Overview of the Oil Industry

For the Western Interstate Energy Board

And U.S. Department of Energy
Dark Mountain Exercise

June 14, 2006

S. A. Van Vactor and D. J. Ramberg

Economic Insight, Inc.
3004 SW 1st Avenue
Portland, Oregon 97201
(503) 222-2425

Perspectives: the more things change the

more they stay the same.

• In 1914 Winston Churchill nationalized half of the Anglo-Persian Oil Company (now
BP) over fear that the British Navy would not be able to obtain fuel.
• In the summer of 1941 the U.S. embargoed oil to Japan. In response, Japan attacked
Pearl Harbor in order to allow consolidation of oil fields in the Dutch West Indies.
• In 1963 President Charles de Gaulle said: “Je me fous de BP, de Shell, des anglo-
saxons et leurs multinationals! Si l’Etat ne prend pas les choses en main nous nous
faisons couillonner…” Roughly translated – If we depend on the Anglo-Saxon
Multinationals, we are screwed.
• In 1973 Saudi Arabia and other Arab members of OPEC embargoed oil to the U.S. and
the Netherlands. The resulting shortages created gasoline lines and high prices.
• In 1977 President Jimmy Carter said that the energy problem was “the moral
equivalent of war.”
• In the 1990s Chevron and BP successively withdrew from development of Sudan’s oil
fields due to the government’s practice of genocide. They were replaced by the
nationally owned oil companies of China, Indian, and Malaysia.
• In 2006 Vice President Dick Cheney accused Russia of using its oil and gas resources
as "tools of manipulation and blackmail".
• What, if anything, is so special about energy markets?
 Vertical Integration or Specialization?
Before OPEC

• Originally, the oil industry was organized as a large number of independent

refiners and oil producers.
• Rockefeller consolidated control over transportation and achieved greater
economies of scale in refining. Over time, the refinery interests were integrated with
crude oil production.
• In 1911 the Standard Oil Trust was broken up, creating a large number of vertically
integrated companies - the largest were Exxon, Mobil & Chevron, but the Trust had
also included Amoco, Sohio, and 29 other companies.
• The five largest vertically integrated U.S. Majors (the 3 Standard companies plus
Texaco and Gulf) joined BP and Royal Dutch Shell to be nicknamed the “Seven
Sisters.” These seven companies gained full control over low-cost Middle East oil.
In 1928 Exxon, BP, and Shell met at Achnacarry Castle and allegedly carved up the
world petroleum product market.
• Until 1970, the Anglo-Saxon Seven Sisters controlled the international flow of
crude oil, the refineries to process it, and the markets to deliver it. But, since 1960
the oil exporting countries had struggled to regain sovereign control over their own
resources. In 1973 the tide dramatically reversed.
• 1973 was an extraordinary year. The global economy set a record 6.8% growth.
Israel soundly defeated its neighbors in the Yom Kippur War. And, the Arab oil
embargo and production cuts sent the world economy into a global recession.

Vertical Integration or Specialization?

OPEC Cuts the Cord

• Four years before the Embargo, oil prices had hit a record low – less than $1 per
barrel in the Persian Gulf. During the first oil shock, spot prices soared to over $18
per barrel. OPEC took firm control and fixed term prices at just under $11.
• Between 1973 and 1979 the Major’s equity interests in oil production in OPEC were
eradicated by negotiation and expropriation.
• During 1979 to 1980, oil prices soared; spot prices topped $40 per barrel, writing
OPEC’s obituary,
• National Oil Companies (NOCs) in the producing countries replaced Major
integrated companies in the development and production of oil from OPEC fields.
• Despite prophecies to the contrary, OPEC’s NOCs failed to integrate downstream,
giving birth to a fledgling commodity market.
 Vertical Integration or Specialization?
The Market Takes Control

• In 1978, the New York Mercantile Exchange (NYMEX), desperate to avoid

bankruptcy, launched a heating oil futures contract. Propelled by the its success, in
1983 NYMEX launched a crude oil futures contract.
• By the summer of 1985 Saudi Arabian crude oil oil production had fallen to one-
fifth of the Kingdom’s capacity and the Saudi’s responded by abandoning the
marker price.
• Near the end of the winter heating season in 1986, oil prices collapsed. Since then
OPEC has influenced the market through production cuts, but has abandoned all
attempts to fix prices.
• The oil market has become a commodity market, but a very special one.

Vertical Integration or Specialization?

Consequences of Commoditization

• There is now price transparency between the oil industry’s primary sectors of
activity – exploration & production, transportation, refining and distribution.
• In an industry dominated by vertical integration or inflexible contracting, “security
of supply” or “market access” are major motivations. In a commodity market there
should be no fear of running out or finding a market. Instead, buyers and sellers
face the risk of volatile prices.
• Price transparency and broad-based commodity trading allow companies to
specialize in the sectors of activity in which they are most efficient.
• The consequences of specialization:
- OPEC national oil companies (NOCs) have been largely constrained to the
E&P sector;
- The independent refinery sector has grown;
- The market share of the Majors in production and refining has declined;
- Product brand names have taken on an independent value.
- Shrinking market share has forced consolidation among traditional
companies
 Chart 1
ChevronTexaco: An Integrated Oil Company
ChevronTexaco businesses operate in multiple sectors of the petroleum industry

Exploration and Production:

ChevronTexaco North American Exploration and Production and
ChevronTexaco Overseas Petroleum, Inc.

Transportation and Distribution:

ChevronTexaco Shipping Company, LLC (Waterborne and Highway
Tankers) and ChevronTexaco Pipeline Company (CPL)

Refining and Marketing:

ChevronTexaco Products Company (Primarily gasoline refining),
Caltex Corporation (formerly a joint venture with Texaco), Chevron
Canada Limited, Fuel and Marine Marketing (FMM, joint venture
with Texaco for marine and residual fuels marketing)

Service Stations:
Retail outlets for gasolines refined by ChevronTexaco Products
Company. Most stations include convenience stores (Food Mart),
and some are attached to McDonald’s restaurants.

Chart 2
Independent Oil Companies
Companies specializing in one or two sectors of the industry

Independent Oil Producers:

Example: Anadarko Petroleum is one of the world’s largest
independent exploration and production companies, and is particularly
active in the Mid-continent, Alaska, Canada, and northern Africa.

Transportation and associated services:

Example: Portland-based Harris Trucking Company provides
transportation and trucking services to Northwest jobbers and
marketers. Kinder Morgan Inc. specializes in transportation, storage,
and distribution, operating 43,000 miles of pipelines.

Refiners:
Example: Valero specializes in refining and marketing of petroleum
products, particularly motor vehicle and aviation fuels.

Independent Marketers:
Example: Albina Fuels markets a range of refined petroleum
products. The company sells motor gasoline on the retail and
wholesale markets under the Pacific Pride name.
 Chart 3
Oil Company Mergers and Acquisitions Concerning the West’s oil Industry
1997
Gulf
Canada Conoco Phillips Tosco Unocal Arco BP Chevron Texaco Shell Exxon Mobil

Tosco buys Unocal’s West Equilon & Motiva (1997)

Coast refining, marketing, Shell and Texaco and
and transportation assets for Saudi Armaco form two
(1997 to 2001)

$2 billion (1997) joint ventures with their Exxon and

downstream assets. Mobil merge
BP Amoco and (1998) for $80
Arco merge (1999) billion
for $26.8 billion

Chevron and Texaco

Phillips acquires Arco’s Alaskan oil and
merge (2000) for $35.1
gas production assets for $6.7 billion
billion. As part of the
(2000)
merger deal, Texaco
divests itself of its interests
Conoco acquires Gulf Phillips and Tosco in Equilon and Motiva
Canada in a transaction merge (2001) for
worth $6.3 billion (2001) $7.49 billion

Conoco and Phillips merge

(2001) for $15.2 billion
Current Industry
ConocoPhillips Unocal BP ChevronTexaco Shell ExxonMobil

Economic Insight, Inc.

Oil as a Commodity

• There are two large organized crude oil futures markets. The NYMEX in New York,
which trades “light sweet” crude oil at Cushing Oklahoma, and the Intercontinental
Exchange (ICE Futures) in London which trades Brent (North Sea) crude oil.
• Futures and options traded on these exchanges are “financial” contracts. If, for
example, someone buys oil for delivery in the future and the price goes up, they would
expect to make a cash profit on the contract, not to have the oil delivered. To be
credible, however, futures contracts must carry an underlying obligation to deliver the
physical commodity.
• Futures markets provide a significant benefit in allowing public and open access to
price discovery. When the industry is vertically integrated, pricing is opaque. Now
anyone with the internet can follow price movements hour to hour.
• Another benefit of futures trading is that it allows buyers and sellers to hedge; to
reduce their risk associated with price volatility. They are aided in this process by
speculators who are not interested in receiving or delivering oil, but are willing to take
profits or losses from price movements. This additional group of traders is significant
because it helps create a market liquidity.
• When a market achieves open price discovery and high levels of liquidity, concern
about security of supply or market access ought to disappear. Concern about
physical availability is, however, replaced by anxiety over high (or low) prices.
• Future disruptions may not have “shortages,” but prices could reach extreme
levels. In the California energy crisis, gas prices reach $60 per million Btu for one day
– the equivalent of $300 per barrel for oil.
 Dependence on Foreign Oil

• Although the oil industry originated in the U.S., oil imports now account for 2/3 of
domestic consumption.
• High oil prices have reduced demand, despite the economic boom, but have not
increased production. In 2005 oil production in Alaska’s North Slope, California, and
the Gulf Coast states declined by about 5%.
• Alaska and California are now producing about 1.5 million barrels of oil per day, as
compared to West Coast consumption of about 3.0 million barrels per day. In
contrast, in 1988 the region had a surplus of around 0.7 million barrels per day.
• The U.S. participates in the International Energy Agency’s (IEA’s) emergency
sharing program. In the event of a global oil disruption, the IEA’s protocols would
govern the allocation of imported oil.
• The two previous “oil price shocks” in 1973 and 1979 demonstrated that the greatest
impact of oil shortages is on the world economy. A sudden price explosion causes a
global recession and contraction in trade. Thus, even oil exporting countries are not
exempt from the consequences.
• Countries without significant domestic energy resources, like Japan, have followed
a policy of supply diversification. They buy oil from many different countries and
encourage the development of alternative energy resources.

Chart 4
U.S. Oil Production and Consumption
MMBD Consumption turned down
Slightly in 2005
President Nixon
20.0 Declares
Project Independence

16.0

12.0
Production fell
By over 5% in 2005
8.0

2/3 of US oil consumption

is now from foreign oil sources
4.0

0.0
1965 1970 1975 1980 1985 1990 1995 2000 2005

Production Consumption Source: BP Statistical Review

of World Energy & MER
 Chart 5
Oil Prices Since 1861

$100
What do we know?
1979-80
$10 per barrel is too low and $80 too High. Iranian Revolution
Current
$80 Economic
Boom

$60
1973-74
Oil Shock
1990
Gulf War
$40

$20

1998 Asian
Financial Crisis
$0
1860 1880 1900 1920 1940 1960 1980 2000

Current $ 2004 $ Source: BP Statistical Review

of World Energy & MER

Refineries

• Refineries are the means by which crude oil is converted into useful products.
Sophisticated refineries can produce a much higher proportion of gasoline, jet fuel,
and diesel than smaller simple refineries.
• Refinery output varies with the season, to make more heating oil or gasoline.
• Crude oil, in its natural state, varies from tar-like deposits to natural gasolines.
The most important measures of quality are American Petroleum Institute (API)
gravity and sulfur content. The industry often categorizes crude oils as “light and
sweet” or “heavy and sour.”
• Sophisticated refineries have greater flexibility in the type of feedstock they can
refine. Nonetheless, refineries have the greatest volume of output and lowest per
unit cost when they run the specific balance of crude oils for which they were
designed.
• Generally, the denser the crude oil and the more contaminants, the most costly
and complex the oil is to refine.
• Most crude oils in California and Alaska are denser than average and, as a
consequence, Western refineries tend to be more sophisticated.
• Because of their concentration and numbers of volatile fuels, refineries are
vulnerable to disruption by catastrophic fires and explosions. This vulnerability is
exacerbated for refineries in the Bay Area and Los Angeles Basin of California, due
to the population density.
 Chart 6

Petroleum Product Markets

The Distribution System

• The most visible part of the oil industry is retail gasoline and diesel marketing.
But before reaching consumers, supplies may pass through a complex distribution
chain.
• From the refinery, products typically move by pipeline or marine tankers and
barges to tank farms located near population centers. At tank farms, companies
usually blend additives to bring gasoline to retail standards and meet the specifics
of the retail brand. From tank farms, gasoline and diesel cargoes are usually moved
to service stations by tank truck.
• The distribution system is highly flexible and adaptive. For example, a disruption
of the Olympic products pipeline from the Puget Sound to Oregon, such as the one
in 1999, can be accommodated by marine tanker and barge shipments and re-
routing of products from other refineries.
• The flexibility of the distribution system minimizes its vulnerability to disruption.
For most parts of the infrastructure it would take prolonged outages or disruption in
multiple segments to have a significant impact.
• Virtually all “storage” in the distribution system is required for operations. The
industry is described as “continuous flow.” But in a shortage, normal logistical
patterns can break down and exacerbate apparent shortfalls.
• In a shortage even existing product “disappears,” because expectations change
behavior. Most everyone hoards. Markets look forward, not backward.
 Petroleum Product Markets
Branding and Classes of Trade

• Product branding serves multiple purposes. For the companies, it identifies and
preserves a measure of market share by building customer loyalty. For the
consumer, it ensures quality and provides modest product differentiation, with
different types of additives and octane levels.
• As mentioned, greater specialization in the last two decades has allowed the
separation of refining and marketing. Thus, brand names have taken on a life of
their own. Tosco’s acquisition of the “Union 76” brand and merger with Phillips is a
good example.
• Surplus gasoline and gasoline from independent (non-branded) refiners is
marketed through unbranded outlets. Normally prices are discounted.
• For gasoline marketing, population density and the confluence of major freeways
are the primary determinants of ownership rights and contractual relationships. The
classes of trade are:
- Company-owned stations
- Lessee dealer service stations
- Dealer-owned service stations, branded refiner supplied
- Dealer-owned service stations, unbranded jobber (marketer) supplied
- Jobber-owned service stations, branded and unbranded,
• Lessee and dealer-owned stations are normally supplied at dealer tank wagon
(DTW) prices – deliveries are made by the branded refinery. Jobber-owned and
unbranded service stations are supplied at “rack” prices.

Chart 7
California Gasoline Prices

$4

$3
1979-80 Crude
Oil Crisis

$2

$1

$0
1970 1975 1980 1985 1990 1995 2000 2005

2005 $ Peak Source: CEC

 Chart 8 California Gasoline Prices

$3.50

$3.00
+310%
$2.50 Dealer Margin
Federal Tax
$2.00
State Tax
$1.50 Sales Tax
Refinery
$1.00 Crude oil

$0.50

$0.00
End of May 1999 End of May 2006 Source: CEC

Chart 8 California Gasoline Prices

$3.50

$3.00

$2.50 +84%
Dealer Margin
Federal Tax
$2.00
State Tax
$1.50 Sales Tax
Refinery
$1.00 Crude oil

$0.50

$0.00
End of May 1999 End of May 2006 Source: CEC
 Chart 8 California Gasoline Prices

$3.50

$3.00

$2.50 +100%
Dealer Margin
Federal Tax
$2.00
State Tax
$1.50 Sales Tax
Refinery
$1.00 Crude oil

$0.50

$0.00
End of May 1999 End of May 2006 Source: CEC

Chart 8 California Gasoline Prices

$3.50

$3.00

$2.50 -10%
Dealer Margin
Federal Tax
$2.00
State Tax
$1.50 Sales Tax
Refinery
$1.00 Crude oil

$0.50

$0.00
End of May 1999 End of May 2006 Source: CEC
 Chart 8 California Gasoline Prices

$3.50

$3.00

$2.50 -14%
Dealer Margin
Federal Tax
$2.00
State Tax
$1.50 Sales Tax
Refinery
$1.00 Crude oil

$0.50

$0.00
End of May 1999 End of May 2006 Source: CEC

Chart 8 California Gasoline Prices

$3.50

$3.00

$2.50 -71%
Dealer Margin
Federal Tax
$2.00
State Tax
$1.50 Sales Tax
Refinery
$1.00 Crude oil

$0.50

$0.00
End of May 1999 End of May 2006 Source: CEC
 Why are gasoline prices so high?

• Gasoline prices have four major components: the price paid for refinery feedstock,
the refining cost of converting crude oil and other inputs into gasoline, the cost of
distribution and marketing, and federal, state, and local taxes.
• The recent rise in gasoline prices has been driven by two of these components: the
cost of feedstocks (crude oil) and higher refinery margins.
• Crude oil prices are higher because:
- Since the end of 2002 the world economy has grown about 18%.
- In 2004 alone, oil demand grew 3.1% due to global GDP growth of 5.3%.
- For 2006, the IMF expects global GDP growth of 4.9%
- OPEC has made little or no investment in oil production capacity.
- The productivity of investments in non-OPEC areas has declined.
- North American and North Sea oil fields continue to decline.
• Refinery margins have increased because:
- Oil demand grew faster than refinery capacity.
- Product specifications for gasoline have changed.

Outlook for energy prices

• All things equal, oil and natural gas prices have likely peaked, and will head down
over the next few years. The reasons:
- In response to higher prices, oil consumption is finally falling.
- Global economic growth is expected to moderate.
- The development of alternative energy resources is accelerating
• Recent forecasts from the International Energy Agency’s (IEA’s) Oil Market report
have revealed considerable uncertainty about oil demand. In March it appeared that
higher prices had induced a modest decline in demand. But, the April report revised
consumption figures and in May the Agency now predicts an increase of 1.24 million
barrels per day for 2006 as compared to 2005.
• The IEA now expects non-OPEC oil supplies to grow by 1.18 million barrels per day,
which places the call on OPEC oil this year about the same as last year.
• Nonetheless, inventories in the industrialized nations are at the top of the range.
And, according to recent articles, Saudi Arabia is having difficulty selling all its oil.
• By all accounts, the oil market is thinly balanced and an accident – the loss of major
production or unexpected economic decline – could send prices either direction in
dramatic fashion.
 Peak Oil

• Five decades ago M. King Hubbert, an eminent geologist, predicted that U.S. oil
production would peak about 1970. His prediction proved correct, and he and others
went on to apply the methodology to world oil production, which was estimated to
peak at the end of the 20th century.
• The central thesis of peak oil enthusiasts is that conventional crude oil is a finite
resource. Once production reaches its peak, it will turn down and decline at about 10
percent per year.
• The methodology used to estimate peak oil takes on the shape of a normal
distribution – the bell shaped curve. Advocates note that, for example, the normal
distribution predicts population levels of fruit flies in a bell jar, given finite resources.
• The peak oil thesis emerged as a credible argument in the 1970s and was an
underlying theme of President Carter’s emphasis on energy scarcity.
• In the last decade the ideas behind peak oil have re-emerged with its principal
advocates, Colin Campbell and Kenneth Deffeyes. Professor Deffeyes has gone so far
as to predict that oil production likely peaked on Thanksgiving Day, 2005.

Chart 7
World Oil Production
120.0

100.0

80.0 1979
Million Barrels per Day

Oil Crisis

60.0

1973
40.0 Oil Crisis

20.0

0.0
1930 1950 1970 1990 2010 2030 2050 2070

Projected by Hubbert Method Actual Prospective?

 Critique of Peak Oil

• Critics of the peak oil thesis, like Professor Morris Adelman, note that the theory is
devoid of economics. Scarcity of one type of resource – for example, whale oil in the
nineteenth century – leads to the discovery and development of an alternative.
• The last barrel of oil will never be produced; it will be too expensive relative to the
alternatives.
• Energy is the most abundant resource in the universe. What is needed is ingenuity
and effort to convert it into a useful form. Capital and labor are the true scarce
resources.
• It is not necessary to look to exotic options to identify an alternative to crude oil.
Methane is far more abundant in the earth’s crust, and it can be converted to a diesel-
type fuel for about $20 per barrel.
• Most significantly, world oil production has not followed the bell-shaped curve
theorized by Hubbert and others. Instead, oil production has responded to geopolitics
and economics.
• Professor Deffeyes may be right about the date of peak production. But that will be
because high oil prices reduce demand.

Alaska North Slope Oil

• The oil production history from Alaska’s North Slope is a useful tool for exploring
the validity of the peak oil thesis.
• The original estimates, Prudhoe Bay oil reserves were around 8 billion barrels. This
would have allowed peak production of around 2.2 million barrels per day. For a
variety of reasons, a ceiling of 1.5 million barrels per day was placed on the field.
• Oil fields almost always produce more than the initial estimate of reserves. In the
case of Prudhoe Bay, it has already produced 10.8 billion barrels. In addition, various
extensions of the field have produced 0.5 billion barrels of NGL and 0.7 billion barrels
from satellite deposits in the unit.
• Once the infrastructure is constructed – pipelines, production platforms, etc. – the
incentive to explore for new oil fields is significant. Following the discovery of
Prudhoe Bay, Kuparuk and other fields were discovered. Total production from other
fields has now reached 3.1 billion barrels.
• At the end of 2005, total production from the North Slope oil fields had reached 15.1
billion barrels. Furthermore, production rates remain at nearly 1 million barrels per
day.
• Nonetheless, despite all the extensions and enhancements, North Slope oil
production peaked in 1988 and has been in general decline ever since.
 Chart 8
M M BD Com ponents of North Slope Oil Production
2.25

2.00

1.75

1.50

1.25

1.00

0.75

0.50

0.25

0.00
1975 1980 1985 1990 1995 2000 2005
T otal North Slope Prudhoe Bay NGL Prudhoe Bay Oil Original

Lessons from 1979

• In 1979 Los Angeles had major gasoline shortages, despite the fact that the West
Coast had a surplus of crude oil. What went wrong?
• Price controls were placed on crude oil and petroleum products in 1971. When
this contributed to shortages in 1973, the U.S. implemented mandatory allocation.
Since allocation rights were based on historic use, regions with high growth were
the first to experience shortages.
• Between 1973 and 1979, special interests jerry-rigged the regulatory system,
creating confusion and further distorted allocation. Regulations required that a
portion of West Coast crude oil be allocated to East Coast refineries, even without
the infrastructure to support delivery.
• Government officials made a series of policy errors, including:
- They continued filling the strategic reserve instead of drawing it down;
- US refiners were asked not to buy high-priced spot oil.
- State petroleum product set-aside program often misallocated fuel.
• The market itself exaggerated the distortions:
- Vertically integrated Majors suspended third-party sales.
- OPEC’s price system exaggerated speculative demand.
- Consumer panic - fear of running out - caused hoarding.
- Supplier panic caused logistical confusion.
- Surplus heavy fuel oil filled storage and reduced refinery runs.
 Conclusions

• The experience of the last two decades is not a good guide to the future. The
world oil market has less spare capacity than any time since 1979 and an accident
could cause it to collapse into short-term turmoil.
• Since the U.S. is dependent on foreign imports for two-thirds of its oil we are
irrevocably tied to events in the world oil market.
• Although companies have consolidated within the U.S., our companies have lost
their ability to control the flow of oil in the world market.
• The dis-integration of the oil industry and development of a commodity market
means that shortages will manifest themselves as price explosions.
• The price consequence of a major oil disruption could be significant – oil prices
could quadruple in the short term. Such an event could be politically unacceptable.
• The West has virtually no strategic oil storage in a continuous flow industry.
• It is not possible to over-emphasize the impact of psychology in managing an oil
crisis. The physical shortages is magnified by hoarding and confusion.
• During shortages or “tight” markets, the extremities of the logistical system will
have the most problems. This is due in part to the industry’s contractual
organization and part to transportation distances.
• In the longer-term current oil prices are not sustainable and a price decline is
inevitable, but the drop will be linked to the performance of the global economy.

Western US Petroleum and

Product Infrastructure

An Overview of PADD IV and PADD V Markets and Infrastructure

 Isolated Markets and Production
Centers

• Western region defined by densely-populated

centers separated by largely uninhabited land.
• Both production centers and markets clustered
like “islands”.
• Little interconnection between “islands”,
especially between PADDs. Differing regulations
on product specifications, infrastructure
differences preclude major inter-PADD
shipments.
• In crisis, loss of very few product pipelines could
cause significant disruptions depending on
distance a particular consumption center is from
a production center.

PADD IV Infrastructure
• Centered around Rockies production fields in
Wyoming and parts of Colorado and Montana.
• 3 major pipelines entering Montana from Alberta
supply Canadian crude to the region’s refineries
and also to PADD II.
• 16 small- to medium-sized refineries in PADD IV,
combined crude capacity approximately 587,550
barrels per calendar day (588 MB/D).
• PADD IV generally net exporter of crude oil and
petroleum products produced. Product exports
to PADD V mostly go to Pacific Northwest.
• Product stocks in PADD IV robust enough for
nearly 2 weeks’ supply if production and imports
halted.
 PADD IV Crude Production
PADD IV Crude Production Breakdown, MB/D*
92.3
43.8

55.6

139.7
Colorado Montana Utah Wyoming
*Data from DOE Petroleum Supply Monthly, Wtd. Avg. MB/D from April 2005 to March 2006

• Total PADD IV Crude production (Apr ’05-Mar ’06)

was 120.2 million barrels (329.2 MB/D).
• Wyoming and Montana together account for 70% of
PADD IV Crude Production

PADD IV Product Production

12 Mo. Avg.
Total MB* MB/D
Finished Mogas 105,030 287.8
Reformulated Mogas 0 0.0
Conventional Mogas 105,030 287.8
Kerosene Jet Fuel 10,838 29.7
Distillates 62,837 172.2
*April 2005 to May 2006 data from DOE's Petroleum
Supply Monthly
• PADD IV does not produce or consume reformulated
motor gasoline, only conventional motor gasoline.
 PADD IV Imports / Inter-PADD Shipments

P AD D IV F o re ig n Im p o rts
12. M o. Av g . % fro m
T o ta l M B * M B /D C anada
C ru d e O il 1 0 2 ,8 3 7 2 8 1 .7 9 9 .9 %
F in is h e d M o g a s 24 0 .1 1 0 0 .0 %
D is tilla te s 2 ,6 5 8 7 .3 1 0 0 .0 %
K e ro . J e t F u e l 140 0 .4 3 7 .1 %

P AD D IV N e t In te r-P AD D S h ip m e n ts
12. M o. Av g .
T o ta l M B * M B /D
C ru d e O il -3 5 ,1 8 2 -9 6 .4
F in is h e d M o g a s -1 ,3 2 9 -3 .6
D is tilla te s -1 ,2 9 5 -3 .5
K e ro . J e t F u e l 3 ,0 0 6 8 .2

*A p ril 2 0 0 5 to M a y 2 0 0 6 d a ta fro m D O E 's P e tro le u m S u p p ly M o n th ly

• 93% of crude outflows to other PADDs go to PADD II (none to PADD V).
• 59% of conventional mogas and 34% of distillate Inter-PADD outflows
go to PADD V (the rest goes to PADD II).
• Kerosene Jet Fuel inflows come from PADDs II and III.

PADD IV Inter-PADD Shipments*

PADD V Exports
Motor Gasoline: 821 MB/Mo. PADD II Imports
Distillates: 166 MB/Mo. Crude Oil: 1,286 MB/Mo.
Kero. Jet Fuel: 5 MB/Mo. Motor Gasoline: 574 MB/Mo.
Distillates: 114 MB/Mo.
Kero. Jet Fuel: 95 MB/Mo.

PADD II Exports
Crude Oil: 3,938 MB/Mo.
Motor Gasoline: 567 MB/Mo.
Distillates: 327 MB/Mo.
Kero. Jet Fuel: 35 MB/Mo.

Cr PA
ud DD
e
O III E
il:
28 xp
0 ort
M s
PADD III Imports B/
M
Motor Gasoline: 704 MB/Mo. o.
Distillates: 271 MB/Mo.
Kero. Jet Fuel: 195 MB/Mo.
* Avg. Monthly MB/D for 12 months ending March 2006. All Motor Gasoline figures are for Conventional Motor Gasoline
 PADD IV Demand

12 Mo. Avg
Total MB* MB/D
Crude Refinery Input 201,852 553.0
Conventional Mogas 101,034 276.8
Kerosene Jet Fuel 14,000 38.4
Distillates 64,676 177.2
*April 2005 to May 2006 data from DOE's Petroleum
Supply Monthly

PADD IV (Proxy*) Days of Supply

35
# of Days Supply (Stocks/Avg.

30 30.3
25
Daily Demand)

20 20.2
15 16.5 15.8

10

Crude Mogas Kero Jet Distillate

* Days of Supply is a proxy derived from March 2006 stocks divided by March 2006 daily average demand.
Legend for PADD Infrastructure Maps
 Great Falls
Montana Refining……….8

Billings
Cenex…….………55
ConocoPhillips…..58
ExxonMobil………60

Wyoming
Sinclair Oil……….66
Little America……25
Wyoming…………13
Frontier………...…46
Silver Eagle……….3

Utah
Tesoro………….…58
ChevronTexaco….45
Big West………….29
Holly………………25
Silver Eagle………10
Denver
Suncor……60
Valero…….27

Great Falls
Montana Refining……….8

Billings
Cenex…….………55
ConocoPhillips…..58
ExxonMobil………60

Wyoming
Sinclair Oil……….66
Little America……25
Wyoming…………13
Frontier………...…46
Silver Eagle……….3

Utah
Tesoro………….…58
ChevronTexaco….45
Big West………….29
Holly………………25
Silver Eagle………10
Denver
Suncor……60
Valero…….27
 PADD V Infrastructure
• PADD V refinery infrastructure is clustered
around three regional “islands”
• These are: the Puget Sound, Northern
California, and Southern California
• PADD V production and utilization of crude
oil and total motor gasoline is about 5 times
greater than in PADD IV.
• The market for kerosene jet fuel was about
12 times greater than in PADD IV in the 12
months ending March 2006.
• Distillate supply and demand over the same
period was about 3 times that of PADD IV.
 PADD V Crude Production
PADD V Crude Production Breakdown, MB/D*

856.8 0.1

628.9
71.6 1.2
Alaska Arizona California Nevada Fed. PADD V

*Data from DOE Petroleum Supply Monthly, Wtd. Avg. MB/D from April 2005 to March 2006
• Alaska and California account for over 95% of PADD V crude production
of 570.4 million barrels (1,563 MB/D). Arizona and Nevada account for
less than 1%.
• There are no inter-PADD shipments of crude oil between PADD V and its
neighbors.

PADD V Product Production

12 Mo. Avg.
Total MB* MB/D
Finished Mogas 548,307 1,502.2
-Reformulated Mogas 400,620 1,097.6
-Conventional Mogas 147,687 404.6
Kerosene Jet Fuel 158,329 433.8
Distillates 203,281 556.9
*April 2005 to May 2006 data from DOE's Petroleum
Supply Monthly
• Over 73% of finished motor gasoline produced in
PADD V from April 2005 to March 2006 was
reformulated.
 PADD V Foreign Imports

12. Mo. Avg. % from

Total MB* MB/D OPEC
Crude Oil 403,855 1,106.5 42.8%
Finished Mogas 7,323 20.1 2.6%
-Finished Reform. 313 0.9 0.0%
-Finished Conventional 7,010 19.2 2.7%
Mogas Blendstocks 13,379 36.7 13.8%
-Mogas Blend. Reform. 2,029 5.6 20.7%
-Mogas Blend. Conventional 11,350 31.1 12.5%
Distillates 6,436 17.6 0.0%
Kerosene Jet Fuel 19,359 53.0 5.9%
*April 2005 to May 2006 data from DOE's Petroleum Supply Monthly

PADD V Inter-PADD Shipments

12. Mo. Avg.
Total MB* MB/D
Crude Oil 0 0.0
Mogas Blendstocks 10,558 28.9
Finished Mogas 31,189 85.4
-Reform. Mogas 9,382 25.7
-Conventional Mogas 21,807 59.7
Kero Jet 2,133 5.8
Distillate 3,736 10.2
*Net Shipments, April 2005 to May 2006 data from
DOE's Petroleum Supply Monthly
•All Inter-PADD imports came from PADDs III (73%) and IV
(27%).
•An insignificant amount of products (less than 2.2 MB/D)
was shipped to PADD III.
 PADD V Inter-PADD Shipments*
PADD IV Imports
Conventional Motor Gasoline: 821 MB/Mo.
Distillates: 166 MB/Mo.
Kerosene Jet Fuel: 5 MB/Mo.

PADD III Exports

Motor Gasoline Blendstocks: 26 MB/Mo.
Conventional Motor Gasoline: 12 MB/Mo.
Distillates: 19 MB/Mo.
Kerosene Jet Fuel: 8 MB/Mo.

PADD III Imports

Motor Gasoline Blendstocks: 906 MB/Mo.
Conventional Motor Gasoline: 1,009 MB/Mo.
Reformulated Motor Gasoline: 782 MB/Mo.
Distillates: 164 MB/Mo.
Kerosene Jet Fuel: 182 MB/Mo.

* Avg. Monthly MB/D for 12 months ending March 2006.

PADD V Demand
12 Mo. Avg
Total MB* MB/D
Crude Refinery Input 965,797 2,646.0
Total Mogas 588,825 1,613.2
-Reform. Mogas 405,143 1,110.0
-Conventional Mogas 183,684 503.2
Kerosene Jet Fuel 171,750 470.5
Distillates 204,147 559.3
*April 2005 to May 2006 data from DOE's Petroleum
Supply Monthly
 PADD V (Proxy*) Days of Supply

# of Days Supply (Stocks/Avg. 25

21.8
20 20.5 20.3
Daily Demand)

15
14.4

10

5 1.5

Crude Reform. Mogas Conventional Mogas Kero Jet Distillate

* Days of Supply is a proxy derived from March 2006 stocks divided by March 2006 daily average demand.

The Pacific Northwest (PNW)

• Although many ports capable of receiving tanker

traffic, refinery capacity centered around Puget
Sound. Alaskan, foreign crude brought by tanker.
• Five refineries in the Puget Sound region, with
combined crude capacity of approx. 616,000
barrels per calendar day.
• Together, capable of producing about 57.4 MB/D
of motor gasoline, 65.3 MB/D of diesel fuel (a
primary distillate), and about 70.5 MB/D of
kerosene jet fuel.
• Product pipeline runs from Tacoma-area refineries
to Portland-area consumption centers and tank
farms. Seattle also delivers supplies to California
markets by marine tanker.
Washington (MB/CD)
Astra (U.S. Oil)…...….35
BP……………………225
ConocoPhillips……….96
Shell Oil……………..145
Tesoro……………….115

Washington (MB/CD)
Astra (U.S. Oil)…...….35
BP……………………225
ConocoPhillips……….96
Shell Oil……………..145
Tesoro……………….115
 Northern California
• Most major oil and product importing ports are in the
Bay Area: i.e., Richmond, Martinez, Benicia, St.
Carquinez, San Francisco, Oakland, Crockett
• Crude also flows to refineries from the southern
production region through crude pipelines.
• Five refineries in the Bay Area, with combined crude
capacity of about 779,000 barrels per calendar day
(779 MB/D).
• Together, capable of producing about 136.2 MB/D of
motor gasoline, 159.3 MB/D of diesel fuel, and about
111.4 MB/D of kerosene jet fuel.
• Product pipelines stretch north past Sacramento,
east into Nevada, and south to Los Angeles and the
areas between. Tankers deliver product to Los
Angeles and the PNW.
Bay Area (MB/CD)
ChevronTexaco…………243
ConocoPhillips……………73
Shell Oil………………….153
Tesoro……………………166
Valero……………………144

Bay Area (MB/CD)

ChevronTexaco…………243
ConocoPhillips……………73
Shell Oil………………….153
Tesoro……………………166
Valero……………………144
 Southern California

• Most oil and product importing ports in or near Los

Angeles: i.e., Long Beach, Los Angeles, El Segundo
• Crude also flows to refineries from the production
region to the north through crude pipelines.
• 16 refineries in the Los Angeles Basin area, with
combined crude capacity of about 1,228,000 barrels
per calendar day (1,228 MB/D).
• Together, capable of producing about 110 MB/D of
motor gasoline, 192 MB/D of diesel fuel, and about
43.93 MB/D of kerosene jet fuel.
• Product pipelines stretch northeast to Las Vegas,
east into Arizona and beyond, and south to San
Diego. Tankers and barges deliver product North to
Portland.
 Bakersfield
(MB/CD)
Kern Oil…………25
San Joaquin…....14
Shell Oil…………66

Arroyo Grande/
Santa Maria (MB/CD)
ConocoPhillips……………42
Greka Energy……………..10

Los Angeles Basin

(MB/CD)
Carson
BP West Coast……….260
ConocoPhillips………..139
El Segundo
ChevronTexaco………260
Long Beach
Edgington Oil………..…14
Oxnard
Tenby……………………3
Paramount
Paramount……………..50
South Gate
Lunday Thagard………..9
Torrance
ExxonMobil……………150
Wilmington
Shell Oil…………………99
Ultramar (Valero)………81

Bakersfield
(MB/CD)
Kern Oil…………25
San Joaquin…....14
Shell Oil…………66

Arroyo Grande/
Santa Maria (MB/CD)
ConocoPhillips……………42
Greka Energy……………..10

Los Angeles Basin

(MB/CD)
Carson
BP West Coast……….260
ConocoPhillips………..139
El Segundo
ChevronTexaco………260
Long Beach
Edgington Oil………..…14
Oxnard
Tenby……………………3
Paramount
Paramount……………..50
South Gate
Lunday Thagard………..9
Torrance
ExxonMobil……………150
Wilmington
Shell Oil…………………99
Ultramar (Valero)………81
 Conclusions
• PADD IV is better integrated with the
Eastern United States than PADD V.
• Relatively few interconnections between
PADD IV and PADD V, but exchange of
products possible.
• PADD V is dependent on foreign imports for
a large portion of crude supply and smaller
portion of product supplies.
• Refining capacity in PADD V is clustered in
three “islands”: Puget Sound, Northern
California, and Southern California.