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Fuel Supply

Preparing for Storms: A Plan for Gasoline Retailers

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Whether you live in India and call them Cyclones, Asia and call them Typhoons, or North America and call them Hurricanes; powerful tropical storms have a significant impact on downstream operations for oil and gas companies and fuel (petrol) retail dealers. In 2012, oil and gas companies struggled to provide branded quality supply during super-storms like Hurricane Sandy in the Northeast US, Typhoon Saola in the Philippines and Taiwan, and Tropical Storm Son-Tinh in Vietnam.

What can retail fuel dealers do to prepare for the annual storm season?

  1. Prepare – Top up tanks before the storm arrives to reduce runouts (outages), improve fleet utilization by prioritizing deliveries to high volume stations after the storm and import more fuel in your depot to supply the market.
  2. Monitor – Central dispatch should have tools to alert stations with communication problems, outdated inventory readings, or low inventory levels so they can respond to the issues.
  3. Respond – The best plans change. Up to date information about traffic, flooding, and every station’s inventory levels and runout dates, allow central dispatch to adjust plans to manage priorities.
  4. Control – Flooding causes many problems including equipment failure and product contamination. Wetstock analytics identify faulty equipment and water contamination, preventing costly fines.  

When possible, pre-plan for fuel emergency preparedness in coordination with your supply team, depot managers or fuel supplier. Aspects of your plan should include communications, stand-by supply commitments, and forecasting downstream demand to ensure supply is available at the terminal. Remember to take into account the fuel needs of generators and other emergency backup systems that will be critical for operations if there is a power outage.

For retailers optimizing inventories, delivery schedules, or pricing by using fuel management solutions, most dashboards will offer multiple opportunities to adjust to potential supply disruptions and demand spikes. The continuous overlay of near real-time fuel information on solutions built around industry best-practices enables retailers to stay on top of any rapidly changing situation.

North America and Asia combined will have 80 to 100 named tropical storms per year with about 40 to 60 becoming a hurricane, typhoon or cyclone. Preparedness and a flexible central response plan are the keys to maintaining supply before and after the storm passes.

Weather Alert: Hurricane Season and Fuel Supply Disruptions

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David ZahnAs I watched Tropical Storm Don dissipate this weekend after making landfall in South Texas, I thought about the next tropical storm and when we would see our first hurricane of the season. Having been hammered in 2005 with Katrina and 2008 with Ike, most folks on the Gulf Coast watch intently as bad weather builds in the Caribbean and Gulf of Mexico. Katrina and Ike wrecked terrible loss of life and property damage; they also caused severe fuel supply disruptions. Even though Tropical Storm Don never reached Hurricane status, the threat of it last week shut down 6.8% of oil production in the Gulf. If this does not sound like a lot, consider the fact that it was not modeled to be an intense storm and roughly 30% of U.S. oil production and 7.4% of natural gas is produced in the Gulf.

Are Hurricane-related supply disruptions in the cards for 2011? The answer is unclear, but fuel distributors and retailers can take precautions to prepare for the worst if the need arises. Here are just a few:
  1. Determine supply availability at least 4 days in advance of anticipated landfall
  2. Secure supply and “keep full” if refineries are preparing for a shutdown
  3. Maintain generators at retail locations to reopen as soon as possible post-storm

Different weather conditions will require different reactions in terms of fuel supply decisions. Severe weather may curtail traffic and consequently fuel demand, which may cause fuel buyers to slow purchases. Buyers who avail themselves of multiple supply options will have greater flexibility when dealing with Mother Nature. More storms are coming in the Gulf. Are you prepared?

The Accuracy of Expert Opinions

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Greg Salverson
Recently, The Week magazine published a study on the accuracy of expert predictions. The study included predictions from the last couple of decades made by industry and government experts and found that the expert’s predictions came true less than 50% of the time. That means the expert opinion is slightly less accurate than a coin flip. So let’s look at some expert opinions about the future of the Oil industry and provide our opinion on which is a safer bet - flipping a coin and calling “heads” or betting that the author’s predictions will become a reality.

Future of Oil Reserves:
Just today the Street Authority wrote a well constructed article on Exxon Mobil titled The Best Oil Stock for the Next Decade. In this article the author quotes a prediction that the current estimates world oil reserves will last only for another 40 years, plus or minus improvements in consumption. While reading the author’s supporting facts, I noticed a slight misrepresentation. The author notes the decline of US oil production from the 1970’s through the year 2006, but did not note the increase in US domestic product since 2006 as new technology and higher crude prices have unleashed new oil suppliers. Given this, would you rather bet that oil will run out in another 40 years, or would you prefer a flip of the coin will land on heads?

Future of US Drilling:
Another very good article by Deloitte published today by Argus media looks at what impact of new US regulation, permitting delays, higher insurance premiums, and taxes will have on production in the Gulf of Mexico. These factors will raise production costs by an estimated 20% and when combined with the huge potential liability of an oil leak, will cause an exodus from the Gulf to cheaper international projects, ultimately increasing US energy costs. So what is your view? Would you rather bet that producers will leave the Gulf of Mexico for bluer (read less expensive) oceans driving up US energy costs or that a flip of the coin will land on heads?

Future of Energy:
Finally, let’s take a look at any of the number of predictions about what will power the future. Google the term, “the future of energy” and all the answers are revealed. It’s renewable energy… no it’s nuclear energy … no it’s natural gas…you get the point. It’s everything, but it’s not Oil. Forbes has a great blog on this topic, “If Oil’s On The Way Out, What Will Be In?” The author looks at the year 2050 and has renewable energy providing 40% of primary energy and 48% of electricity energy, but demand for oil only slipping 4% - making Oil a key part of the energy of the future but not the major part it is today (in part because they argue energy demand would outstrip oil reserves too quickly). So would you rather bet that Oil will be a key component of our energy future in 40 years or that a flip of the coin will land on heads?

I’d really like to hear from you – oh and you can also call “tails” if you like!

Labor Day Travel Up – More Action at the Fuel Pump

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Allison McNulty
Labor Day historically has been a time for Americans to enjoy the fruits of their labor. With unemployment remaining at close to 10%, Labor Day 2010 has a different meaning - for many, looking for a job has become a full-time job. However, there is some good news. The market recently had a surge because we shed fewer jobs than expected in August due to private sector hiring. Unemployment overall still rose, and it is “better” than predicted.

And, there is more. American spending was up in July, and AAA anticipates more travelers on the road than last year. In fact, AAA estimates the number of travelers to increase 9.9% from 2009. Some think that this is a sign that Americans are loosening their wallets as sputtering optimism starts to prevail. While airline travel is expected to be up this weekend, a large number of us will be driving to our destination of choice – resulting in increased transactions at the pump.

A travel upswing and the ensuing fuel demand is good news for petroleum retailers. We have readers from all over the country. Are you impacted by the evacuation in North Carolina? I think we’d call that unanticipated travel! As the east coast braces for Hurricane Earl, and many of us hit the road for the three-day-weekend, fuel inventory management – having the supply and anticipating demand - for retailers is top of mind. Increased fuel demand, whether driven by vacations or hurricanes, may create challenges without a strategic fuel management program that provides flexibility. Hopefully, all of our retail friends are prepared and will enjoy a busy, safe and profitable holiday.

At any rate, this weekend I will be one of the travelers giving AAA their 9.9% increase – and I will be optimistic about the remainder of 2010. I’m traveling the AAA predicted average 150 miles to float in an inner tube where the Blanco River meets Cypress Creek in Wimberley, Texas. If you’ll be traveling, I’d love to hear from you how you plan to spend your Labor Day weekend!

How Much Do You Tip Your Supplier?

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As I travel around North America and Europe, I struggle with calculating how much I tip the waiter. In California, the rule is double the sales tax. When traveling in the U.S., it can change by state with 18 different sales tax rates. In Europe, there are 11 different VAT taxes, and sometimes, you don’t tip at all. There is little choice but to determine the cultural rules and pull out my calculator to figure out the tip.

So how much do you tip your supplier for fuel? There are countless deferred and non-deferred taxes in the U.S. that change based on where you purchased the fuel, how you transported it, what type you purchased, and where it was delivered. Europe can be as simple as VAT and duty, to as complex as being taxed by each country through which the delivery travels. So how are you reconciling your supplier invoices to ensure they invoiced the correct taxes?

What I see in the industry are a lot of companies manually looking at an invoice and guessing it is right, or their back office ‘reconciles’ the volume and prices but assumes taxes is correct. Assuming the supplier has discovered the secret to taxes can be dangerous and costly. You could be tipping your supplier by 15% - on accident.

Best practice is to automatically audit supplier invoices through reconciliation to ensure the correct taxes are on the invoice without having to pull out a calculator and manually figure it out. Look at software packages that streamline invoice reconciliation processes for volumes, prices and taxes and save your calculator for the next time you have to tip a waiter!

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