Colorado Wyoming Petroleum Marketers Association : 4 Misconceptions About Fueling Infrastructure

1/6/2017

CSP Magazine Online - BySamantha Oller, Senior Editor/Fuels, CSP

Alexandria, Va. -- There's one word in particular that John Eichberger, executive director of the Fuels Institute, hates to hear from nonfuel professionals when suggesting changes to the fuel infrastructure: 'just.'

' 'Why don't we just do this? Why can't we just do that?' ' Eichberger said politicians will ask him. 'The word 'just' always makes me think they really don't understand what it is they're trying to adjust, and they don't know what they are affecting.'

'If we can eliminate that word from the discussion and have the question be: 'If we were to try this, how would that affect other elements?' then we'd make a huge step forward.'

Eichberger acknowledged to CSP Fuels that it's human nature to want to simplify complex concepts, but when it comes to the liquid-fuels market, 'simplicity doesn't really fit.'

This is why the Fuels Institute, Alexandria, Va., introduced its latest report, Assessment of the U.S. Fuel Distribution Network, a 38-page introduction to the country's fueling infrastructure, geared toward nonfuel professionals. It gives retailers a tool to explain the system to elected officials, zoning boards and other stakeholders, and provides guidance on how even a minor change might ripple across the system.

Read on for four key takeaways on the complex but critical subject of fueling infrastructure.

1. How 'Just' Can Snowball.

An example of how one word-'just'-can add layers of complexity to the fueling infrastructure: the Clean Air Act amendments of the early 1990s, which begat the reformulated gasoline program, which ultimately begat dozens of boutique fuels across the country. The Colonial Pipeline went from having 15 codes for petroleum products it shipped through the Southeast and East Coast to more than 120.

'It's the same pipeline, the same capacity, and yet now you're segregating the distribution stream to that many components,' said Eichberger. This also required terminals to add more tankage to satisfy markets' different blends, he said. Regional biofuel programs added even more complexity.

'All of this stuff was done in a desire to improve air quality and reduce emissions, which is fantastic,' he said. 'But again, it's 'Why don't we just do this?' And you have a series of 'justs' over 20 years, and the result is a system that's so complex that it takes significant effort to get your arms around how it operates and what can be done to augment or simplify it.'

2. It's All Connected

While the United States is divided into five Petroleum Administration for Defense Districts (PADDs), they are highly interconnected.

'If you think earlier this year with the Colonial pipeline breaks and then the fire, that shows you how dependent on other regions our market is,' Eichberger said. Those other regions include the rest of the world. For example, New England is supplied in part by Europe.

'We're exporting diesel to Latin America and importing gasoline from Europe, and sending gasoline down to Mexico,' says Eichberger. 'The fact that product being produced in the United States isn't used in a specific region or even our borders is an important element to understand.'

Fuel is truly a global commodity, he said.

'Those who think we can focus on own market and not worry about global economic business patterns, hopefully this opens their eyes,' he said. 'We really need to pay attention to what's going on overseas because it does affect us here.'

3. The Need for Redundancy

The aftermath of the two shutdowns of the Colonial Pipeline in 2016, within a space of two months, demonstrated that the infrastructure's resiliency has grown, although it does have even more room to improve.

'We didn't have market disruption of prolonged, intense discomfort associated with those pipeline problems that we would have had five years ago,' said Eichberger, who credits the market with adding more protocols to deal with disruptions.

'That being said, disruptions will happen,' he said. 'The question is: How do we build redundancy, how do we build resiliency in the market? Simplify the market, make it easier to move product from point A to B by multiple routes so we are not relying on one.'

4. The Challenge of Supply and Demand

'On one front, I can see [Trump] saying we want to open up American ingenuity to energy infrastructure,' says Eichberger. However, President-elect Trump will likely hear from stakeholders that the industry needs oil prices above $45 a barrel to make investments worthwhile.

'If he opens up production opportunities, that would increase supply, which would conceivably keep prices down, which would stymie investment,' he says. 'If you don't open them, then you're relying on foreign players to influence the prices.' Enter the Organization of the Petroleum Exporting Countries (OPEC), which in late November did just that through production cuts.

'It's a tough situation because if demand is not growing, then adding oil to the market will drop prices,' he said. While low oil prices might make consumers happy through low gasoline prices, it is not necessarily beneficial to the overall economy.

'The president-elect will have the wherewithal to listen to his economic advisers,' Eichberger said. 'Maybe he would eliminate regulatory hurdles, and sit back and let the market work.'

To download Assessment of the U.S. Fuel Distribution Network, click here.