing presence in California in the past few years.

It is noted that the Los Angeles oil products market, the main oil trading hub on the West Coast, is considered a niche market with a limited number of players. However, West Coast players generally welcome new players as it could add fuel trading liquidity. In addition to its niche status, trading and marketing companies and refiners in the California gasoline market are facing mounting challenges stemming from the state's stringent greenhouse gas regulations.

January 6, 2015
Verleger: Cash-and-Carry Deals Might Stabilize WTI; Saudis Eyeing WC Sales?

Storage plays for West Texas Intermediate crude could stabilize the free-fall in 2015 benchmark futures contracts, but any such recovery could inspire more aggressive attempts by Arab Gulf producers to widen market share and further penalize the North American shale industry. The Saudis could even look to increase sales of its coveted Arab Light crude into the U.S., perhaps at the expense of Alaskan output.
Noted oil economist Phil Verleger, who was months ahead of his analytical brethren in predicting a downward spiral for global crude prices, now sees some parallels with the oil price recovery of 2009. But he stresses that a recovery to, say, $70/bbl is a double-sided coin for OPEC producers such as Saudi Arabia, Kuwait and the United Arab Emirates. That "troika" of producers engineered the market share initiative and may be displeased at any recovery that keeps shale growth intact and shrinks OPEC market share.

Verleger notes that the current market structure of contango -- where forward WTI fetches a decent premium to near-term barrels -- is sufficient so that trading companies can buy prompt barrels, put the inventory into empty Cushing tankage, and sell futures against the barrels, pocketing a handsome return in a common cash-and-carry trade. The practice can theoretically continue just as long as carrying costs don't exceed the time spread value.

Global banks and large trading companies opted to pursue these cash-and-carry trades in 2009, in many cases hiring ships to store crude oil at sea. There were instances where traders pocketed a risk-free profit of $10 million per cargo per month, aided by the nearly interest-free cost of money. By the end of 2009, various trade reports counted more than 50 tankers being used to store both crude oil and products. Verleger estimates that about 150 million bbl was ultimately stored on the water, absorbing as much as 6% of OPEC exports.

The size of the ongoing play isn't known, but Verleger observes that charter rates for supertankers are up five-fold in the last year, suggesting that floating storage is once again in vogue. But he identifies Cushing, Okla., as the appropriate alternative to cargo storage. Cushing has a capacity of about 85 million bbl for crude, up dramatically from the 55-million-bbl capacity in 2010 and 30 million bbl some 10 years ago. Only about one-third of the available storage at the NYMEX hub is being used, he estimates.

Verleger assumes that Cushing stocks could soon build at a rate of 1.5 million bbl per day. The cash-and-carry action might even hasten the move of more Canadian crude going to Texas, since traders would be less likely to hold non- WTI barrels. Hence, the price discount for blends outside of the WTI spec may widen because of the predilection for WTI in storage plays. Meanwhile, the price surge for WTI might make that grade unattractive to Gulf Coast refiners.

Thanks to the storage plays, WTI appears to be out of sync with most U.S. crudes. It is too expensive to compete efficiently with Gulf Coast blends like LLS, for example. But it won't decline unless and until it becomes uneconomical to hold the crude in the cash-and-carry deals.

The price performance of the last 40 days puts the market structure into perspective. Through last Friday, cash prices for crude had dropped $40/bbl while the 24-month forward price has fallen by "only" $23.50/bbl and the 36- month forward quote is down just $20/bbl. The investment community clearly perceives that oil prices will indeed recover.

That investor confidence will help push stocks higher in Cushing and on global tankers. Rising inventories might then support cash prices at or above current levels for months, or perhaps even a year. Verleger notes that aggressive bank buying from JP Morgan and others in 2009 contributed to an 85% price increase between December 2008 and December 2009.

But under the scenario of strong cash-and-carry buying, the downside for the OPEC "troika" could prove to be the extension of the fracking boom. Crude oil at $75/bbl leaves plenty of room for a fracking profit, and price stability in the $70s might frustrate the Middle East "Troika" in its efforts to maintain market share.

Separately, there is no severe contango in distillate even though inventories are lower than they were in early 2009 when banks went on cash-and-carry buying binges. A crude oil price increase tied to cash-and-carry could constrict refinery profits and promulgate run cuts. Verleger expects the Saudis and others to stick with pricing formulae that encourage refiners to keep run rates high. They could ultimately put an end to cash-and-carry transactions by increasing oil sales. Last week the Saudi oil minister hinted at such action when he stated the Kingdom would maintain production "unless a new client comes along and then we may increase it."

A new client could even surface on the U.S. West Coast. Saudi Light crude is almost the ideal feedstock under the rules of the LCFS (Low Carbon Fuels Standard).

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