U.S. oil refineries landscape changing
U.S. refining capacity increased since 2000 as capacity additions outpaced the loss of capacity from three major refinery closures. Yet the number of refineries and companies both declined over the same period, as the concentration of refining capacity among the top five companies increased from 38 percent in 2000 to 44 percent in 2013.
Ownership of U.S. refinery capacity changed substantially in recent years, notwithstanding relatively slow changes in refinery capacity and the number of companies involved in the refining sector. An examination of company-level information and transactional data since 2000 shows both consolidation and dispersion. Almost 40 percent of large refiners (i.e., those with at least 1 percent of total U.S. capacity) in 2000 had exited the industry by mid-year 2013.
Many refining companies changed substantially between 2000 and mid-year 2013. Some key themes are:
- Specialization. Several large oil and gas producers with refining operations, including Marathon Oil Corp. and ConocoPhillips, transferred their refining assets to stand-alone refining companies.
- Refocus away from refining. Some companies demonstrated a lessened commitment to refining. BP and Chevron reduced their refining capacity (by 23 percent and 10 percent, respectively), but stopped well short of exiting refining. Total, Exxon Mobil, and Access Industries had slight reductions in U.S. refining capacity (5 percent, 3 percent, and 2 percent, respectively).
- Refocus on refining. Other companies had noticeable increases in capacity. Valero and the joint ventures Motiva (Shell and Saudi Refining) and Deer Park (Shell and Mexico's PMI Norteamerica) increased refining capacity by 277 percent, 23 percent, and 20 percent, respectively. Valero grew through acquiring companies and assets, while Motiva grew through investing in its assets, chiefly the expansion of the Port Arthur, Texas refinery, which is now the largest refinery in the United States.
- Vertical integration. Delta Air Lines, which owned no refining assets, purchased a refinery from ConocoPhillips and now produces jet fuel for its aircraft along with other petroleum products that it does not consume.
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Historically, integrated companies divested refining assets because their profitability was volatile and relatively low, particularly when compared with oil and gas exploration and production. Purchasers were willing to acquire the divested refining assets at discounted prices. Other companies viewed the potential profitability of the refining sector more favorably, leading them to acquire other companies or assets.
The ownership of refineries today reflects multiple changes since 2000. For example, in January 2000 Tosco (5th-largest U.S. refiner), Conoco (10th-largest U.S. refiner), and Phillips (17th-largest U.S. refiner) were all separate companies, and Suncor had no U.S. refining operations.
Subsequently, Phillips acquired Tosco in 2001, merged with Conoco in 2002 (becoming ConocoPhillips), sold its Denver refinery to Suncor (whereby it entered U.S. refining) in 2003, spun off two of its refineries to create WRB Refining in 2006, sold its metro Philadelphia refinery to Delta Air Lines (whereby Delta entered U.S. refining) in April 2012, and subsequently spun off all of its remaining refineries (except a small Alaska refinery), creating Phillips 66 in May 2012. These and other transactions are noted in EIA's recently updated Genealogy of Major Refiners.
Source: U.S. Energy Information Administration
Ofwat allows retailers to raise prices from April
Retailers can recover a portion of excess bad debt by temporarily increasing prices from April 2022, according to an Ofwat statement.
The regulator confirmed its view that levels of bad debt costs across the business retail market are exceeding 2% of non-household revenue, thereby allowing "a temporary increase" in the maximum prices. Adjustments to price caps will apply for a minimum of two years to reduce the step changes in price that customers might experience.
Measures introduced since March 2020 to contain the spread of Covid-19 could lead to retailers facing higher levels of customer bad debt. Retailers’ abilities to respond to this are expected to be constrained by Ofwat strengthening protections for non-household customers during Covid-19 and the presence of price caps.
In April last year, Ofwat committed to provide additional regulatory protection if bad debt costs across the market exceeded 2% of non-household revenue.
Georgina Mills, Business Retail Market Director at Ofwat said: “These decisions aim to protect the interests of non-household customers in the short and longer term, including from the risk of systemic Retailer failure as the business retail market continues to feel the impacts of COVID-19. By implementing market-wide adjustments to price caps, we aim to minimise any additional costs for customers in the shorter term by promoting efficiency and supporting competition.”
There are also three areas where Ofwat has not reached definitive conclusions and is seeking further evidence and views from stakeholders:
- Pooling excess bad debt costs – Ofwat proposes that the recovery of excess bad debt costs is pooled across all non-household customers, via a uniform uplift to price caps.
- Keeping open the option of not pursuing a true up – For example if outturn bad debt costs are not materially higher than the 2% threshold.
- Undertaking the true up – If a 'true up' is required, Ofwat has set out how it expects this to work in practice.
Further consultation on the proposed adjustments to REC price caps can be expected by December.
"While it’s great that regulators are helping the industry deal with bad debt in the wake of the pandemic, raising prices only treats the symptoms. Instead, water companies should head upstream, using customer data to identify and rectify the causes of bad debt, stop it at source and help prevent it from occurring in the first place," she said.
"While recouping costs is a must, water companies shouldn’t just rely on the regulator. Data can help companies segment customers, identify and assist customers that are struggling financially, avoiding penalising the entire customer in tackling the cause of the issue."
United Utilities picks up pipeline award
A race-against-time plumbing job to connect four huge water pipes into the large Haweswater Aqueduct in Cumbria saw United Utilities awarded Utility Project of the Year by Pipeline Industries Guild.
The Hallbank project, near Kendal, was completed within a tight eight-day deadline, in a storm and during the second COVID lockdown last November – and with three hours to spare. Principal construction manager John Dawson said the project helped boost the resilience of water supplies across the North West.
“I think what made us stand out was the scale, the use of future technology and the fact that we were really just one team, working collaboratively for a common goal," he said.
Camus Energy secures $16m funding
Camus Energy, which provides advanced grid management technology, has secured $16 million in a Series A round, led by Park West Asset Management and joined by Congruent Ventures, Wave Capital and other investors, including an investor-owned utility. Camus will leverage the operating capital to expand its grid management software platform to meet growing demand from utilities across North America.
As local utilities look to save money and increase their use of clean energy by tapping into low-cost and low-carbon local resources, Camus' grid management platform provides connectivity between the utility's operations team, its grid-connected equipment and customer devices.