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Refined Product Marketing

Topics

1. US Refined Product Demand

2. Distribution Systems

3. Gasoline Marketing

4. Convenience Stores

5. Refining and Marketing Economics

6. References

How are Refined Products Sold?

After crude oil is converted into refined products, the products must be transported and sold to end-users.  

U.S. Refined Product Demand

Refined products are consumed throughout the United States.  For convenience, the country is divided into five Petroleum Administration for Defense Districts (PADDs).  The states included in each PADD are shown in the following table:

The consumption of products in each PADD for 2008 is shown in the following table:

Consumption of Petroleum Products
(Thousands of Barrels per Day)

(Source: Products Supplied, Energy Information Administration)

Distribution Systems

In many cases refined products need to be moved from a PADD where there is excess supply to another PADD which needs more products.  This supply balance is illustrated in the chart.  PADD III refineries supply demand to the U.S. Midwest (PADD II) and East Coast (PADD I).  PADDs IV ( Rocky Mountains) and V (West Coast) are rather isolated from the rest of the nation and must largely be self-sufficient. 

[Click on image to view full-size]

(Source: Mr. James Watson, Baker & O'Brien)

Refined products are moved to markets using pipelines, tankers and tank trucks.  Pipelines are the lowest cost method.  Colonial Pipeline Company ships products from refineries in the U.S. Gulf Coast (PADD III) to markets in the East and Northeast.  Colonial Pipeline Co. is an interstate common carrier of petroleum products. Each day, Colonial delivers an average of 80 million gallons of gasolines, kerosenes, home heating oils, diesel fuels and other fuels to terminals in 12 states and the District of Columbia.  The 5349-mile system transports fuels from Texas, Louisiana, Mississippi and Alabama to 267 marketing terminals located near the major population centers of the Southeast and Eastern Seaboard. It is owned by BP (17.96%), CITGO Petroleum (15.79%), Conoco (8.53%), Equilon (16.12%), Koch Industries (7.30%), Marathon Oil Company (2.82%), Phillips Petroleum (8.02%) and Union Oil Company of California (23.44%).

Waterborne tankers move products from U.S. Gulf Coast ports to destinations along the Gulf Coast from Texas to Florida and East Coast from Washington to Boston.  

Once the products reach their destination, which is usually a supply terminal, they are distributed to gasoline stations, airports and homes by tanker trucks. Companies mix their additive packages into gasoline at these facilities.

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Gasoline Marketing

Perhaps the most visible refined product is gasoline.  Over 180,000 gasoline stations deliver transportation fuels to motorists throughout the United States. 

Gasoline is sold at branded and unbranded stations.  Branded stations include company-owned, distributors and dealers. Company-owned stations are Owned and operated by a petroleum refining company (e.g. ExxonMobil, Chevron, etc.) Company owned stations usually have a higher focus on fuel sales versus convenience store merchandise sales. Distributors are companies without refining operations that own and operate their own gas stations.  

Distributors may also supply gasoline to  dealers who are independent gasoline stations that have no distribution capabilities. Branded operations allow distributors and dealers to market gasoline under a recognized brand. Unbranded stations are retail or commercial.   

The following table contains statistics for the companies in the EIA's financial reporting system.

(Source: Table 16, Refining and Marketing - Performance Profiles of Major Energy Producers 2007)

Retail establishments include companies such as chains such as RaceTrac and QuikTrip, "mom and pop" stations, and major retail marketers such as Wal-Mart and Cosco. Commercial operations are for fleet programs and construction operations.

Please click on the link to see some photographs of old time gasoline stations.

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Convenience Stores

Convenience stores or C-stores represent a growing trend in retail operations.  Data compiled by the National Petroleum News indicates the nature of C-store operations.  

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Refining and Marketing Economics

The average gross refining/marketing margin reported by companies in the EIA's financial reporting system increased 2% in 2007 to $12.25/B.  The net refining margin decreased to $4.78/B. 

(Source: Table 13, Refining and Marketing - Performance Profiles of Major Energy Producers 2007)

Net refined product margins decreased in 2007 to $4.78/B as a result of higher costs as shown in the following table.

(Source: Table 14, Refining and Marketing - Performance Profiles of Major Energy Producers 2007)

References

For more information about refined product marketing, please check out the following references:

	Petroleum Marketers Association of America (PMAA) is a federation of 42 state and regional trade associations representing 7,850 independent petroleum marketers nationwide. Most of  these marketers are small, family businesses serving the petroleum needs of their local community.  These companies sell approximately half the gasoline, 60% of the diesel fuel and 80% of the home heating oil consumed in America annually.
	What is a Service Station?, Chevron Corporation
	Restructuring: The Changing Face of Motor Gasoline Marketing
	The U.S. Petroleum Refining and Gasoline Marketing
	National Association of Convenience Stores
	Changing Competitive Environment for Gasoline Marketing
	Gasoline Facts & Tips - Retail Marketing
	Gasoline Tool Kit
	The US Petroleum Refining and Marketing Industry - Energy Information Administration
	The Economics of Gasoline Retailing - American Petroleum Institute
	Refining and Marketing - Performance Profiles of Major Energy Producers 2007

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