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Reliance on limited pipelines can impact pump prices

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Tuesday, July 26, 2011
 

Jeff Decker says it's getting more difficult to make a buck selling gas, especially as an independent retailer.

The owner of Decker's Service gas station and repair shop on East Warrington Avenue in Mt. Oliver said there's not much profit in gasoline sales.

"You can make more money selling potato chips and coffee," Decker, 59, said in his office adjacent to the shop, where framed photos chronicle six decades of Decker's Service history. He bought the business in 1990 from his father, who owned it since 1952.

"I've been here my whole life."

A lot has changed in that time -- not only at Decker's Gulf station, but in the retail gasoline industry that, for the most part, is connected in name to large oil companies.

BP, Exxon, Citgo, Gulf and Shell are familiar oil company brands on road signs at many Western Pennsylvania service stations. But none of those companies owns stations in Pennsylvania. Gulf doesn't produce oil; it owns supply terminals and sells gasoline wholesale.

Large oil companies quit the business of selling gasoline because "the margins in retail are very low, and it's highly competitive," said John Felmy, chief economist for the American Petroleum Institute, an industry group based in Washington.

Oil companies can make more profit pulling oil from the ground and refining it -- what's known as the upstream business, Felmy said. Dozens of independent companies in Western Pennsylvania handle the downstream business of distribution and retail.

The oil companies gave up their tanker trucks in favor of distributors -- who sometimes contract with trucking companies to deliver fuel.

With a large number of companies involved in the gasoline supply chain, and reliance on pipelines, supply can be disrupted, said Nancy Maricondi, executive director of the Petroleum Retailers and Auto Repair Association in Forest Hills.

"There's a lot of different players, and they have to take their turn on the pipeline," she said.

That happened this spring when pump prices for gasoline in Pittsburgh shot up as supplies of conventional gas, sold September to May each year, dwindled before the arrival of summer-blend gas, required to be sold in the Pittsburgh region from June 1 to Sept. 15 to curb air pollutants.

Decker buys gasoline from one of several distributors in the region. Distributors pick up gasoline at terminals, the large storage facilities where the fuel is pulled off pipelines that transport it from refineries in the Philadelphia area and New Jersey.

One of those distributors is Superior Petroleum Inc., a wholesale buyer of gasoline, a distributor under the BP, Citgo and Valero brands, and owner of 37 gas stations. To become a distributor, Superior set up contracts with gas stations to deliver at least 10 million gallons of gasoline a year from a brand, such as BP, said Donald Bowers, manager of petroleum and transportation.

Gasoline is a "fungible" commodity when it comes off the pipeline and goes into storage in a terminal, Bowers said. Translated, that means all gasoline is the same.

The difference is that once a distributor fills a tanker bound for BP stations, for example, it adds BP's proprietary additives to make it BP gasoline, Bowers said.

An exception in this process is Philadelphia-based Sunoco Inc., which in a reverse move got out of the oil exploration business in the 1990s but still operates refineries, pipelines and gas stations.

"We think it's still a good business, and there's opportunity in the marketplace with the other companies pulling out of retail," spokesman Thomas Golembeski said.

Sunoco stations were the only stations unaffected by the spring supply disruption because the company controls its refineries, pipelines and distribution, Maricondi said.

The disruption occurred because the state requires use of special gas in Western Pennsylvania counties to combat high levels of ground-level ozone, or smog, in the summer. The Pittsburgh area is the only area in Pennsylvania and the entire mid-Atlantic region that requires a summer blend, which doesn't evaporate as quickly as conventional gas. When gas evaporates, it releases chemicals that cause smog.

The Environmental Protection Agency requires the Philadelphia region, all of Delaware, New Jersey, Connecticut, Rhode Island, Massachusetts and the New York City region to burn another type of summer blend, known as reformulated gasoline. It evaporates more slowly but is enriched with oxygen and mixed with ethanol to cut down on toxic chemicals in gasoline.

"It compounds the challenges of supplying gasoline in the Pittsburgh area," said John Kulik, executive vice president of the Pennsylvania Petroleum Marketers & Convenience Store Association, referring to Pittsburgh's different summer blend of gas.

Giant Eagle Inc. made inroads in the retail gasoline market in recent years with its GetGo stations, drawing customers by offering discounts for fuel and food purchased at its stores. The company sells unbranded gasoline at its 63 stations in the Pittsburgh region.

Giant Eagle would not identify suppliers, for competitive reasons, but spokesman Dick Roberts said "they include major oil companies and independent refiners."

Sunoco branded gas stations number 150 in Allegheny, Beaver, Washington and Westmoreland counties, stations that Sunoco or independent dealers own and operate, Golembeski said.

Sunoco owns two refineries in eastern Pennsylvania -- in Philadelphia and in Marcus Hook -- that can refine as many as 335,000 and 178,000 barrels of crude oil a day, respectively. Sunoco purchases crude oil from around the world and ships it to its refineries by large tanker boats.

Sunoco Logistics Partners LP, a separate publicly-traded company partly owned by Sunoco, owns a pipeline that delivers gasoline to Pittsburgh from its refineries. Golembeski said it is an 8-inch pipe but declined to give the pipeline's capacity.

Two other pipelines are the primary source of gasoline to Pittsburgh: the Buckeye and Laurel pipelines owned by Buckeye Partners LP of Houston, Texas.

The Laurel pipeline, which can supply as many as 200,000 gallons of liquid fuel a day, runs from New Jersey, where refineries owned by Conoco Phillips, Valero and Chevron are located, through Pennsylvania to Pittsburgh. The Buckeye pipeline, with a 50,000-gallon-a-day capacity, runs through northern Ohio from refineries in the Great Lakes region.

Some gasoline comes to Pittsburgh storage terminals along the Allegheny and Monongahela rivers by barge, but shipments have fallen during the past decade, said James McCarville, executive director of the Port of Pittsburgh Commission.

Additional Information:

'Special' blends

All gasoline is the same when it comes off the pipeline into a holding facility. The Environmental Protection Agency requires fuel to include a certified detergent, but oil companies often include additional proprietary ingredients to differentiate their blends. Here's what they say about their additives:

BP: 'With continuous use, (its blend called) Invigorate helps clean and protect engines from deposits, sludge and corrosion.'

Exxon/Mobil: 'The components are proprietary but are formulated to help clean vital engine parts by removing harmful deposits from your car's intake valves for a smoother-running engine with cleaner emissions.'

Citgo: 'The detergent additive that you will find in all grades of CITGO gasoline is designed to help keep your engine clean and performing well.'

GetGo: 'GetGo meets or exceeds government standards for fuel additives.'

Sunoco: 'The additive level in every gallon of Sunoco gasoline far exceeds the minimum standards set by the federal government, and that's across all octane levels.'

Gulf: Did not respond.

Shell: Did not respond.

Source: Tribune-Review research

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