Hedging Risks Outside of the Finance Department Pays Big Dividends

Posted by Ed Burke on Jun 17, 2013 10:20:00 AM

We're all familiar to some extent with the payoff that can come with hedging financial risks in the industry. However, there are a lot of other risks out there for your company, so the question becomes 'how are you hedging that?'

I cannot say enough about our Safety Director, and the positive impact that our proactive Safety Program has had on everything from insurance costs to employee morale. A side effect we saw from really focusing on safety in all aspects of the job from drivers to office workers, was that documenting safe, proper procedures for everything from paperwork to offloading not only reduced errors and enhanced safety but ended up saving a lot of everyone's time.

In some ways, perhaps the underlying strategy for practical risk mitigation is efficiency.

Can your office handle several employees being out at once without losing days to "catch up" work? It can if you properly cross-train employees, and if you have documented, step-by-step process outlines for important tasks.

Can you streamline your inside teams - customer service, accounting, inside sales and save them time relaying customer information to your outside sales team? You can with proper networking and remote access. All our outside sales team members have server access as well as access to cloud based customer management systems and pricing modules, this allows them to find and use in-depth customer information without calling in or being stuck in the office. This lets them focus on their job, as well as reducing the time inside team members are taken away from their responsibilities.

Essentially, whether we are looking at spill prevention, bulk oil offloading, or preparing for the fiscal year ending coinciding with flu season (don't you love that?) we've found that focusing on mitigating potential risks ahead of time is a lot more effective than coming up with a crisis management plan after the fact - Just like it pays to watch the market and hedge your risks in case of price spikes, instead of hoping for the best and scrambling afterwards.

I wrote an article for O&E magazine on the topic of Operational Risk Management (ORM) - the steps involved in the approach, and some specific examples of where it has helped streamline our operations and mitigate our workplace risk. You can read the article in PDF form by clicking on the following link: Oil & Energy - Reduce Workplace Risk With A Proactive Approach

 

 

 

 

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Topics: Safety, Oil & Energy Magazine, Workplace Risk

RIN Price Spikes sustaining the "Pain at the Pump" for Gasoline

Posted by Ed Burke on May 30, 2013 8:57:00 AM

I wrote an article for Oil & Energy Magazine regarding RIN values and their impact on gasoline prices - Good time for a look over, as we officially head into "driving season"...

A quick recap - per the EPA RFS Standards, each gallon of biofuel in the US is assigned a RIN number and tracked to ensure that refiners are hitting their mandated renewable fuel allocations. If a refiner doesn't meet their obligation through physical blending of gallons, they can buy RINs to meet the obligation. Since gasoline is now 10% ethanol, and ethanol is a biofuel under RFS this means there is an obligation essentially to produce or purchase RINs to offset 10% of a refiners gasoline gallons.

Historically, both D5 (Biodiesel) and D6 (Corn-Based Ethanol) RINs have traded around or under the 10 cent level (D6 average for 2012-2013 was 11 cents) but this year has seen unprecedented spikes in price, with D6 (ethanol) RINs were trading between 80 and 90 cents as we headed into Memorial Day Weekend.

What does that mean?

Since gasoline is now 10% ethanol, that means that for every gallon of E-10 gasoline sold, there is essentially a 9 cent increase to the price at the wholesale level today. (10% of each gallon, so 10% of 90 cents)

If you are refining or importing gasoline and are subject to purchasing RINs, this obviously has a huge impact on you, as well as the customers you pass it on to. This is an issue in the East Coast as well, where a large percentage of gasoline is imported from Europe and therefore hit with the RIN impact.

The difficulty with the RIN situation as it stands now, is the E-10 blendwall. Refiners are reluctant to blend more ethanol in (and thus decrease their RIN liability) because there is some evidence that higher blends can damage end user vehicles, and additionally, there is little demand for higher level blends. This serves to drive up the market price of RINs

Given the price impact and the current supply situation on gasoline, especially on the East Coast  - the pain you are feeling at the pump is unlikely to subside unless there are revisions to the RFS Standard

You can read the article I wrote on RINs and the Ethanol Blend Wall in PDF form by clicking here

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Topics: Oil & Energy Magazine, RIN values, RINs

Gov't Picking Winners & Losers on Energy? - Deja Vu All Over Again

Posted by Ed Burke on Apr 16, 2013 9:12:00 AM

Even in the wake of the collapse of several government "fast tracked" (ie subsidized) projected winners in the energy industry (think Solyndra, Evergreen Solar, et al) and the imminent declaration of bankruptcy by taxpayer supported Fisker Automotive on the horizon, several Northeastern States are proposing "fast tracks" to expand natual gas pipelines courtesy of the taxpayer.

Many of those in the heating oil and/or propane industries are upset by the proposals as they perceieve them to be benefiting one segment of the industry on the backs of another. Additionally, since heating oil has been progressively moving towards cleaner, lower sulfur fuels and even embracing BioHeat - the enviornmental impact of heating oil versus natural gas in terms of emissions is not the same equation it may have been 10-15 years ago. That's important because when you factor in the continual reduction of the environmental impact of heating oil, the high cost of these sponsored Nat Gas infrastructure projects, and the potential impact on employment facing heating oil dealers (mostly small to mid size businesses) - the economics on subsidized Natural Gas pipeline expansion make less and less sense.

 For example, Maine is "fast tracking" natural gas pipeline expansion into rural areas. The issue seen here is two fold - arguably, the reason the government is subsidizing the expansion into rural Maine is there isnt sufficient ROI incentive for the utility to do it itself. Rule number one of public funding - if there were sufficient business and profit to be gained, the private sector would have made the investment itself. Additionally, propane and heating oil dealers have been servicing these areas sans government funding without issue. These companies, many of whom are small businesses, employ thousands of Maine residents gainfully, on private capital and could now be forced to face laying off employees with the necessitated drop in revenue from a smaller customer base. It doesnt seem like a winner in terms of big picture economics/employment for the state.

Vermont has proposed a variety of "Heat Taxes" to encourage lower use of heating oil. The proposals suggest that customers pay either a Carbon Tax of .10/gal on Heating oil and.05/gal on propane, or a BTU based tax of .012/gal Heating Oil and .08/gal on Propane, or worst yet, a Heating Oil Sales Tax that would amount to about 20 cents per gallon. Given the state of the economy, and the price of heating your home these days, it's hard to imagine asking the average person in Vermont to pony up an extra 20 cents per gallon.

Connecticut is proposing converting hundreds of thousands of homes in the state to Natural Gas at the projected price tag of almost 7 billions dollars. With zero explanation of where said billions will come from, its fair to assume it will either come from the taxpayer, or be passed down to the consumer. Converting hundreds of thousands of homes to Natural Gas will impact Connecticut small to mid size petroluem businesses the same way the proposed expansion in Maine could affect businesses there - namely, negatively.

Natural Gas is definitely going to be a huge part of the picture in terms of where American Energy is headed in the future, especially given the obvious success of domestic fracking, and the huge positive impact fracking has had on city and state economies. I for one am all for the expansion of affordable energy - especially when its domestically produced and provides huge employment opportunities for Americans at all skill and education levels from laborers to engineers.

The issue at hand is not Natural Gas, but short sighted governmental policies that attempt to aid one sector of an industry at the cost of another. It seemed during the 2012 Presidential Debates, we are all pretty much in agreement that what America needs is an "all of the above" energy policy. The best way for that to happen in the most efficient and sustainable way, is for market demands to drive advancements in supply logistics and innovation. Case in point, fracking did not arise from governmental "fast tracking" and it's changing the way we look at energy production in the United States in a major way. Back to the thesis: if it makes sense, and it's profitable, it will progress on its own without government funding.     

Anyway, I wrote an article on fuel dealers and the proposed Energy topic for a recent issue of Oil & Energy Magazine, if you would like more info you can read the full article online here: Oil & Energy Magazine , or as a PDF Here

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Topics: Oil & Energy Magazine, natural gas, Fracking, Heat Tax

Cellulosic Ethanol Production: Benefits, Progress, and Challenges

Posted by Ed Burke on Jul 26, 2012 1:56:00 PM

 The EPA has mandated that in 2012 Cellulosic Ethanol production hits 8.65 million gallons

What is Cellulosic Ethanol anyways? Cellulosic, unlike Corn Ethanol, is a second generation Biofuel (corn ethanol is a first generation) which means it comes from cellulose contained in non food plant material, either remnant products of food crops, or entirely non food crops.

A drawback of first generation Biofuels is that since they come from food crops, they potentially stand to impact food prices due to increased demand.  Today there are headlines on the news regarding the drought in the Midwest, and other natural events driving up the cost of food – the impact of events like this could become much more pronounced when there is a competing demand for the same commodities like soybeans, corn, and so on. Second generation Biofuels, being from non-food crops or remnants, take the food price issue out of the equation.  Additionally, from an environmental standpoint, although Corn Ethanol stands to reduce emissions up to 52% over gasoline, Cellulosic Ethanol could drop greenhouse gas emissions by up to an impressive 86%.

I wrote a piece this past month for Oil & Energy Magazine discussing the positive moves the Cellulosic Industry has made towards production, the science behind production, and obstacles in the way of moving forward.  You can read the article in Oil & Energy HERE or read it as a PDF HERE

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Topics: Commodities, E85, Oil & Energy Magazine, Biofuels, Cellulosic Ethanol

Safety and Regulatory Compliance - a Culture, not a Program

Posted by Ed Burke on Jun 20, 2012 3:59:00 PM

Below you can link to an article I published the in May 2012 issue of Oil & Energy Magazine on the importance of Safety in the industry. In my mind, it is critical to prioritize safety and compliance in order to foster not just a safety program, but a Safety Culture. In the article, I run through why I think Safety is so critical, a little about how we created and fostered the strong Safety Culture present at Dennis K Burke, and how our company and employees have benefitted.

Click here to read the Article as a PDF or Click here to Read Oil & Energy Online 

 

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Topics: Safety, Oil & Energy Magazine

O&E- Refinery Closures bring Higher Prices and Local Shortages

Posted by Ed Burke on May 14, 2012 4:15:00 PM

The April 2012 Issue of Oil & Energy Magazine features an article by yours truly on the East Coast refinery closures, and what expected future impact may be. You can read the full article here: Oil & Energy Magazine  (or if you prefer, open it as a PDF by clicking here )

Factoring into the closures, and the soon-to-be resultant price increases is the Northeast's traditional import of Brent crude vs WTI. Historically, Brent and WTI have traded fairly close, so the price impact at the refinery level was essentially equivalent. However, due to geopolitical and other factors, the crack spread on Brent vs WTI has been trending wide, as shown by these real time tickers:

 

Lets put it in actual dollars - as of May 2nd, WTI is trading around 105ish, Brent 118ish...  to figure out what that equates to in dollars per gallon (what refiners work on) we look at the crack spread. The crack is essentially “what do I get per gallon for every barrel coming in?”

So how do you know the crack spread? You calculate it this way:

($ per barrel/ 42 (gal per barrel)= X).. you then take current trading price of HO (~3.14) and subtract X. Then you multiply by 42 to get gain or loss per barrel. 

($ per barrel/42 gal per barrel= X)

(Current HO trading $ - X)*42 = gain/loss per barrel

 

Refiners will say they need at least a $5 crack to operate.  To put it in real numbers, the current WTI crack is around $26.88 a barrel; the current Brent crack is around $13.88. Here’s how we get that:

 

WTI= $105/42g=2.50 base cost for crude to make HO at refinery

       JUN HO= ~3.14

      Equates to = .64 margin on current economic conditions (3.2018-2.5238=.64)

       Multiply that by 42 gallons per barrel and you get $26.88 profit for every barrel of HO produced from WTI crude.

Do the same math for Brent:

Brent = $118/42=2.8095

       JUN HO= ~3.14

         (3.2018-2.976=.3305 x 42= $13.881 per barrel)

[Interestingly, the same math on these two products in April yielded a WTI crack spread of $28 to Brent's $9.50. (JP Morgan has predicted that the spread will drop further, before widening to new records as reported in the Economic Times Here )]

 

Which product would YOU rather have access to?

There is a massive push to not only improve the pipeline system in the US but the rail system as well, in order to take advantage of this crack spread. If you’re a northeast refiner and have access to WTI, you have a huge advantage vs. your competitor in the Northeast because they’re based on Brent.

 

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Topics: Oil & Energy Magazine, Refinery Closures, Brent Crude, Brent vs WTI

RIN Fraud - What does it mean for Biodiesel Producers?

Posted by Ed Burke on May 1, 2012 3:32:00 PM

I wrote an article in March's issue of Oil & Energy Magazine adressing the issue of RIN Fraud and the impact the EPA crackdown on the fraud is having in the biodiesel world.

Ironically, 2011 was a pretty great year in a lot of ways for biodiesel and biodiesel producers - production was up, green jobs were being created, we were making progress. RIN Fraud hitting the news late in the year really shook things up however, understandably, considering the fines and penalties at play and the difficulty facing smaller firms currently who have legitimate RIN credits to trade and are facing a marketplace full of cautious (at best) buyers.

Long story short, there have certainly been ripples throughout the industry over the fraud, with more to come likely. It will be interesting to see how it all shakes out.

 You can read the full article in pdf format by clicking here 

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Topics: Oil & Energy Magazine, Biodiesel Massachusetts, Biodiesel, RINs

Technology Offers Fuel Dealers a Competitive Edge

Posted by Ed Burke on Feb 1, 2012 10:32:00 AM

A lot has changed in the world over the past 50 years and in no area is this more apparent than technology. Its amazing to look back and think "how did we do this 25 years ago?"  - how did we adapt to computers, ipads, tweeting our every move.. Keeping up on technology is such a constant process its tempting to think of it as automatic. But is it really? Are we really optimizing our results and efficiency through technology?

We recently launched a new financial & accounting system and its really amazing to think that all the automated data feeds, customer tracking, alerts, and resource planning we now tend to view as standard were really akin to the flying car even just a decade ago.

I wrote a short article for Oil & Energy Magazine recently reflecting on these issues and how we've specifically addressed them at Dennis K Burke.  

You can read it at http://www.nefi.com/oilandenergy/archive/OE_0112_web/#/30/  As a bonus, the companion page has a great article on biodiesel at Weaver Energy

Or, its in PDF form here: Technology Offers Fuel Dealers a Competitive Edge 

 

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Topics: Oil & Energy Magazine, Technology

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