Gasoline and the US Energy Market’s Consumption

Today here in the US, our energy market consumption is topped by oil at 36%. Natural gas is a close second securing 26% of the market. Coal follows at 20%, with renewables accounting for 10% and finally leaving our nuclear power at only 8%.

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Gasoline is the byproduct of kerosene production and the refining of crude oil production. It actually became instantly popular with the invention of the automobile. A long term love hate partnership, to go places you must have fuel and gasoline is currently the most widely used and sought after fuel. From an investment prospective one would refer to gasoline in its proper term, Reformulated Gasoline Blend-Stock for Oxygen Blending (RBOB), or to the everyday guy unleaded gas futures.

Like any other commodity, gas experiences seasonal trending with its lowest dips occurring during winter months and peaking between April and May. This is part of the reason many say investing in the petroleum market is not for the faint of heart. It is affected by many factors. The US is the largest consumer of gasoline and how we choose to use it or not can have a major impact on global prices. Most RBOB gasoline consumed here in the US is used in cars, lawn mowers, generators, pressure washers and even household appliances. Additionally it can be used to remove paint or grease and is used to make weed killers and even pesticides.

The cost of a barrel of crude oil affects the price of gasoline as gasoline is a natural byproduct of crude oil. Of course if the gasoline has a higher octane rating, it will have higher compression rates and also yield higher fuel efficiencies, oh and it will cost more too. You do get what you pay for not just in its performance but its adverse effect to our global climate. For every three barrels of crude oil that is refined about two barrels of gasoline can be salvaged. The Middle East remains the one of the upper top ten of crude oil producers worldwide with the USA and Russia not too far behind. As you can imagine tensions and trends in many foreign markets cause our prices to go up at the pump. Currently the US uses twice as much oil as it is able to produce so we still count on foreign oil and the other countries ability to keep things stable.

Aside from the amount of crude oil produced, the actual cost of a barrel of crude oil, the quality of the gasoline being made, or any geopolitical concerns we may all have, how we the US are using the fuel we do use, and basic speculation as to the market as a whole there is one other factor that could at any time severely impact the price we pay for gasoline and that is alternative fuels. Should an alternative fuel enter the market that is more cost prohibited, successfully enters and becomes popular, or is adapted for use in the same circumstances we are now using gasoline, this too would affect our gasoline end cost, since right now it’s got the market cornered.

RBOB gasoline futures, currently traded on the Chicago Mercantile Exchange is shown in US currency under the symbol “RB.” A single contract would span over 36 months and would encompass some 42,000 gallons of gasoline.

Some larger companies that deal heavily in crude oil also offer investment opportunities in RBOB gasoline too. Here are some solid companies you might take a look at:

  • Exxon Mobile (XOM)
  • Chevron Corporation (CVX)
  • Royal Dutch Shell (RDS-A)
  • Conoco Phillips (COP)
  • British Petroleum (BP)

 

Several products offer exposures to RBOB gasoline via ETF’s and ETN’s. This exchange traded structure has many advantages for one looking to invest in commodities, mainly there’s no need to start a futures account. ETF’s offer exposure to the futures through a single exchange traded ticker offering an investor not only RBOB but other commodities as well. Some great examples you may check into:

  • United States Gas Fund LP (UGA) 100%
  • Power Shares DB Energy Fund (DBE) 28.4%
  • Ipath DJ-UBS Energy Total Return Sub-IndexSM ETN (JJE) 11.7%
  • E-TRACS UBS Bloomberg CMCI Energy ETN (UBN) 9.1%
  • ELEMENTS Rogers Intl Commodity Energy ETN (RJN) 6.8%

Who Is The National Association of Petroleum Investment Analysts?

The National Association of Association of Petroleum Investment Analysts, better known as the (NAPIA), is a not for profit organization of investment professionals specializing in the petroleum industry and the securities of its component companies, that is currently celebrating its 40th anniversary this year. The NAPIA’s members range from buying and selling analysts, portfolio managers, consultants, investment bankers, investor relation executives, educators and those who just want to invest in the petroleum industry.

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This group started simply as a forum for analysts and company representatives to come together in an open environment to share contacts and information. It quickly became evident by educating each other they were all able to make better investments. Knowledge is power. The group grew quickly and was well respected for its knowledge and ability to affect the petroleum market itself. The NAPIA regularly holds seminars, sends papers and newsletters, field trips and events to ensure they are keeping their members well informed. By bringing together the buying and selling sides of the petroleum industry they are able to keep an interaction of ideas and information between the analysts, executives, investors, consultants, and even the industry experts.

Membership into this group is offered for $380.00 annually and their membership application is available at www.napia.org. Aside from the benefits of being informed, all members receive an annual directory which reads like a who’s who in petroleum and an annual dinner where professionals are recognized for their milestones and contributions.

Understanding the Crude Oil Market

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What is Petroleum?

Many of you are familiar with crude oil, also called “Black Gold” and even “Texas Tea.” This is that hot commodity that actually comes out of the ground… petroleum. Petroleum is comprised of carbon, hydrogen, sulfur and actually originate from fossilized plants and animal remains believed to have existed millions of years ago. These fossil fuels are a nonrenewable energy source and once they are gone that will be it. Hence the short science lesson, it’s ironic but in its natural and purest form crude oil has little to no use to anyone. In order to get gasoline, or kerosene, or diesel fuels crude oil must be refined.

 

How do Commodities Interact in the Market?

A commodity starts out generally the same across the board, regardless of who produces it. A barrel of oil is a barrel of oil, who produced it does not make it better or worse, it is still a barrel of oil. Commodities are most often used as inputs in the production of other goods and services. Commodities tend to fluxuate in cost due to their supply and demand. The supply in demand particularly in petroleum is one that is viewed worldwide, and one that none of us could imagine existing without. Events also tend to affect commodities. As an example, let’s say that there was an explosion at an oil refinery that actually compromised the production of crude oil for even so little time as a day. The news alone would send prices shooting up, mainly in anticipation of being unable to meet the daily production required to be able to supply the current day’s demands.

A second player in the pricing game, having heard the same report would be the hedge investors who study not only market itself but the trends of the market and its investments. These investors bet daily on how much crude oil will increase or decrease over time. Their speculation feeds both the investor and the producer, questioning the anticipated need as well as the ability for it to be met. Their opinion alone can sway the market in increasing and decreasing a commodities worth respectively.

 

Let’s talk Gasoline.

Did you know it takes 42 gallons of crude oil to make one barrel? One gallon of crude oil can produce .47gallons of actual gasoline, so in essence one barrel of crude makes about 20 gallons of actual gas.

There are four main factors that ultimately dictate the cost of our gasoline. They are supply, consumption, the financial market, and governmentpolicies. Taking a look at each factors part one can assume that most investors invest looking at what they think petroleum will cost later and how the consumers will react to that cost. In turn they also have to consider what other’s think oil should cost and how much actual product petroleum companies will actually release into our market. It’s also important to note that the four main factors act and react with each other.

 

What Part does our Government Play?

Our government’s part in our gas prices is varied. They often create rules that actually inhibit how much crude oil can be produced and then they also negate the amount of taxes that will be paid to produce the crude oil, sell the crude oil and even buy the end product. One could say they really affect all aspects as the repercussions of their involvement are felt by the drillers, refiners, middle men and consumers. Even as the government allows for or explores and invests in alternate energy resources itself, such as wind, solar or alternate fuels, can even affect our costs. As alternates become closer to actual fruition they will impact costs on the theory their success will lower crude oil’s actual demand.

Another area that government passively participates in that also affects costs is its reaction, or lack thereof, to volatile situations in other oil producing countries. While we all know you can be damned if you do or if you don’t the West often suffers regardless of its positions.

 

Location, Location, Location.

Oil supplies vary by their location and we all know there are certainly some places that it’s much more abundant than others. Saudi Arabia, Iraq and Iran are the leading oil exporters worldwide.In the last fifty years the USA has really stepped up thanks to Texas and its production making the USA the 2nd largest producer of crude oil. Russia and Venezuela are participants too.

Important to note, that many Middle Eastern partners own issues and volatilityof their own countries really affect pricing too. Realizing the part they do play they formed OPEC (Organization of Petroleum Exporting Countries) to monitor the supply of their oil as a whole, the amount they are getting per barrel, and also how much oil they are allowing into the system making them another key player in the costs.

Reflecting back to the 70’s when the USA experienced a horrible gas crisis, where there often was no gas and if there was it was so expensive and limited many peoplecould not even get.Many felt this was a direct result of the West being punished for supporting Israel. This wakeup call proved to be the push we needed here in the US, resultingin the Texas boom we are fortunate enough to maintain today.

 

Futures… and I don’t mean tomorrow.

Let’s look at the “futures,” this is what they refer to in investing when considering whether a commodity will increase or decrease in price later. Future contracts ensure the Buyer they will get the commodity they purchase at a certain rate regardless of the market activity, good or bad. When large future blocks are bought on the market it also affects pricing because they are able to keep the cost of the commodity more stable, and in their attempts to provide the commodity to their contracts and not lose money they horde the product.  That said, investing in the futures market is the safest way for anyone to invest in petroleum and in the big picture maintain a modest return.

 

With so many factors influencing crude oil, this investment should be looked at long term. Changes in the market can mean the loss or gain of millions overnight. Understanding your investment market, researching it as a whole can lead to smarter investing and better returns, just by doing your homework. Crude oil remains a very lucrative return for those who not only havethe means to play but have the ability to ride the wave through.

 

 

 

Petroleum Engineering – The Job of the Future?

USA petroleum refineries hit record highs for production July 2014, reporting 16.8 million barrels per day. That is a record that has not been broken since 1979. To keep hitting these kind of numbers and to maximize the hydrocarbon recovery a company must have a petroleum engineer who is involved with all stages of petroleum development and production.

Engineer in an Oil field

Engineers are involved in all aspects of oil production from oil exploration, choosing prospective drilling sites, right through taking down the rig. These engineers travel quite a bit often with unpredictable or uncertain working conditions, and they often have no idea how long they may remain in a certain area. Global mobility is a must.

 

Engineers are responsible for compiling the data of the actual reservoir performance using mathematical models to ensure maximum economic recoveries work in the field. They also scout the sites prior to drilling, including the sampling of the site, research for the site and analyze projects and the well’s longevity and even after the well is done return the site’s land and structure to a stable state.

 

To achieve a Bachelor of Science in Petroleum Engineering requires one to complete a total of 131 hours. Their school hours include 25 hours of petroleum engineering sciences, 20 hours of design and integration courses, 9 hours of engineering science, 37 hours of basic science, 18 hours of mathematics, 15 hours of general education and 6 hours of English.

 

In 2012 the median pay was recorded as $130,280 per year with top salaries coming in at $187,200. The higher pay came with experience and successful prior drills. The proof is definitely in the output for the driller, investor, and the engineer. Starting salary was typically $95,000 a year here in the United States.

 

Given the numbers and growing demand for petroleum engineers it may be a path you would look at twice. With that kind of degree the possibilities are limitless both here in the USA as well as abroad.

You Want In On Ground Level…..Let’s Drill An Oil Well

Direct participation in drilling oil and gas wells can certainly be a lucrative opportunity, however it’s important to understand this is not an investment opportunity for the faint of heart, and should not even be considered if your homework has not been done. This side of petroleum investing is by far one of the riskiest, but if all goes well it could also change your life financially forever.

 

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Enter Cautiously.

Erring to the side of caution when approached with an investment opportunity such as this, it’s important to be sure you have all the facts. On projects of this nature a highly engineered analysis of the area and project as a whole is required. Technical, economic, geological, and mechanical aspects have to be studied. Copies of all ground work analysis should be provided upon request, prior to any money changing hands.

Why Private Investors?

Often companies who are seeking capital vestments outside of the industry, it’s almost always a given that the deal being considered is too risky.  It’s crucial you know who it is you are dealing with. Are they honest? Do they have integrity? How about their track record… have they ever done this before? Are they capable? Do they have the resources and the man power to be able to complete this job? Have they got proper insurance, experienced operators, and are they using hard cash? All of these are very important things to consider if you are looking to do this kind of investment.

Be Aware of Other Risks.

When you are an oil well, you drill deep into the Earth thousands of feet, cementing steel casings into the bored hole, and then outfitting the hole so you can get that black crude up to the surface… it can all be very costly. Each step involved is critical and if mistakes are made it can become very costly, very quick. To commit to this kind of investment means you are relying on those you are dealing with and their ability to actually pull it off.

Are Your Recoverable Reserves Risky?

There is a secondary risk involved when you are counting on the size of the located reservoir. A well, no matter how well built, can produce only produce the amount of oil that the reservoir has. Recoverable reserves vary greatly. If the operator studied the seismic evaluations, the area’s historical production, the well’s control and they guessed right your payouts could be as little as 5 to 1 or as great as 20 to 1. Makes Vegas look like chump change.

 

Let’s assume your well has indeed found oil, the next product will be to get your product sold.  The cost your product is sold for will not be negotiable. Your product will be sold for the cost the market is currently bearing, period. Your profitability on this sale is also out of your hands and will not be influenced by you either.

Don’t Forget to Read the Fine Print.

You should always go into any investment opportunity with your eyes wide open. Know the factors that you will be up against and understand the scope of your commitment. Be realistic in your expectations and don’t forget to read all of your operating agreement. This document will spell out your share of the profits and how it is you will be paid. What overhead and management costs will you be expected to share in? Will the net revenue interest and the working interest be what you expected? Keep in mind all paying partners will be responsible for their share of the royalties paid to the Landowner monthly.

 

If it were easy, and the risks few we’d all be wearing lovely Stetsons and laughing all the way to the bank. For a select few who can afford the gamble and have the resources to invest with a reputable operator for the long haul, typically 3-5 years, the end result could be millions.

 

 

Oil and Gas Royalties

Small or starting investors should take a look at oil and gas royalties. If you are willing to put in the homework and have the financial backing needed, these can net 12-30% returns.

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When considering oil and gas royalties there are some things you will be expected to have gotten in place prior to getting started.

  • As with any investment you must exercise your due diligence, consult with a royalty specific attorney for legal advice. A well-known firm in San Antonio would be Philip Mani or in Dallas there is Geary, Porter & Donovan. Even if you are not in their area they would be able to refer you to someone equally as competent in your area.
  • You will have to establish a legal entity specifically for purchasing. Whether you utilize a company, partnership or just your name, your attorney will be able to advise the best option for you.
  • You have your own rainy day fund, nest egg, or have lined up your own financial backing to be able to proceed.

Once you have got your basic structure in place you will want to follow this 6 step process to get going.

Anyone who owns oil and gas royalties means they probably own the mineral rights. Although rare, in some instances this may not be true, however oil royalties and mineral rights are usually synonymous phrases.

Phase 1. Find potential royalty owner sellers.

Phase 2. Make an offer to purchase the seller’s royalty.

Phase 3. Take any and all calls from potential sellers to answer questions.

Phase 4. Quickly perform due diligence once you determine a seller is serious about the sell.

Phase 5. Send out mineral deeds and paperwork to owners who think they’d like to sell their royalties. Be sure to follow up with these people immediately.

Phase 6. Once you receive the deed back and have paid the seller, file the deed with the correct county courthouse.

 

 

 

Finding Sellers

Locating potential sellers sounds simple, however you will find it is pretty challenging. There are a couple of ways to go about this:

  • One internet site that is somewhat of a Craig’s List (if you will) for oil royalties, whether you would like to buy or sell, royaltyexchange.com.
  • If you already own royalties you should be receiving a division order. This is the document that shows you who gets what of any monies. While it’s not common practice, it may also provide you the names and address of those who share in the funds…..hence your new leads. Remember it never hurts to ask, the worst will be a simple no and even then you have lost nothing.
  • A data vendor who actually sells lists of royalty owners. One that comes to mind and has a complete list for Kansas and Texas would be Blackbeard Data Services. They boast a healthy 4 million plus list. Newbies are encouraged to start with one specific county first and see how that works for them.

 

Making Offers

If you have a division order you will not only have the names, address, lease name, percentage of royalty, and values of the royalty. It’s not uncommon for a “wanna be buyer,” to mail out thousands of offers, banking on the laws of statistic to pay off.

When mailing offers you might send a letter offer including a bank draft to show how serious you are and ready to deal, a letter simply stating your offer or a letter that lets the owner know you are interested to purchase if they are interested to sell.

 

Hook Em

Realistically you should expect about three responses for every 1,000 letters you mail. These are calls mind you not done deals. Of those calls you will have a good shot at closing half. Be sure to take all of your calls. An answering machine quickly squashes the urgency and authenticity of your offer. People like to have their questions answered. Let them know whether it is yours or someone else you plan to purchase within 7 days. Your money is in hand.

If an owner is entertaining more than one buyer, the owner may be looking towards 60-70 months production. If you are the offer you should get 30-40 months of production.

 

Check Them Out

Do your homework. I can’t push that point enough. Be sure the party you are dealing with really owns the royalty they are going to sell. Have them provide four months of paystubs for the royalty. Take a trip to the courthouse and check the records, they are public. Regardless of your method get it done and get it done quickly before your seller changes their mind, or decides the grass may be greener elsewhere.

 

Get Her Done

Once you know the seller really owns the royalty you want, and they have accepted your offer, FedEx the paperwork ASAP. Be sure your attorney has provided you both a mineral deed as well as a contract. 24 hours after they have signed and received your package follow up.

 

File at the Courthouse

I’m sure your attorney will let you know where and what to sign, once you get your package back and by all means get the seller paid. A contract isn’t binding until your seller has been paid. After you receive your documents get your documents filed at the proper courthouse and contact the existing oil company who has been paying the royalty. It normally takes about three months before you will start receiving your royalty checks.

How Can I Invest in Petroleum…Let Me Count the Ways

Petroleum could be the world’s most important commodity. Petroleum is refined into fuel for all types of transportation and its byproducts even used to manufacture plastics and chemicals too. As diverse as its many end products, so are crude oils investment opportunities.

Time to Invest

 

Investing in the Price

One way you can invest in crude oil would be by investing in Exchange Traded Funds (ETF). These tend to be mid to long range investments that track the yield and return of its native index. Currently they do account for 1.34 trillion of the 14.72 trillion in total assets being held through investment companies with a majority of this share being in mutual funds.

The goal of the ETF is to provide investors with a benchmark return for a minimal cost and usually commission free. These funds move up and down in value and also track the spot price of the petroleum. Crude oil ETF’s currently trading on US Stock Exchanges use the value of West Texas Intermediate Light Sweet Crude Oil as their benchmark.

On the flip side one should also understand that there is also an inverse ETF. The inverse ETF works the same way as the previously mentioned ETF only these are used to bet against the markets and its declines allowing one to profit from falling oil prices. To find these look for “short,” “bear,” or “inverse” in the name.

 

Trading the Swings of Crude Oil

Trading short term swings in the price of oil is done through the investments in futures. These typically require a marginal deposit between 5 and 10 percent the value of the actual future contract. Often these investments provide bigger profits on smaller moves in the price of oil. These trades do require a Registered Commodity Futures Broker.

 

Exploration & Production

If energy exploration and production sound appealing to you, there are stocks trading that are directly affected by the price of the oil. “E&P,” as they are referred to drill for the oil and when successful earn huge windfall profits.  These same companies often increase profits and shares prices when oil is moving slower to keep their investment opportunities appealing. These companies range from smaller region specific options to large companies with worldwide sites looking for new oil.

 

Crude to Fuel

There another option after you’ve gotten it out of the ground and even after it’s sold, that’s transporting and refining.The industry has termed “upstream” when speaking of production, “midstream” when you are talking transporting and “downstream” when it comes to the refining and marketing of the product.

There are companies who focus on each of the 3 parts of stream and others who cover all 3. The ones who encompass all 3 are energy giants like Exxon-Mobil, Chevron, BP, and Royal Dutch Shell. These investments tend to cling to old investing concepts and often have the most dramatic swings and shifts.

Bakken Shale and Beyond ….

North Dakota’s Bakken Shale region is really producing some oil. Quite the honey hole if you will. The US Energy Information Administration recently reported daily oil production of that area alone to hit 1 million barrels a day average this month. Oh, and the buck certainly is not stopping there, nor is it expected to any time soon. Producers say there is also plenty more profitable growth anticipated too.
If an investor were to want in on this crazy market, I do have a couple of suggestions. If you were looking for a pure Bakken Shale opportunity there are two companies you might want to look at. These guys are focused on growing their oil production in that particular area and they are Kodiak Gas & Oil (NYSE: KOG) and Oasis Petroleum (NYSE: OAS).

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Kodiak Oil & Gas is a smaller up and coming company, who has currently leased 192,000 net acres in Bakken Shale and also have prospective area in the Three Forks Formation as well. Right now Kodiak Gas & Oil produces 30,000 barrels of oil a day but they are spending $1 billion a year to grow their business into a top oil player of this area. With its current oil production and its proven oil and gas reserves growing annually by triple digits it’s safe to say they must have a handle on what it is they are doing. Realistically speaking it might be hard for these guys to continue to grow in such leaps and bounds but you can expect a very solid growth and return for quite a few years to come.

Oasis Petroleum is a much larger company, at least in land position alone, with a dominating 492,000 net acres in the Bakken Shale boom. This quarter they have managed to produce 46,000 barrels of oil per day and also plan to invest $1 billion this year to ensure continued growth. The main difference between these two is that Oasis Petroleum’s cost to drill is dramatically less than that of Kodiak Gas & Oil. The reason being is that Oasis also owns a well service business which obviously keeps their costs much less than that of its competitors. Oasis also chooses not to use 100% ceramic proppants.

Another way to get in on the Bakken Shale regions big oil boom would be to look at a diversified producer. Not only will your investment be safer but you will also have the opportunity to see other alternatives and be able to ‘see’ how each opportunity is performing. Two players that seem on top of this diversified game would be Continental Resources (NYSE: CLR) and Whiting Petroleum (NYSE: WLL). The only reason these guys would be considered any less risky is simply diversification.

Continental Resources is clearly top dog of Bakken Shale, as well as top lease holder with an impressive 1.2 million net acres. Of course more land these guys are producing 94,500 barrels of oil every day as well as spending double that of Kodiak Gas & Oil or Oasis Petroleum in ensuring that they do stay king. Besides Bakken Shale they also have a part of the Scoop Oil Play another emerging market found in Oklahoma, where 25% of their 2014 capital budget came from.

Whiting Petroleum currently has 730,000 net acres yet to be developed in the Bakken Shale region as well as additional prospectus in the Colorado Niobrara. Recently they have announced plans to accelerate their Redtail Prospect development in lieu of their recent findings. Many heads are turning to watch as the Niobrara area is expected to be the next big boom.

With all of the solid options out there anyone looking to ride this Great American Oil Field and has the money to do so, there are really a land of opportunities available where your only restriction may be by your personal preference or choice.

An Up and Coming Energy Player is Causing Many to Look

Shale Gas

Shale gas is an upcoming and abundant natural resource we are finding here in the USA. Shale gas is being mined from the fine grained sedimentary rock formations which are rich sources of petroleum and natural gas too. 87% of the United States natural gas currently being used is being mined here domestically. By 2017 we expect to be able to produce 100% of what we need, enough to cover our current daily use.

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Shale gas is mined by combining horizontal drilling and hydraulic fracturing. A vertical well is put into place that uses a horizontal drill to reach the targeted shale rock formations. Once they have drilled downward to the desired depth the drill bit itself is turned and bores in a horizontal path until it reaches the reservoir. Once there a process called hydraulic fracturing (also called “fracking” and “hydrofracting” within the industry), where water, chemicals, and sand are pumped into the well which cause opening fractures in the shale rock which is where the shale gas flows from. This combination allows for the shale gas extraction at a reasonable rate.

Shale gas production does raise environmental concerns with some. First it takes a large amount of water for this entire process to occur. In some areas there have been reports that the shale gas drilling by itself has left no water availability for other uses. It’s also reported there is a growing concern for how these drilling techniques will affect their aquatic environments around them. On the backside there is also concerns with the waste water left once the shale gas has been gotten. This waste water has many chemicals and contaminants in it. This water must be treated before it can be used or even disposed of. Many fear this waste water, not treated properly, can contaminate the actual ground water in that area. Research on the health effects are still on going. The actual detriment this could possibly cause would be a snowballing issue as water affects all of us in many aspects of everyday life.

Currently we use most of the harvested shale gas in the production of our natural gas. Natural gas costs everyone less and it burns cleaner and hurts our environment less too. More and more money is being spent in the research and development to find more uses for natural gas as well as better ways to find it, drill it and do all of this in the best financial way possible. Even the government is investing here, as this could really be the key to our own sustainability. Current shale wells are said to produce from now until 2040 with growing production every year, and we are finding new resource rich well sites daily. Self-sufficiency by way of natural gas could be a huge success for all of us. As drilling techniques advance our harvesting costs will drop. This will be a win-win for us all.

3 Big Trends in the Distribution and Marketing of Fuels – What’s Driving These Changes?

#1 Biggest Trend in the US fuel industry is the long term decline of our gasoline demand. This anticipated decline is to the tune of some 30 billion gallons of fuel expected to impact all areas of the industry across the board. Sounds like quite a bit, right? The average fuel marketer accounts for just about 30 million gallons a year. The shortfall as expected could potentially be the demise of 1,000 distributors if not more. The fuel industry as a whole, whether speaking of refineries, distribution or even the retail level have all grown a steady 1% annually, for several decades. A reversal in the gasoline market where we are forced to contemplate shrinking demands could really cause a renovation if you will of the entire market as we know it.

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Two trends that seem to support this theory are that many refiners continue to seek export opportunities as a failsafe to their future success. In the ability to continue on a profitable path the distributors will be forced to consolidate and continue to lower their costs. Fuel retailing will remain an important category but most likely won’t be a product that is the sole reason a store exists.
Big Box Retailers, drugstores, and even grocery stores continue to add gasoline as a product line. Convenience stores, also far from conventional, often have larger food footprints than they do fuel. At least from a gross profit perspective anyway. As fuel economies continue to double, these product line views and retail gasoline will continue to be the norm rather than the exception.

#2 trend is the increasing specialization of petroleum marketing companies. Twenty years ago there were no less than 12,000 distributors, today there are about 4,000. Consolidation while not discussed began several years ago and continues to be a central theme for the industry while we have all watched. To really wrap your mind around these numbers you could equate that to one distributor a day over the past 15 years either being acquired or absorbed by another.
The continuing trend that has allowed for growth in petroleum distribution are largely or even entirely focused on one product line. A prime example would be to look at Petro Choice. They have brought large amounts of private equity into the industry.With that money they consolidated their lubricant business and invested in their own lubricant distribution company so they became a much more advanced service provider to the industrial, automotive and even fleet customer.
Mansfield has consolidated their commercial fuel company while continuing to work with firms focused on both lubricants and their retail fuel markets. Along the same mind set Guttman diversified their long term lubricants business to focus more on their core fuels market and even TAC Energy sold off their terminals to become more focused on their fuel marketing.
The point here being that this trend of specializing is in direct result of the demand trend. With the demand for the largest product category, gasoline, declining every other product category will definitely be impacted.

The #3 trend and possibly the biggest game changer yet would be that of the exploding US Crude Oil and Natural Gas production. One might ask how a fundamental change in primary supplier of our key commodity could affect our downstream. Simple, new larger producers like Continental Resourcescan’t export crude oil and continue to offer big discounts and record crack spreads to downstream refiners which really keeps them disconnected from the end user. As our production here in the US continues to grow and our own domestic refining expands, change is surely coming.