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Downstream Training

Downstream Training. Marketing and Price Updates for COP. Jobbers are Big Business. Society of Independent Gasoline Marketers of America…. 2006 Respondents: 235 member companies in all 50 states: Sells about 31% of the USA motor fuels, through 35,300 sites C-Store sales $85 billion

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Downstream Training

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  1. Downstream Training Marketing and Price Updates for COP

  2. Jobbers are Big Business Society of Independent Gasoline Marketers of America… • 2006 Respondents: 235 member companies in all 50 states: • Sells about 31% of the USA motor fuels, through 35,300 sites • C-Store sales $85 billion • 285,000 Employees • Big business… • Purchases petroleum from 10 different suppliers • Median annual sales of 102 million gallons • Can be operating under 2 brands in 3 states Source: 2006 SIGMA Statistical Report

  3. No data for now Motor Fuels Pricing System – Typical And, it is very important to know which price is which!... (cents per gallon) Unleaded Unleaded Stage Regular Premium Spota 73.01 79.43 Rackb Majors - Branded 75.85 87.79 Independents - Unbranded 75.57 86.06 DTWc: Dealer Tankwagon 81.15 93.26 Retail: Street (with taxes) 116.40 134.90 a New York spot b Weighted average nationwide rack c Nationwide DTW Source: Oil Daily

  4. 22.4 Average MPG 13.4 Passenger Car Fuel Consumption – 1973-2004 Improved fuel consumption has permanently altered gasoline marketing... Passenger Car Efficiency Index Average Miles per Gallon of Fuel Average Miles Traveled Per Car Average Fuel Used Per Car Data was revised by the FHWA in 1986 EIA, Monthly Energy Review, Figure 1.9 & Table 1.9, December 2004, NPN July 2006

  5. Retail Outlets Reduced with Fuel Economy 2006 – Station count stabilizing, below 170,000... Gas Sites (000’s) Full Universe Count Includes all facilities that sell retail gasoline: hypermarkets, service stations, C-stores, truck stops, service centers, Mom ‘n Pops. Overall: not a steep decline; change to C-stores. NPN Market Facts 2006

  6. Major Brand Retail Outlet Rankings USA Branded Retail Outlets by Rank – 2005... • In August 2006, CITGO made decision to stop supply to 10 states… reducing branded outlets by 14% • ConocoPhillips will be new (branded outlet) leader. • Notice how close market leaders are positioned. 2005 No. of 2004 Rank Company Outlets Ranking 1 CITGO Petroleum Corp. 13,682 3 2 ConocoPhillips 13,600 4 3 Shell Oil Products 13,500 1 4 BP America Inc. 13,000 2 5 ExxonMobil 12,796 5 6 Chevron Products Co. 9,354 6 7 Sunoco Inc. 4,763 7 8 Marathon Petroleum Co. 3,900 9 9 Sinclair Oil Co. 2,253 10 10 Getty Petroleum Corp. 1,965 11 11 Speedway SuperAmerica LLC 1,588 12 12 CHS (Cenex) 1,577 13 13 Amerada Hess 1,350 14 14 ALON USA 1,200 15 15 Valero Energy Corp. 1,005 8 NPN Market Facts 2006

  7. Gasoline Gallons & Relative Market Share USA Market Share: 2005 gross sales of 144.4 billion gallons(a) ... Rank % Share Gross Gal. % Change Company 2005 2004 of Market (000,000) vs. 2004 ConocoPhillips 1 1 14.59% 21,063 1.3% ExxonMobil 2 2 12.97 18,734 (2.0) BP 3 3 11.08 16,004 (4.5) CITGO 5 5 9.69 14,000 (1.4) Shell 4 4 9.69 14,000 (10.2) MarathonAshland Pet. 6 6 8.88 12,816 3.6 Chevron 7 7 7.53 10,869 1.1 Valero 8 8 5.33 7,700 11.6 Sunoco 9 9 3.65 5,267 1.3 Total 83.41% 120,453 (a) Figures may include some non-highway consumption not reported separately NPN Market Facts 2006

  8. Shift in Type of Gasoline Outlets Ten year growth of C-store segment in retail shown below... Convenience Store Growth – Number of Stores Stores (000s) Sources: National Association of Convenience Stores, U.S. NPN Market Facts - July 2006

  9. A Coke... A Smoke... and a Fill-Up Gasoline has accounted for a growing portion of total C-store sales... Gasoline Percentage of C-Store Sales NACS National Association of Convenience Stores State of the Industry Challenge is to integrate retail merchandising format with commodity, self serve, speed, efficiency of gasoline sale.

  10. Top 10 Product Categories (as a percentage of in-store sales) 2003 2004 1 Cigarettes 34.7% 34.5% 2 Package Beverage 12.2 13.0 3 Foodservice 11.9 13.1 4 Beer 11.9 10.9 5 Other Tobacco 3.5 2.8 6 Candy 3.4 3.7 7 Salty Snacks 3.3 3.1 8 Fluid Milk Products 2.5 2.6 9 General Merchandise 2.0 4.5 10 Edible Grocery 1.9 1.2 C-Stores a Complex Operation A mixture of formats and products – difficult to control… Convenience Store Gross Margins (as a percentage of sales) Gasoline Non-gasoline Average Year Margin (%) Margin (%) Margin (%) 2005 6.9% 29.5% 13.8% 2004 6.9 29.7 13.5 2003 8.8 30.8 16.4 2002 9.1 29.4 16.8 2001 9.2 27.8 16.7 2000 9.3 28.4 16.8 1999 11.7 30.0 19.6 1998 12.0 32.0 20.8 1997 11.3 32.0 20.9 1996 13.1 31.2 20.3 1995 11.8 30.4 20.8 1994 11.1 30.4 20.8 1993 11.9 31.0 20.8 1992 9.9 32.2 20.1 1991 9.2 33.1 20.8 1990 10.4 32.4 20.7 National Association of Convenience Stores State of the Industry Highlights, NPN Market Facts 2006

  11. Hypermarkets Market Share France 56% UK 28% USA 10% Hypermarkets – the New Challenge Hypermarket site count 2006 – Growth exploding… Note: Total fuel sites: 5,053 Pacific Northwest 202 / 12 Northern Tier 151 / 24 Rocky Mountain 248/19 Northeast Seaboard 374 / 83 Midwest 977 / 157 Mid-Continent 210/19 Pacific Southwest 292 / 10 Hypermarket Gasoline Market Share Outlook Southeast Seaboard 565 / 72 Gulf Coast 1,038 / 20 2004 8.3% 2005 10.0 2006 12.5 2007 13.5 2008 14.0 2009 16.0 Fuel site count / annual build rate Source: NPN Market Facts 2006

  12. World Oil Prices in Three Cases, 1980-2030 2004 Dollars per Barrel 100 High Oil Price 80 60 Reference 40 Low Oil Price 20 History Projections 0 1980 1995 2004 2015 2030 EIA Crude Oil Price Outlook A common industry planning case is the EIA annual forecast... Average annual price for of imported low-sulfur, light crude to USA refiners • Two Views of the (Supply Driven) Future • High Case – Assumes W/wide crude oil resource is 15% smaller and more costly to produce than the reference case. • Low Case – Assumes 15% more plentiful and cheaper to produce www.eia.doe.gov IEO ‘06

  13. Paradigm Shift ? 1861-69 1870-79 1880-89 1890-99 1900-09 1910-19 1920-29 1930-39 1940-49 1950-59 1960-69 1970-79 1980-89 1990-99 2000-05 Crude Oil Prices Since 1861 US dollars per barrel… Fears of shortage in USA Yom Kippur war World events Russian oil exports begin Post-war reconstruction Iranian revolution Growth of Venezuelan production Netback pricing introduced Sumatra production begins Loss of Iranian supplies Iraq invaded Kuwait Asian financial crisis Pennsylvanian oil boom Discovery of Spindletop, Texas East Texas field discovered Invasion of Iraq Suez crisis 110 100 1861-1944 US average. 1945-1983 Arabian Light posted at Ras Tanura 1984-2005 Brent dated. 90 80 70 60 50 40 30 20 10 0 $ money of the day $ 2005 Source: BP

  14. Rotterdam Oil Product Prices US dollars per tonne… 700 1988 to first quarter 1992: leaded gasoline. From second quarter 1992: unleaded gasoline. 600 500 400 300 200 100 0 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Gasoline Gas oil Heavy fuel oil Source: BP

  15. Regional Oil Refining Margins US dollars per barrel…. Refining margins presented are benchmark margins for three major global refining centers: US Gulf Coast (USBC), North West Europe (NEW – Rotterdam) and Singapore. Each case is based on a single crude oil appropriate for that region and have optimized product yields based on a generic refinery configuration (cracking, hydrocracking or coking), for that region. The margins are on a semi-variable basis, i.e. the margin after all variable costs and fixed energy costs. 18 16 14 12 10 8 6 4 2 0 95 96 97 98 99 00 01 02 03 04 05 USGC West Texas Sour Coking NEW Brent Cracking Singapore Dubai Hydrocracking Source: BP

  16. Major Crude Oil Trade Movements – 2005 Trade flows worldwide (million tons)… 23.0 287.0 22.0 116.5 19.6 53.3 107.1 211.7 26.7 34.6 156.1 67.4 96.5 97.0 81.8 30.3 369.2 28.6 24.8 140.9 38.1 37.2 26.8 USA Canada Mexico South & Central America Europe & Eurasia Middle East Africa Asia Pacific Source: BP

  17. Main Drivers of Product Price and Margin Crude cost is the most important factor in the price of a gallon of gas... FY2005 USA Cost Components of Gasoline – Average Cost $2.27 / gallon Refining 19% Crude Costs 53% Distribution & marketing 9% • Of the 18.4 cents per gallon federal tax on gasoline: • 9.5 cents Highway Trust Fund • 2.0 cents mass transit account • 6.8 cents deficit reduction • 0.1 cents Leaking Underground Storage Tank Trust Fund (LUST) State Tax 11% Federal Tax 7% www.EiA.gov Primer on gasoline prices

  18. Determinants of Product Price Crude cost is the most important factor in the price of a gallon of gas… Crude cost: 28.53 Crude cost: 36.98 Crude cost: 50.23 2003 Average Retail Price: $1.56/gallon (regular) 2004 Average Retail Price: $1.85/gallon (regular) 2005 Average Retail Price: $2.27/gallon (regular) 14% 12% 9% 19% 18% 15% 19% 27% 23% 53% 47% 44% Distribution & Marketing Refining Costs & Profits Federal & State Taxes Crude Oil Energy Information Administration, Washington DC Primer on gasoline prices

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