Fuel Marketer News Magazine Spring 2014 Inaugural Issue by Fuels Market News

TABLE OF CONTENTS

Spring Issue 2014

FUELS & SUPPLY

Your Source for News and Information

A Publication of Fuel Marketer News Online

The Debate over U.S. Energy Exports by Joe Petrowski

We Are Going to Use More Natural Gas for Trucking by Doug Haugh

Tight Oil and Oil Sands in the U.S. Crude Slate: What Fuel Marketers Need to Know by Dr. Nancy Yamaguchi

EDITORIAL STAFF Publisher Gary Bevers 832.444.7675 Mobile 281.754.4192 Fax gbevers@fmnweb.com Managing Editor Tricia Corrigan tricia.corrigan@fmnweb.com Columnist and Contributors Betsi Bixbi Greg Cushard Vladimir Collak Shane Dyer John Eichberger Doug Haugh Corey Henriksen Maura Keller Alan H. Levine Joseph H. Petrowski Fred M. Whitaker Dr. Nancy Yamaguchi Editorial Board Ed Burke Lisa Calhoun George A. Overstreet, Jr. Joseph H. Petrowski Art Director Jeff Beene Advertising Sales Greg Mosho 115 Tinton Falls Road Farmingdale, NJ 07727 732.610.5735 Mobile gmosho@fmnweb.com Mailing Address 12320 Barker Cypress Suite 600-203 Cypress, TX 77429 832.444.7675

PUBLISHER’S NOTE

POLICY BRIEFS

12 The Debate over

U.S. Energy Exports by Joe Petrowski

WHOLESALE OPERATIONS

Performance Enhancing Diesel Additives by Everett Osgood and Kate Mansker

Summer Fuel Additives by Maura Keller

Establishing Efficient Fuel Management Systems by Maura Keller

New Diesel Truck Engines Emissions Dramatically Cleaner Than Expected The Diesel Technology Forum

14 We Are Going to

Use More Natural Gas for Trucking by Doug Haugh

RETAIL OPERATIONS

The Next Big Deal by Brian Reynolds

Fuels Institute: Vehicle Sales Rise by John Eichberger

The Next Front in the Fleet Card War by Shane Dyer

TERMINALS & STORAGE

16 Tight Oil and Oil

Sands in the U.S. Crude Slate: What Fuel Marketers Need to Know

Terminal Automation and Credit/Product Allocation Solutions by Mark Garton and Micki Verhagen

by Dr. Nancy Yamaguchi

FLEET OPERATIONS

Alternatives for Fleet (Auto) Insurance Liability Risks by Greg Cushard

Fuel Audits: Are You Getting What You Paid For? by Gary Bevers

BUSINESS MANAGEMENT

56 Fuel Audits: Are

You Getting What You Paid For?

This Drives Even the Best Marketers Crazy by Betsi Bixby Captive Insurance: The Best Option for Significant Savings After the Rate Increases of ATRA 2012 by Fred Whitaker

by Gary Bevers

INDUSTRY NEWS

ADVERTISER’S INDEX

PUBLISHER’S NOTE

Bringing You a Powerful New Source for News and Information in the Fuels Industry A Publication of Fuel Marketer News Online SUPPLY MARKETING DISTRIBUTION TRANSPORTATION LOGISTICS

A note from Gary Bevers CEO & Group Publisher Welcome to the inaugural print issue of Fuel Marketer News Magazine. Though we started publishing our online FMN Magazine last August, we felt it was important to develop a print magazine (bi-annual for now) that could be distributed at conferences and tradeshows and on our website in a digital book format. You will find here a cross section of the content we feature on our website and promote through our e-newsletter every week. If it burns, combusts or powers a motor, we intend to write about it and cover the news that is relevant to the downstream fuels marketplace. And, that includes alternative energy sources such as Biofuels, CNG, Hydrogen and yes, even Electricity if it is “pumped” into a car. If you study history then you already know that the first automobile was powered by an electric motor with biodiesel as a viable fuel quickly following. Ford’s Model T was originally designed to run on Ethanol until prohibition put an end to his dream to circumvent Major Oil’s monopoly on petroleum refining and gasoline production. So, in the world of automobiles, trucks and fuel there is very little new under the sun. I had the privilege for a period of time of serving as the publisher of National Petroleum News that was founded over a century ago. It started its news coverage of the petroleum industry when Kerosene was the dominate money making refined product and gasoline was pretty much a discard from the product stream as it had no crack spread value. In some ways our industry has come a long way and in others it has hardly changed at all. We still deliver a tremendous amount of fuel into small tanks by tankwagons—though they are no longer pulled by horses. We still measure 42 gallons of crude to the barrel, not 55 like the standard barrel measurement. We finally stopped hedging off Heating Oil for transportation fuels this last year. And though gasoline is now delivered to consumers through convenience stores instead of gas stations, they are still dominated by independent dealers and jobber owned stores. From refinery supply to terminal and bulk plant storage to transportation via pipeline, barge, rail and truck, to wholesale distribution to retail marketing, we will cover it from a high-level management overview down to the operational details. If you think our expert columnists, industry news and operational solution features are interesting and valuable, you can find a lot more online every week. So, don’t wait for the next issue of the print magazine—logon to our online magazine at FuelMarketerNews.com. Also on the website, you can register for our weekly e-newsletter to be in the loop as new content gets posted. Registration is free, and the process is short and easy.

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FUELS & SUPPLY POLICY BRIEF

P OL I CY B R I E F :

Tier 3 Gasoline Emission Standards

January

2017

On March 3, EPA announced that it has

finalized its Tier3 emission standards for gasoline vehicles, focused on sulfur reductions in the fuel. Under the final Tier 3 program, federal gasoline will not contain more than 10 parts per million of sulfur on an annual average basis by January 1, 2017. EPA is also finalizing standards that maintain the current 80 ppm refinery gate and 95 ppm downstream cap. The agency touts a range of benefits from greenhouse gas emission reductions to decreased mortality rates. Stated the agency: Over 149 million Americans are currently experiencing unhealthy levels of air pollution which are linked with adverse health impacts such as hospital admissions, emergency room visits, and premature mortality. Motor vehicles are a particularly important source of exposure to air pollution, especially in urban areas.

And, the benefits not only come at almost no cost to the consumer, according to EPA, but in fact provide substantial savings for America: The program is projected to cost less than a penny per gallon of gasoline, and about $72 per vehicle. The annual cost of the overall program in 2030 is projected to be approximately $1.5 billion, however, EPA estimates that in 2030 the annual monetized health benefits of the Tier 3 standards will be between $6.7 and $19 billion.

Environmental groups are supportive of the new standard. That is not the case for the motor-fuels industry, noting that the rule is not only going to be disruptive and expensive, but counterproductive environmentally. The American Petroleum Institute has stated the cost would likely be between 6 and 9 cents per gallon instead of less than a cent as EPA claims. “This rule’s biggest impact is to increase the cost of delivering energy to Americans, making it a threat to consumers, jobs, and the economy,” said API Downstream Group Director Bob Greco. “But it will provide negligible, if any, environmental benefits. In fact, air quality would continue to improve with the existing standard and without additional costs.” However, EPA points out that past industry claims for dramatic price increases with similar initiatives, including Tier 2, have not always panned out with the higher claimed fuel prices. American Fuel & Petrochemical Manufacturers expressed similar reservations. “EPA’s decision to move forward on Tier 3 is yet the most recent example of the agency’s propensity for illogical and counterproductive rulemaking,” said AFPM President Charles T. Drevna. “Tier 3 not only lacks scientific justification, but in fact will lead to higher greenhouse gas emissions due to the greater energyintense refining process required to FMNMagazine

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reduce sulfur in gasoline from 30 ppm to just 10 ppm. To date, refiners have achieved a 90 percent reduction in sulfur levels and the nation’s energy-related emissions are at their lowest level since 1994 according to EPA data. The Agency’s own data also shows that in the absence of Tier 3, emission reductions will continue.” AFPM’s resistance is not just on capital costs and upgrades required to meet the standards, but on the timeline. “AFPM met on numerous occasions with EPA and administration officials to outline problems associated with the proposed implementation schedule,” continued Drevna. “Nevertheless, EPA chose to ignore our concerns by setting an unrealistic compliance date of January 1, 2017, which does not provide refiners adequate time to complete the required projects necessary to meet the new standard in a manner that avoids the potential for supply disruptions.” In a modification, smaller refiners will have until 2020 to get on board. Of note where ethanol is concerned: The rule made a clear decision to set the standard at an E10 (10% ethanol blend) and not E15 (15% ethanol blend), which could be seen as a signal not to breach the “blend wall” relative to future Renewable Fuel Standard ethanol volume requirements. n

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FUELS & SUPPLY POLICY BRIEF

POL I CY B R I E F :

Executive Action on Truck Mileage and Emissions President Obama is pressing ahead with his commitment stated

enhanced fuel standards. In addition, on the environmental front, the California Air Resources Board was mentioned specifically as a partner, with the goal of “ensuring that the next phase of standards allows manufacturers to continue to build a single national fleet.” It might be assumed that the single national fleet would generally be modeled along lines acceptable to CARB.

in the recent State Of The Union address on January 28, 2014, to advance his climate change agenda, as part of what he promises to be a year of “executive action” bypassing the legislative branch in areas where the there is insufficient support to achieve his policy goals. Climate change is practically a dead issue legislatively with little interest among the American people or Congress for sweeping action, however, through executive orders and federal agency support the President retains options to dictate policy on this front. Obama noted in his State of the Union address that one climate change related goal would be to improve the mileage standards—reducing fuel consumption and emissions—for commercial trucks. On February 18, 2014, he announced the specifics of that effort.

For the fuels, Obama announced he was establishing an Energy Security Trust Fund for the research and development of advanced vehicle technologies. As part of that he is urging the repeal of the $4 billion in subsidies provided to the oil and gas industry and instead shift those resources to the existing support provided to alternative fuels. This $2 billion trust fund will would focus on electricity, homegrown biofuels, hydrogen and domestically produced natural gas. Another $200 million will be spent incentivizing the development of an alternative fuels infrastructure which should create opportunities for marketers and fleet operators that partner with the program. Also, Obama will be proposing to extend the cellulosic biofuel producer tax credit that expired on December 31, 2013.

He has directed the Environmental Protection Agency and the Department of Transportation to set enhanced fuelefficiency standards for medium- and heavy-duty vehicles by March 2016. This represents the second round of fuel efficiency standards for such commercial vehicles and it will build on his first round of standards finalized for model years 2014 through 2018. The President also made it clear that the federal government will play a strong role in the process, versus a private sector/free market approach. Obama noted that the government would be working with partners among major fleet operators, manufacturers, labor, states, NGOs and other favored stakeholders.

Although fuel volume destruction is the likely outcome, the response from the fuels industry has been limited.

At the fleet level, Obama highlighted his National Clean Fleets Partnership that incentivizes the largest fleet operators to reduce diesel and gasoline use in their fleets by incorporating alternative fuels, electric vehicles and fuel saving measures. As stated in the announcement: “…the President has directed his Department of Energy, working with EPA’s complementary SmartWay Transport Partnership, to provide each company that wants to partner with specialized resources, technical expertise and support in developing a comprehensive strategy to reduce fuel use and achieve greater efficiency and cost savings.”

There are potential opportunities upstream on the natural gas front, and at the refiner level, the fuel challenges have largely been addressed by ubiquitous ultra low sulfur diesel. Commenting on that was Allen Schaeffer, the executive director of the Diesel Technology Forum. “Today’s announcement sets up the next challenge for clean diesel technology to further improve fuel efficiency and reduce greenhouse gas emissions from commercial vehicles, including medium and heavy duty trucks and buses,” he said. “Because more than 90 percent of all heavy duty trucks in the U.S. are diesel powered, advancements in clean diesel technology will play a major role in helping meet future efficiency, environmental and climate goals.” n

Where the vehicles are concerned, the federal government will be working with manufacturers to develop, evaluate and integrate the “advanced technologies” that may or may not be currently in production that will be appropriate for meeting the FMNMagazine

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We Are Going to Use More Natural Gas For Trucking But How Much by Doug Haugh

I wanted to see what the latest thinking was on the

future of natural gas as a transportation fuel, and looked to the new Energy Information Administrationâ&#x20AC;&#x2122;s Energy Outlook that was released December 16, 2013. This 30-year forecast is updated annually to factor in new information and trends, and certainly the use of natural gas in transportation has evolved a lot just in this past year.

With the launch of a new heavy duty natural gas engine from Cummins that is now going mainstream, the demand for both Compressed Natural Gas (CNG) and Liquefied Natural Gas (LNG) is poised to grow. The question is how much and how fast? Well, looking first at the next five years, we can see that the existing use in automotive and school bus applications is fairly flat. The growth is expected to be transit bus use where we have a proven workhorse engine, and in heavy duty trucking. Over all sectors EIA expects the use of natural gas as a transportation fuel to grow 31% over the next five years, to almost 600 million gallons. This seems conservative given the amount of demand I have seen developing with our customers.

1 1 Now, looking 30 years out may not be much better than asking your crystal ball what is going to happen, but it is interesting to look at where the curve starts to bend north in a big way and what drives that growth. From that perspective we can see that the real impact does start to hit more in 10 years than in five, and that comes from the scale up of those heavy duty engines.

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Douglas H. Haugh Doug is currently President of Mansfield, a $9 billion industry innovator recently ranked by Information Week as the No. 1 technology innovator in Energy & Utilities and the only nationwide provider of fuel supply, biofuels, propane and diesel exhaust fluid. Haugh is a frequent speaker on energy, supply chain technology and entrepreneurship. He can often be found leading general sessions or seminars at many national conferences and conventions. He also blogs on energy issues at: http://thinkingonenergy.com.

2 2 So, if demand is going to go from roughly 400 million gallons now to the equivalent of over 8 billion gallons in 2040, wouldn’t that destroy the price advantage of natural gas compared with gasoline and diesel? It is, after all, the price advantage that is driving all this.

The opinions expressed there (and here) are his, and not those of Mansfield.

Well, I think no is the answer to that question. Even at that level of consumption, the amount of natural gas we’d be consuming for transportation compared with the overall market is small. No, I take that back. Not small–tiny. The chart above shows just how tiny, with transportation use being the small red slice. I don’t know of any major commodity market where 3% of the use is going to drive overall prices up.

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3 3 Now, prices could go up anyway as we are talking about a massive increase in natural gas use for power generation, but with the shale boom getting bigger every day, it seems we have strong consensus that there is more than enough natural gas to go around. This is just one man's opinion—well, I guess in this case, one government agency’s opinion, actually. n

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FUELS & SUPPLY

Tight Oil and Oil Sands in the U.S. Crude Slate: What Fuel Marketers Need to Know by Dr. Nancy Yamaguchi Trans-Energy Research Associates, Inc.

Oil sands bucket wheel reclaimer

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OBJECTIVE:

Why tight oil and bitumen matter to fuel marketers For marketers of refined fuels, the upstream

sector sometimes seems many steps removed from daily concerns. Similarly, the details of refinery processing may be of limited interest.For the most part, U.S. marketers and consumers expect fuel to be available, and the main variables are price and logistics. Yet the U.S. crude balance is changing dramatically, and the sources, and volumes, of foreign crudes are changing as well. The U.S. “shale boom” is causing a major upturn in U.S. crude production. The shale plays, mainly in Texas and North Dakota, were discovered many years ago, but their recent commercial success has been made possible because of advances in horizontal drilling and hydraulic fracturing, or “fracking.” The shale oils also are known as “tight oil,” in part to avoid confusion with oil shale (which is shale containing kerogen, which requires its own type of mining, retorting and processing). Canadian production also is rising, chiefly bitumen from oil sands. Oil sands are mined, and when the sands and other solids are removed, the remaining oil is an ultra-heavy crude, usually referred to as bitumen or oil sands crude. Its gravity is similar to asphalt, and, as might be expected, refining it into on-spec products is a challenge. The majority of U.S. tight oil supplies, as well as Canadian bitumen-based products, are concentrated in the central corridor of the country, with limited availability on the East and West Coasts. This is creating unusual supply and demand dynamics, changes in refinery utilization, new distribution patterns and price movements. Rather than discuss crude markets in broad, macroeconomic terms, in this article we examine the changes in the crude market and how they influence the product market. We use refinery modeling techniques to test how the new crudes translate into barrels-per-day output of gasoline, middle distillates, and other products.

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FUELS & SUPPLY

Tight Oil and Oil Sands in the U.S. Crude Slate: What Fuel Marketers Need to Know

Defining a "dumbbell" distillation pattern 27.5% and 26.7% respectively. This is the heaviest portion of the barrel, which typically is sent to cokers to produce coker naphthas and gasoils, plus solid petroleum coke. But Arab Heavy has the added advantage of providing a 27.1% yield of vacuum gasoil (VGO,) whereas dilbit provides a yield of only 16% VGO. VGO is used as feedstock to catalytic cracking and hydrocracking, both of which are key upgrading technologies in modern refineries. The United States already is a significant importer of VGO, which underscores the importance of keeping cracking units running at high utilization rates. It also indicates that if the future crude slate is deficient in vacuum gasoil, either adjustments would be made to the pattern of crude purchases or else imports of vacuum gasoil would rise.

Figure 2. The Shale Boom reverses the production decline in Texas and North Dakota

-000 BPD

The expression “dumbbell” crude came into wider use when Canadian oil sands production began to rise. Today, it is heard even more frequently, since Canadian production is growing, and pipeline deliveries to the United States are set to grow even further if the Keystone XL Pipeline is completed. Canadian bitumen products often are sold as "dilbits," a shorthand expression for blends of diluent and bitumen. The diluents are condensates and natural gas liquids added to raw bitumen to improve flow properties so that pipeline transport is possible. The ratio of diluent to bitumen is roughly 30:70. “Dilbits” are called dumbell crudes because of the distillation pattern, where the diluent contributes a range of light hydrocarbons and the bitumen contributes a range of heavy hydrocarbons, but the middle distillate range (kerosenes and diesels) is oddly lacking. Upon being heated to boiling in a crude distillation tower, the distillation fractions range from gases and naphthas, which have boiling points between ambient temperature and approximately 330° F/165° C; to middle distillates, which have boiling points between approximately 330° F/165° C to 620° F/327° C; to vacuum gasoil and vacuum bottoms, which have boiling temperatures above 620° F/327° C. Some 78% of our sample diluent is lighter than swing kerosene, while zero percent of crude bitumen is. Therefore, the majority of the diluent in a dilbit boils off before the middle distillate range is reached. The bitumen also contributes very little to the middle distillate fraction, being concentrated at the other extreme of the barrel.

Figure 1. Dilbit vs. Arab Heavy Crude: Example of a “Dumbbell” Distillation Pattern Source: EIA

Distillation Yield, %

Added to this is the U.S. boom in tight oil production from shale plays. Figure 2 shows the dramatic reversal of the crude production decline in Texas, the site of the Eagle Ford shale play, and North Dakota, the site of the Bakken shale play. Between 1981 and 2007, crude output in Texas fell from 2554 kbpd to 1072 kbpd. North Dakota was a minor producer, with output of 124 kbpd in 1981. North Dakota's crude production stayed below 100 kbpd 1991-2005, and then recovered to 124 kbpd in 2007. Advances in horizontal drilling and hydraulic fracturing have enabled a resurgence of crude production. Between 2008 and 2013, production rose by 1,469 kbpd in Texas and by 686 kbpd in North Dakota. In Texas, the country's largest oil producing state, crude output had been declining at a rate averaging -3.3% per year between and 1985 and 2008, but this decline reversed to a growth rate of 18.4% per year 2008-2013, and many geologists believe that this growth can continue. In North Dakota, crude production had been growing modestly at a rate of 0.9% per year from 1985 through 2008, but the shale boom caused production to surge by an average rate of 37.9% per year from 2008 through 2013. These two states have been the main force causing the reverse of the U.S. crude production decline. At the national level, crude production had been declining at a rate of – 4.2% from 1985 through 2008. It then rose at 8.3% per year from 2008 through 2013. The U.S. crude slate is changing, and will change even more dramatically as tight oil output rises further and as Canadian imports rise.

“Dumbbell” Dilbit

Arab Heavy

Source: Trans-Energy Research

A dilbit may, on an average basis, have an API gravity similar to a heavy crude, but the individual hydrocarbons do not average out. To illustrate this, Figure 1 compares the yield of our sample dilbit with the yield from conventional Arab Heavy crude. The "dumbbell" dilbit has higher percentage yields at the light and heavy ends and lower yields in the middle distillate range, suggesting the shape of a dumbbell. Dilbit yields 39% naphtha and light ends, while Arab Heavy yields only 19.7% naphtha and light ends. Arab Heavy, on the other hand, yields 26.5% middle distillates, while dilbit yields only 17.5% middle distillates. Both have similar yields of vacuum bottoms, FMNMagazine

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FUELS & SUPPLY

Tight Oil and Oil Sands in the U.S. Crude Slate: What Fuel Marketers Need to Know

U.S. and Canadian production and the future crude slate What are some of the possible impacts on U.S. fuel production? In this article, we use refinery modeling techniques to compare refined product output from conventional Arab Heavy crude, a Canadian dilbit, and a blend of Eagle Ford and Bakken crudes. This is not intended to be a full-fledged national forecasting and modeling exercise. Our goal is to discuss the future crude slate and illuminate the impacts on refining and product output. On the topic of future U.S. crude production, the U.S. Energy Information Administration (EIA) recently provided early release information on its 2014 Annual Energy Outlook, or AEO. The base case forecast includes domestic crude production growing from 7.72 mmbpd in 2013 to 9.54 mmbpd in 2016, a gain of 1.82 mmbpd. All of this gain is achieved in the lower 48 states— Alaskan production will continue to fall.

The 1970s and 1990s were a turbulent time, with the oil price shocks of 1973-74 and 1979-80. U.S. imports dropped significantly after the United States fell into recession in 1980. After oil prices collapsed by 1986, the United States began to import larger volumes of crude. The sources have changed significantly, and Canada has emerged as a vital source. Imports of Saudi Arabian crude have been stagnant or shrinking for the past two decades or so. In contrast, imports of Canadian crude have grown steadily for over three decades, and Canada surpassed Saudi Arabia as a crude source in the year 2004.

Tight oils such as those produced in the Eagle Ford and Bakken shale plays will play a significantly larger role in the U.S. slate.

In 2013, Canadian crude exports to the U.S. were 2569 kbpd, while Saudi Arabian crude exports to the United States were 1325 kbpd.

The strength in domestic production, coupled with flat demand, will allow a drop in foreign crude imports. The AEO forecasts that foreign crude imports will fall by 1.56 mmbpd between 2013 and 2016. The sources of foreign supply are changing significantly.

Assuming that the Keystone XL pipeline is completed, an additional 830 kbpd of Canadian crudes could be available. The majority of the crude loaded will be bitumen-based products. Canadian production of conventional light and heavy crudes is declining, and the growth in output will come from oil sands. In the year 2000, 70% of Canadian output was conventional light crude, heavy crude, pentanes plus and condensate, while 30% was bitumen. By 2013, the share of conventional output had fallen to approximately 43%, while bitumen accounted for 57% of output. According to the National Energy Board of Canada (NEB), this trend will continue. The NEB forecasts that conventional crude production will account for only 14% of total output by the year 2035, while bitumen's share will rise to 86%. Within Canadian domestic refining, approximately 75%-80% of the slate is light crude. Canada's exports to the United States are around 70% heavy already. Some bitumen is upgraded into synthetic crudes, and these can range from lightly upgraded coker sours all the way up to “champagne” synthetics, which theoretically can be bottomless and sulfur-free. But the economics have not favored the construction of the highest technology bitumen upgraders. Instead, most refinery customers have the upgrading technology on site, and they prefer to pay less for heavy sours. Indeed, many refineries are geared up to receive larger volumes of simple dilbit. (Note the recent coker expansion at BP's Whiting refinery, for example.) Canada's output of upgraded bitumen is around one million bpd, and there are plans to expand this to approximately 1.4 mmbpd in the coming decade. But the majority of Canadian bitumen will not be upgraded into synthetic crude, but will be sold instead as dilbit, and the successful completion of the Keystone XL pipeline will ensure a larger volume of this feedstock in U.S. refining. FMNMagazine

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FUELS & SUPPLY

Tight Oil and Oil Sands in the U.S. Crude Slate: What Fuel Marketers Need to Know

Comparing three crude slates in an average U.S. refinery: The change in refinery output

In order to explore the possible impacts of crude slate changes, we devised a refinery model simulating today's average refinery in the United States. This is a simple average, derived by dividing total U.S. capacity by the number of refineries, as reported in the well-known Oil and Gas Journal. As such, the model refinery includes all of the technologies now in use. In reality, this would be rare. That is, not all refineries will have cokers, cat crackers, hydrocrackers, feed pretreatment, alkylation, isomerization, aromatics extraction and so forth, all at the same plant. The goal, however, is to charge three sample crude slates through the typical refinery and test how the output changes.

Our average U.S. refinery is configured as follows: • • • • • • • • • • • •

146 kbpd crude capacity 45.7 kbpd catalytic cracking capacity 14.2 kbpd hydrocracking capacity 21.3 coking capacity 0.2 kbpd visbreaking capacity 28.3 kbpd cat reforming capacity 9.4 kbpd alkylation capacity 3 kbpd aromatics capacity 5.3 kbpd isomerization capacity 115.5 kbpd hydrotreating capacity 1.5 kbpd lubes capacity 3.9 kbpd asphalt capacity

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The United States must accordingly prepare for a future crude slate containing a greater share of bitumen-based products and tight oils. The Bakken and Eagle Ford tight oils are light and low in sulfur, while Canadian dilbits are a mix of light diluent and heavy, sour bitumen. These types of feedstocks are not at all unusual in U.S. refineries, but the emerging volumes will be. The U.S. refining industry evolved over decades to maximize gasoline production using a crude slate that was predicted to continue to grow sourer and heavier. The industry invested in deep conversion cracking and coking configurations, and refiners also invested mightily in technologies needed to comply with fuel quality standards, such as sulfur removal for essentially every fraction of the barrel, selective production, extraction and additional processing of aromatics and olefins, and accommodation of renewable fuels. As such, the industry is highly sophisticated. Logically, a sophisticated refinery would be expected to have the capability to process any type of crude oil, and this is true to a certain extent. However, the type of crude feedstock affects the overall utilization of the refinery's technology in place. Imagine that a refinery has invested in desulfurization technology that can produce a 10 parts-per million (ppm) ultra-low sulfur diesel from a 5000 ppm sulfur straight run distillate feedstock. Then imagine that this refinery is given straight run distillate feedstock containing only 500 ppm sulfur. It may not be a technological problem to make this adjustment, but it almost certainly will be an economic problem, since the technology purchased is likely to be underutilized. Other issues may indeed be technological as well as economic. For example, a lack of feedstock for one refinery unit may effectively close down an auxiliary unit.

Figure 3. Output from the average U.S. refinery under three crude slate scenarios

Source: Trans-Energy Research

Our three crude slate scenarios are:

• Scenario 1, 146 kbpd Arab Heavy crude. • Scenario 2, 146 kbpd Canadian dilbit. • Scenario 3, 146 kbpd split into 75% Eagle Ford crude and 25% Bakken crude.

Figure 3 summarizes the model results. Particularly visible is the reduced output of middle distillates in the Dilbit scenario, where output is approximately 40 kbpd. Running Arab Heavy crude provided 61 kbpd of middle distillates. The highest middle distillate yield, over 76 kbpd, was achieved using the 25%/75% mix of Bakken and Eagle Ford crudes. This 25%/75% split was used to account for the larger production volumes of Eagle Ford oil. Although our modeling work here is simplified, it is worth noting that more detailed modeling would capture additional quality differences, such as the relative paraffinicity of Eagle Ford crude. Heavy naphtha from this oil will yield lower octane catalytic reformates, but on the other hand, the straight run diesel will have higher cetane numbers. This scenario also yielded essentially no fuel oil. The lack of fuel oil in the shale oil scenario had a downside, however. Gasoline output in this case was below 37 kbpd because there was insufficient VGO feedstock for the catalytic cracker. This also reduced alkylate production, because the alkylation unit depended on the cat cracker for feedstock. Output of naphtha/LPG was nearly 30 kbpd, but this material was not suitable for gasoline production. This scenario had the lowest gasoline output, which might surprise observers who still equate light, sweet crudes with high gasoline output. In modern refineries, very little straight run material, which may be called light straight run, or LSR, gasoline, actually makes it into the finished gasoline pool. The highest gasoline output, 52 kbpd, was achieved in the Arab Heavy scenario. Using this conventional crude provided more VGO feed for hydrocracking and cat cracking units. As noted, middle distillate output was a respectable 61 kbpd. The naphtha and LPG yield was the lowest of the three scenarios, under 14 kbpd. Fuel oil output was approximately 14 kbpd, slightly below the Dilbit scenario, where fuel oil output was17 kbpd. The Dilbit scenario produced 45 kbpd of gasoline, the second-highest volume. The atmospheric residuum contained less VGO and more vacuum bottoms than a conventional crude, which resulted in slightly lower cat cracking and slightly higher fuel oil output.

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FUELS & SUPPLY

n Conclusion: The shale boom has caused a major turnaround in the direction of the U.S. crude oil balance. After falling for over twenty years, U.S. crude output is rebounding. The official forecast of the U.S. EIA calls for an additional 1.8 mmbpd of crude production between 2013 and 2016 alone. Also by 2016, the Keystone XL Pipeline is expected to be complete, adding 830 kbpd of Canadian crude availability. The U.S. shale oils are light and low in sulfur, while the Canadian resources are expected to be chiefly bitumen-based products such as dilbit. Both will contribute to what is known as a â&#x20AC;&#x153;dumbbellâ&#x20AC;? distillation pattern, with a concentration of light ends and heavy ends and a relative paucity of middle distillates. Our analysis indicates that the light ends are not entirely suitable for gasoline production, and the heavy ends may lack sufficient yields of vacuum gasoils used as feedstock for catalytic crackers and hydrocrackers. Because U.S. law places severe limitations on the export of domestic crudes, the new output must be processed domestically, and surplus products are being exported. The United

Tight Oil and Oil Sands in the U.S. Crude Slate: What Fuel Marketers Need to Know States is now a net exporter of finished gasoline, though not of all gasolinerelated material (gasoline blending components still are imported.) Still, if demand continues to fall, the United States will become a true net exporter of gasoline and gasoline-related products. The United States already is an important net exporter of middle distillates, for which international demand is strong. Gasoline and diesel prices in a netexporting market should, theoretically, be influenced by international prices minus transport costs. Fuel marketers should therefore expect ample supplies and reasonable costs. However, dilbits and tight oils will contribute less to gasoline output than would be expected on a volume basisâ&#x20AC;&#x201D;their composition and qualities do not match the average U.S. refinery as well as conventional crudes do. Naturally, it would be possible to modify refineries to maximize gasoline output using the new crudes, but what motivation would there be for refiners to expand production in a shrinking market? The primary determinant of gasoline and diesel prices remains the price of the crude feedstock. Drilling rigs come on and offline as needed, crude flows to refineries, products flow to markets near and far, and the U.S. market remains a

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daily balancing act, shaped more and more by the ease and cost of transport. n

Dr. Nancy Yamaguchi Nancy is an author and petroleum industry expert specializing in the advanced analysis of energy markets. Dr. Yamaguchi is the President of Trans-Energy Research Associates, Inc. focusing on a wide spectrum of fuel related issues such as economics and the environment. She possesses a strong interest in global oil industry, including supply, demand, trading trends, as well as transport, refining, product blending, alternative and reformulated fuels, product quality and price behavior.

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Performance Enhancing Diesel Additives An overview of the issues diesel additives address and the benefits they provide by Everett Osgood and Kate Mansker, MidContinental Chemical Company, Inc.

The winter of 2013-14 has been historic, so let’s start with winter operability which has been an issue for more parts of the country this year.

Low Temperature Operability

Diesel fuel has long been known for gelling and icing of filters in cold temperatures. A historic method of dealing with cold temperatures and a method that some diesel owners still insist on is the blending of No.1 ULSD with No.2 ULSD. This certainly lowers the temperature at which the fuel begins to gel, but has a number of penalties at the same time. These penalties include lower BTU content which translates to reduced power, reduced fuel economy, and increased fuel costs as the percentage of No.1 goes up. With less No.1 ULSD produced in the U.S. availability is diminished and the differential in price between No.1 and No.2 ULSD makes this

Cold flow improvers in diesel fuel significantly lower the temperatures at which filter plugging occurs. ___________________________

Good cold flow additives not only modify the size and shape of the wax crystals in diesel so that large crystals do not form, but utilize a wax anti-settling agent to keep the wax crystals in suspension, thus preventing wax fallout and accumulation.

Dirty Injector Spray Pattern

In 2008, the Engine Manufacturer’s Association went public with concerns about ULSD creating deposits. Since that time, a major heavy duty diesel engine manufacturer and a major fuel injection equipment manufacturer have presented a joint position paper regarding the need for additives to enhance the performance of ASTM D975 diesel for use in today’s diesel engines. This article will touch on some of the additives pointed out by these organizations, as well as others that can deliver performance enhancements in today’s diesel fuel.

practice uncompetitive when compared to the low cost of cold flow improver additives.

As engine technologies have changed in order to meet fuel economy and emission reduction demands, it has become evident that ultra-low sulfur diesel (ULSD) may not be able to meet the requirements of some engines without some assistance.

Clean Injector Spray Pattern

___________________________

Treated Diesel Wax Formation

Diesel Wax Formation

These additives can reduce the fuel Cold Filter Plugging Point (CFPP) by as much as 40°F and the Pour Point (PP) of the fuel by an even greater amount, but keep in mind that the performance of these chemistries is fuel specific and may vary from beginning of season to end of season based on changes that occur at point of refining and the fungible pool.

Detergents

High pressure common rail direct injectors are designed to operate with great precision multiple times, in some cases as many as six times, per combustion cycle. The timing has to be very precise and the tolerances are very tight. The injector tip openings are very small. Keeping them clean and working as designed is critical. FMNMagazine

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The age old problem of carbonaceous deposits at diesel injector tips, commonly referred to as injector coking, still exists. In addition, we now have a problem with internal direct injector deposits, commonly referred to as IDID. These deposits are internal to the workings of high pressure common rail direct injectors. IDID are gummy, sticky deposits that can cause the internal workings of these injectors to stick open or closed or simply to throw off the precise timing and amount of fuel reaching the combustion chamber. Detergents that were effective in the old industry standard test, Cummins L-10, were not cost effective in treating IDID, consequently new detergents have been developed to address IDID and have proven to be able to remove existing IDID and to keep IDID from forming. The need for a detergent additive (at adequate levels) in diesel fuel has never been greater than it is today. The use of diesel detergent can keep injectors clean and operating as the engine manufacturer designed, which results in maintaining the fuel economy of the vehicle, more thorough combustion of the fuel, fewer emissions, reduced maintenance costs, and more.

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Performance Enhancing Diesel Additives

Lubricity

The severe hydro treating process used to produce our current ULSD reduces the lubricity of diesel fuel. Many of the fuel systems on diesel vehicles rely upon the fuel to lubricate moving parts such as pumps and injectors. In order to keep moving parts in the fuel system from excessive wear and potentially premature failure, the fuel must provide lubricity. Most all diesel fuel will have a lubricity additive treatment prior to distribution to retail in order to meet ASTM D975, the specification for diesel fuel. However, EMA and other groups recommend a more severe specification which requires increased levels of lubricity. This higher standard can be accomplished with supplemental treatment of lubricity in a performance enhancing diesel additive blend.

Corrosion Inhibitors

Water is an inherent problem in the fuel storage and transfer systems throughout the distribution, from refinery to end user’s vehicle tank. The supply chain participants work diligently to keep excess water out of the fuel via various means along the distribution chain before the fuel gets to the consumer, but it is highly probably that some water will remain. Consequently, an environment for ferrous metal corrosion exists and can be negated by the use of corrosion inhibitor in diesel fuel. There are other types of corrosion that can occur with non-ferrous metals which can also be prevented or minimized with specialized corrosion inhibitors and should not be overlooked.

Antioxidants

NACE Corrosion Fail (on left) NACE Corrosion Pass (on right)

Thermal and oxidative stability of diesel fuel and particularly biodiesel blends of diesel fuel are very important. Fuel decomposition can lead to filter plugging and shortened filter life, poor engine performance, injector deposit build up, and can even increase engine corrosion. Antioxidants, also commonly referred to as stabilizers, are added to diesel to prevent both oxidative and thermal decomposition which results in extended fuel storage life and can reduce vehicle maintenance costs. With the increased use of biodiesel, stabilizers have gained even more importance, but that’s a topic that requires discussion beyond the scope of this article.

Demulsifiers

As discussed above with corrosion inhibitors, water is an inherent problem throughout the fuel supply chain. With today’s high pressure common rail direct injection technology, equipment manufacturers have expressed a desire to have water dropped out of the fuel rather than pushed through these injectors. Demulsifiers will help separate the water from the fuel.

Cetane Number Improvers

Cetane number is a measure of the diesel’s delay in igniting when compressed. A higher cetane number indicates a fuel that has less ignition delay. Higher cetane number fuels not only ignite quicker, they more completely combust, resulting in reduced smoke and emissions. Cetane number improvers are commonly used in winter diesel additive packages to improve cold starting. The trend continues toward engine designs that require higher cetane number fuels. Because of this trend, it has become more common to include cetane number improvers in all-season diesel additives to enhance performance year-round.

As we started this discussion, an enhanced performance diesel additive package can contain one or more of the functional additives described above, or others based on the needs of your customers. From a fuel marketer’s perspective, offering an enhanced performance diesel product provides your customers with a fuel that helps them improve their performance and improve your margins. n

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Everett Osgood Everett (everetto@mcchemical.com) is the Market Manager for Fuel Additives at MidContinental Chemical Company, Inc. He has over 30 years work experience in the petroleum industry with a wide background of responsibilities in sales and marketing positions as well as operations and project management.

Kate Mansker Kate (katem@mcchemical.com) is the Technical Manager for Fuel Additives at MidContinental Chemical Company, Inc. Kate has a degree in chemical engineering from the University of Missouri, Columbia. Her background includes industrial processing, energy management and over five years of experience in petroleum and automotive additives. MCC provides a full range of fuel additives, from gasoline additives to specialty products, such as static disipators. Its fuel additive programs can be delivered virtually anywhere in the United States and Canada. MCC offers both bulk and packaged (drums, totes and pails) delivery. http://www.mcchemical.com

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ADVERTORIAL

The Storm Rages On Ultra Low Sulfur Diesel (ULSD), biodiesel and sophisticated high-tech diesel engines are still at odds. A high pressure storm rages on within the High Pressure Common Rail (HPCR) and High Pressure Fuel Injectors (HPFI) community. Carbonaceous deposits still plague fuel filters and injectors and now metal carboxylates bring new challenges to the highly sophisticated systems. ___________________________

The problem is that under the extreme conditions that exist in vehicles equipped with HPCR and HPFI engines, ULSD fuels are not as stable as first thought. In this high pressure, high temperature environment, a fuel is thermally stressed. This causes it to break down and create a black soot-like material. These deposits quickly accumulate in the fuel system as well as plate out on the injector causing catastrophic failure. ___________________________

Metal carboxylates are white, soapy deposits caused by excursion events and sodium. These deposits can occur with carbonaceous deposits and cause catastrophic failure. Not only would the injector need replacing (sometimes under warranty and sometimes not) but this could also cause the entire engine to fail. The cost of downtime and maintenance can ruin an operation. Innospec Fuel Specialties was the first to develop and patent fuel additive technology that not only conditions the fuel to prevent this in-engine thermal stressing, but also cleans up existing deposits and keeps the injectors and filters in like-new condition. ECOCLEAN® was developed to manage all types of deposits effectively and no other fuel additive has as many miles, hours or success as ECOCLEAN®!

The science of ECOCLEAN® ECOCLEAN® works by stabilizing diesel fuel to withstand the extreme temperatures and pressures of today's fuel injection systems. Introduced in 2006, it was a major breakthrough in fuel additive technology. What continues to make the science of ECOCLEAN® unique is that the product is a multifunctional fuel additive package that addresses more issues than other products on the market. ECOCLEAN® contains advanced diesel detergents as well as a patented series of antifoulants. Once stabilized, carbonaceous material is not created and the filters remain clean. ECOCLEAN® removes any existing deposits and helps to prevent injector failure. ECOCLEAN® is the ultimate fuel system cleaner and a clean engine not only improves horsepower and restores lost fuel economy, it also emits fewer pollutants from the exhaust system. Simply put, ECOCLEAN® helps to reduce harmful exhaust emissions by conditioning the fuel to help restore an engine to its optimum state which leads to important environmental benefits.

Tried and tested The ECOCLEAN® chemistry was first introduced in 2006 and improvements to the product line have been made and are ongoing resulting in a product that is truly tried and tested. As the first to market, Innospec has been able to compile a wealth of evidence on the benefits of ECOCLEAN® in the field. Transit Authorities, school bus fleets, OTR fleets, heavy-duty, high horsepower vehicles have all seen its impact on improved engine performance and reduced vehicle maintenance costs. FMNMagazine

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Fleets from coast to coast as well as mines burning millions of gallons of fuel in some of the most extreme conditions use ECOCLEAN® and spec it into their fuel supply contracts. Whether in a quart bottle or injected at the terminal, ECOCLEAN® treats billions of gallons of diesel fuel every year. Endorsed by OEM’s, the performance of ECOCLEAN® has been proven both in the field and in the lab of some of the largest engine manufactures in the world.

A great achievement Innospec's Fuel Specialties business has been at the forefront of the market for over 75 years and ECOCLEAN® is yet another example of the company's dynamic product portfolio and pipeline. Over the years, Innospec's R&T team has developed a range of fuel additives to assist in improving cold weather operability, fuel efficiency and engine performance while reducing harmful emissions in extreme operating conditions. Focused totally on developing fuel additives geared to the specific requirement of its customers, Innospec is now the largest dedicated fuel treatment company in the world. The company works in partnership with all major oil companies, refineries, industry bodies and leading OEMs to help solve the issues facing fuel retailers, fleet operators and the end-users of fuel. Commenting on this accomplishment, Jim Vrzak, Innospec's Vice President of Sales, Fuel Specialties said,

“

Our understanding of the broader fuel market and customer’s requirements drives our innovation and product development. ECOCLEAN® was developed to address the specific issues of today’s sophisticated engine technology using new age fuels like ULSD and biodiesel. Innospec was the first to market with a real world solution and we continue to improve upon and provide solution based products. We will always be proud of this achievement.

”

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Summer Fuel Additives by Maura Keller

Additives are used to solve a range

of fuel issues—both gasoline and diesel. The issues present in winter, particularly with diesel, are well known and appreciated. Perhaps less appreciated is that the summertime brings out its share of fuel issues for both fuel suppliers and their customers, and there are additives that help solve those problems in applications ranging from bulk quantities to a bottle on the retail shelf for the consumer.

To make the most of what’s out there, marketers and retailers need to stay one step ahead of the ever-evolving nature of additives, while educating the end consumers. According to Jerry Nessenson, president of ValvTect Petroleum Products, gasoline and premium diesel additives (often referred to as summer diesel additives) both provide a variety of improved performance and preventive maintenance benefits to vehicle operators including increased fuel economy, extended filter life, reduced corrosion and the prevention of micro-biological

contamination. ValvTect is a leading supplier of fuel additives to fuel marketers, truck stops, fleets, railroads and the marine industry. “The benefit to the fuel marketer is to use additive treated gasoline and diesel fuel as sales tools to increase sales, customer loyalty and profit margins,” Nessenson said.

Fuel Issues

For marketers looking to incorporate additives into their tank systems, Everett Osgood, market manager of fuel additives at MidContinental Chemical Co. Inc., said some specific problems with fuel that seem to be more frequent in summer include stability, water content and corrosion. MCC provides a full range of fuel additives, from gasoline additives to specialty products, such as static dissipators. “Antioxidants address stability concerns, corrosion inhibitors address corrosion concerns and the best solution for water problems is a good housekeeping program to keep water out of tanks and to remove water from tanks once it gets in,” Osgood said. “Also, detergent use in FMNMagazine

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both gasoline and diesel is important to help remove gums that may form because of the instability of fuel that may accelerate because of warm temperatures.” In the gasoline arena, ethanol blended gasoline (E10) is said to cause added problems—such as corrosion, deposits, oxidation/stabilization and phase separation. Additives are available to help address these issues. It should be noted that the ethanol industry refutes the extent to which this fuel is problematic. Today’s diesel also has some new issues. “Ultra-low sulfur diesel is more susceptible to micro-biological contamination that plugs fuel filters and corrodes internal engine components as well as diesel storage tanks,” Nessenson said. “It also is subject to oxidation and de-stabilization.” A biocide treatment of diesel storage tanks can help reduce or prevent micro-biological problems at retail diesel sites, and stand-by power generators in hospitals schools and power stations. Adding stabilizers alleviates stability concerns with distillate fuels to be stored for more than a few months.

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Summer Fuel Additives

Boosting Performance

He added that for both delivered loads and at retail, sales people need to be versed in the benefits, not particularly the chemistry, when speaking with their customers. They need to be able to explain they are getting improved fuel economy, reduced maintenance and longer engine life—at no additional cost— when they buy their company's diesel fuel.

Diesel-using consumers also are ideal candidates for fuel additives in the summer as well as the winter, and not just to address potential fuel “problems” on the marketer or retailer side. As Nessenson explained, premium diesel sales are growing at a rapid pace, as diesel vehicle and equipment operators look for products to improve fuel economy and reduce maintenance costs, such as extended fuel filter and injector life. “Cleaning-up injector deposits is a proven, and industry accepted, way of reducing fuel consumption and increasing fuel economy—same as the detergents in premium gasoline,” Nessenson said. “Adding a lubricity improver reduces fuel pump and injector wear, dispersants prevent sludge that extends fuel filter life and corrosion inhibitors prevent the corrosion of internal engine components. These are benefits diesel engine operators are looking for.”

If done right, the program can create a significant competitive advantage versus other suppliers offering a generic rack grade diesel fuel. Creativity can help open new markets as well. For example, how do fuel marketers promote additives to specific segments of automobile aficionados? Although MidContinental Chemical Co. is more in tune with winter solutions, such as low temperature operability additives for diesel, Osgood suggested that petroleum marketers promote such products as octane boosters or combustion enhancers to classic car buffs or hot rodders. These individuals keep their “toys” in the garage during the winter and only bring them out when weather is not going to be a factor.

Nessenson said that some diesel consumers buy additives and treat their fuel deliveries, others buy diesel fuel treated with a premium diesel additive and still others buy or prefer a premium diesel fuel from retail locations—if there is not a big premium price. “Fuel additives that contain concentrated detergents to clean, lubricate and protect the fuel system and engine from harmful deposits are key,” said Jaime Goncalves, product line manager for fuel additives at Stanadyne Corporation, an automotive fuel systems and additives manufacturer. “Diesel additives containing a cetane improver are also beneficial to improve engine performance.”

The end of the summer season also brings opportunities in this area. Some of the warmer-weather diesel and gasoline fuel issues are related to the buildup of gums and varnishes in the fuel system, and the presence of water contamination and corrosion, noted Goncalves. “One of the main reasons for this is how the engine is stored in the fall and winter months,” he said. “Fuel

New diesel additive technology also is available to prevent and solve diesel customers' HP CRD problems in common rail diesel engines. The new high-pressure common rail diesel engines are experiencing injector fouling and fuel filter plugging that causes power loss, injector failure, and premature filter failure.

Key Marketing Strategies

During the summer there are notable marketing opportunities for additives that marketers and retailers need to consider. Gonclaves said that marketers need to reinforce to the consumer that additives are not just a winter-based product to prevent fuel gelling. “Additives need to be used all year long to keep the fuel system and engine cleaned, protected and lubricated,” Gonclaves said. “This will ultimately save the consumer expensive engine repair costs in the future, but at the same time improve the efficiency and fuel economy of the engine. This will also help the consumer save money.”

Strategically pricing fuel with additives can also make a big impact on the bottom line. “Since the treat cost per gallon of a high-grade premium diesel additive can cost less than 1/2 cent per gallon, versus 2 to 3 cents at the rack from a refiner, successful diesel fuel marketers are using premium diesel, sold at the same price as No. 2 diesel, as a selling tool to create customer loyalty and secure new customers,” Nessenson said. FMNMagazine

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that is not treated with good quality additives prior to storage can result in fuel break down, fuel spoilage and the buildup of rust and corrosion. A quality additive will help extend the shelf life of the base fuel so that these inherent fuel quality issues are prevented.” As touched on, there also are some new additive products being released to the market with extra strength detergency that are designed to help remove and clean internal deposits and gums that collect on internal moving parts of the fuel system injectors. These solutions are going mainstream.

Summer Fuel Additives

“

During the summer there are notable marketing opportunities for additives that marketers and retailers need to consider.

”

“Shell recently announced a test market program for Shell FiT, which is an additized diesel to deliver detergency, lubricity, and corrosion inhibition,” Osgood said. “If this is deemed successful and goes nationwide, expect other brands to follow. If you’re unbranded, market share may be at risk if you opt not to offer an improved performance diesel.” n

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Fuel management systems— software that guides fuel marketers to replenish their inventory or the inventory of their customers at the optimal time—is top of mind for most marketers who seek automation and reduction in labor time with today’s advanced systems.

Establishing Efficient Fuel Management Systems by Maura Keller

FMS technology can provide a number of advantages, but only when used as intended and in the most efficient manner. By identifying how to fully utilize these systems and the role marketers, software providers and implementers play, marketers will be able to increase efficiency in their operations and achieve savings.

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Efficient and Flexible

In the era of highly efficient technology and streamlined, innovative software systems, it’s not surprising that today’s fuel marketers are seeking bigger and better fuel management systems. But it takes a lot of research, know-how, and due diligence to find a fuel management system that meets each marketer's unique needs. In fact, many of the marketers with whom Tom Lane, vice president of sales and marketing at DM2 Software, speaks often complain that their current systems do not interface well with other third party, complementary systems like bar code/warehouse management or truck automation systems.

Marketers should only consider systems providers who are open to partnering with other system providers and have ODBC (Open Database Connectivity) compliant systems.

Establishing Efficient Fuel Management Systems

As Lane explains, ODBC is a standard Lane said. As Lane explains, ODBC is a standard programming language middleware API for accessing database management systems (DBMS) originally developed by Microsoft in the early 1990s.“ODBC systems give you the ability to have a single application access to many different database management systems,” Lane said. “In a nutshell, ODBC systems, sometimes referred to as “open” systems, work well with other third party, complementary systems. ODBC systems provide the ability to easily access and exchange data with other third party systems, giving marketers the ability to use best-of-breed systems without the need to make a lot of duplicate, error prone entries from one system to another.” In addition to evaluating ODBC versus non-ODBC systems, there are additional considerations fuel marketers need to keep in mind to make sure the fuel management system is the most efficient and flexible for their long-term needs. Kealin Murphy, director of implementation and training at ADD Systems, said it is important for marketers

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to identify both short- and long-term goals expected from the purchase. “Understand that to reach these goals, time, effort and collaboration with the vendor is critical,” Murphy said. “Make sure your knowledgeable employees are involved in the project, and are available when needed to the implementation team.”

It’s vital that marketers also implement components of the software that will increase your success in the marketplace and raise customer satisfaction, which in turn translates to a quick turnaround of receivables. “Work with the software implementer to make the choices that will move you toward that end,” Murphy said. “This planning stage is critical so that surprises are kept to a minimum and your team is fully engaged. Be realistic about the effort—no prize was won without the hard work to get there.”

WHOLESALE OPERATIONS According to Glenn Turner, president and chief executive officer at FireStream Worldwide, some additional primary considerations for fuel marketers evaluating FMSs include: • Is the FMSs system integrated to the back office? The primary reason for this concern is that an un-integrated system will require duplication of data and significant reconciliation processes. • Do your inventory sites or the inventory sites of your customers support automated inventory monitoring? If they do not support automated inventory monitoring, how long will it take to put inventory monitoring in place and what will be the cost? • Do you have the talent in your dispatching and supply area to really leverage the information that the technology provides? “Software is not magic ointment; marketers need experienced people who know what an FMS optimized process looks like,” Turner said. “If you put the FMS in before you have the right people in place, you're tying up capital unnecessarily and potentially making an investment that will not produce a return.”

Establishing Efficient Fuel Management Systems • Do you have a project execution mindset? Are there people with the ability and the time to see the project of implementing an FMS through to its conclusion?

Preparedness and Due Diligence

As with any innovative and evolving technology, fuel marketers need to be prepared to work with software venders in the FMS arena. According to Turner, one of the key issues that marketers must not overlook is the importance of integrating the FMS tightly with the back office to avoid redundant data and a high reconciliation load. “Marketers must also understand the importance of training the organization to properly use the FMS and knowing how you will ensure that a FMS is being used to its optimum potential,” Turner said. Murphy agrees. “Engage your employees,” Murphy said. “‘Buy in’ by management and staff is critical, so plan a

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realistic time frame and take small steps.” Be sure to choose the time of the year that works best for you and your staff, as vacations, holidays, high business turnover times of the year can be a challenge. “Capitalize on the experience of the implementer and incorporate their suggestions into your project plan,” Murphy said. “Remember, change is difficult for people so recognize that and reinforce them with the knowledge that management has backed the change and outlined the benefits that are critical to everyone’s success. Having your key employees on board and engaged in the changes will make the difference in a smooth or rough transition. Your employees sell your business value to your customers—get them on board so that they can offer the new services to your client base.” In addition, it is vital that marketers recognize the importance of testing the FMS prior to “going live” to ensure that it is guiding the organization accurately through its inventory replenishment processes. Ask yourself, “should you bet working with key customers to pilot the process? Should you be working with only certain internal inventory sites before

WHOLESALE OPERATIONS

Establishing Efficient Fuel Management Systems

pushing the FMS across to all your internal inventory sites? “For organizations that intend to use FMS in conjunction with customer replenishment, do you have the proper buy in from your customers that this is in their best interest and not just the best interest of the marketer?" Turner asks. Also, don’t overlook the power proper training can have for your system. One of the most common issues Lane sees at DM2 Software is that in an effort to reduce their upfront investment, many marketers short change themselves on training. “As a result, their employees usually end up using only a small portion of the system features available to them and marketers don’t realize the return on investment they expected,” he said. “In addition to the initial training we provide, we recommend follow-up training periodically after marketers have been using their systems for a few months. This gives their employees a chance to absorb the initial training and become more familiar with their new system first.”

Partners In Progress

Within the FMS arena, fuel marketers, system implementers, and software vendors play different roles in the implementation process. Turner said the fuel marketer has to be the project sponsor and ensure that the people who are involved in the implementation from the marketer have sufficient time and authority to drive the project to its conclusion. According to Murphy, a fuel marketer sets the stage for change by communicating the plan to employees and customers. Marketers also make plans for the time required to setup, test and validate the changes before rolling out and advises customers of new exciting features that will be offered to them soon. “The responsibility of a successful transition is in the collaboration with all concerned,” Murphy said. “Provide key employees the time to engage with the implementer so that they have a stake on the outcome and setup of the software to get optimal results.” Take the time to plan a ‘day in the life’ of your company and make sure that the employees have hands-on time before actually pulling the

Customer Portals provide online, real-time access to their transactional data and financial documents. trigger; this will translate in a positive way to your customers.” As such, the software vendor needs to provide experienced consulting resources to adequately guide the marketer to achieving their FMS objectives and training key staff to operate the software. Essentially, the software implementer is part consultant, part industry expert and has a wealth of knowledge on “how” to ask the right questions and get the results needed. “It takes a team to transform your business and daily practices,” Murphy said. “Project managers keep you on track and within budget, and implementers are the ‘troops on the ground’ who provide consulting, setup and training. They, together with your employees, will help you to expertly navigate the well-traveled path to the destination.” Turner stresses that the software vendor has to be knowledgeable of the other processes that FMS touches, such as FMNMagazine

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freight rating and BOL invoice reconciliation, not just the FMS process. The software vendor also needs to be responsive to product gaps that arise during the FMS implementation and promptly plan to address the gaps. Likewise, the software company should fully understand the accounting and back office dimensions of an FMS and be prepared to implement in such a way so as not to cause rework once the FMS goes live. “The software vendor brings a solid, definable track record to the table on similar business transformations with all the knowledge and experience that this implies,” Murphy said. “Understanding your diverse business needs and translating that into measurable outcomes allows the fuel marketer to move forward with more security and confidence.” The software vendor should be able to show measurable growth into diverse industries and historical collaboration with their family of customers in that direction. n

WHOLESALE OPERATIONS

New Diesel Truck Engines Emissions Dramatically Cleaner Than Expected An Analysis by the Diesel Technology Forum

“Clean diesel” has come a long way since 2007 when ultra-low sulfur diesel entered the market, and even further since 2010 when new emission standards— overwhelmingly filled by SCR technology using diesel exhaust fluid—came into force. The Diesel Technology Forum, a nonprofit national organization dedicated to raising awareness about the importance of diesel engines, fuel and technology has taken a look at just how far things have come. A recent study released by the Coordinating Research Council1 in cooperation with the Health Effects Institute2 highlights the robust low emissions performance of the new generation of clean diesel technology manufactured starting in 2010. The study found a more than 60% reduction in emissions of nitrogen dioxide as compared to previous 2007 models, and 99% reduction compared to 2004 models. The study noted that the reductions “exceeded substantially even those levels required by law.” “These findings underscore just how clean this new generation of fuels, engines and emissions control technology really is, coming in substantially cleaner than required under the EPA and California Air Resources Board (CARB) standards,” said Allen Schaeffer, Executive Director of the Diesel Technology Forum. The Advanced Collaborative Emissions Study (ACES) is a multi-party five-year study to test the emissions and health effects of the new technology diesel engines in order to document the improvements that have been made and to ensure that there are no unintended emissions from this new technology. This portion of the ACES study (Phase 2) builds on the findings from Phase 1 completed in 2009, that found substantially lower levels of emissions of particulate matter than anticipated—in that case 2007 engines were 99% lower compared to 2004 models. “Not only are the 2010 and later model year technology near zero emissions for fine particles, this study confirms that they are also substantially below the EPA/CARB standard for one of the key precursors to ozone formation

Allen Schaeffer

WHOLESALE OPERATIONS

(nitrogen dioxide),” explained Schaeffer. “These findings ultimately translate into clean diesel technology delivering significant clean air benefits for local communities. There is also great confidence in this new generation of clean diesel technology from those that use it every day. According to our research, today more than 11 percent of the commercial trucks and buses on the road are using the 2010 or newer generation of clean diesel technology, and more than one-third are using 2007 and newer technology3. These heavyduty trucks and buses are lower in emissions for particulates and smog forming compounds like nitrogen dioxide as reported today, and they must continue to meet these near-zero clean air performance standards for 435,000 miles, almost four times longer than required for passenger cars.”

Reduction Relative to the Standard

NOX

2010 Standard

NMHC

2007 Standard

BSPM

2004 Standard

Figure 1. 2010 Engines Emissions Reduction Relative to 2010, 2007, and 2004 U.S. Emission Standards. Substantial reductions since 2004 were observed for Nitrogen Oxides (NOX:97%), Carbon Monoxide (CO: 97%), Non-methane Hydrocarbons (NMHC>99.9%), and Brake-specific Particulate Matter (BSPM: 99%)

have been phased in for a large portion of new non-road engines. This coming year— 2014—marks one of the key emissions milestones from some of the larger diesel engines used in off-road machines, equipment, marine vessels and locomotives.” n 1 Coordinating Research Council (CRC) www.crcao.org 2 Health Effects Institute (HEI), Boston MA www.healtheffects.org 3 Diesel Technology Forum, 2013; Analysis of data from R.L. Polk and Company

Getting to these near-zero levels of emissions is a result of the highly integrated clean diesel system: cleaner ultra-low sulfur diesel fuel, advanced engine technologies and emissions control systems. Meeting the 2010 standards for highway vehicles was a major milestone, but as of January 1, 2014, heavy-duty engine and truck makers offer new models that comply with the additional new standards for lower emissions of carbon dioxide (CO2) and minimum fuel economy levels, as required by EPA and the National Highway Traffic Safety Administration (NHTSA). “This clean diesel, clean air success story is due to the billions of dollars in investments made by engine manufacturers, fuel suppliers and emissions control technology companies,” said Schaeffer. “While this study is limited to highway diesel engines used in commercial trucks and buses, over the last five years virtually the same requirements (cleaner diesel fuel and progressively lower emissions standards) FMNMagazine

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RETAIL OPERATIONS

THE NEXT BIGDEAL by Brian Reynolds, Simmons Corporation Every so often in the petroleum

marketing industry, “The Next Big Deal” comes along and changes the way businesses are operated. Back in the late 1970s there was the introduction of the first automatic tank gauge. By the mid1980s electronic fueling dispensers were introduced and “Pay at the Pump” became a game changer. By the late 1980s and early 1990s computers became less expensive/more dependable and electronic price book and scanning became the standard for retail marketing. During the mid- to late-1990s everybody was talking about “Big Box Retailers” selling fuel on their parking lots. At the turn of the century and throughout the 2000s it was all about loyalty. So what and where is the next big deal? In June 2008 crude oil (WTI) hit an all-time high of $143.68 per barrel and the average price for a gallon of gasoline was $4.37. Suddenly, the need for extreme accuracy and verification regarding petroleum deliveries, inventory and dispensing was created. When non-petroleum products arrive to a c-store they may be in plastic containers, cardboard cartons, wooden crates or other packaging. The means to accurately receive goods behind the store have been perfected for many years. We have all heard the phrase –“trust but verify.” Today in retail receiving it’s strictly just a term

called –“VERIFY!” Every item is counted, scanned, checked for damages and compared to the delivery manifest. However, for many years with fuel deliveries the phrase “trust but verify” has mostly been “TRUST!” The ability to verify fuel deliveries and inventories has always been limited. Our industry has tried for many years, only to get close. Even the EPA recognized that close may be about as good as you can get. The EPA inventory control data check standard of 1% margin of error plus or minus 130(+/-) gallons has been the standard for environmental purposes (some states have more stringent guidelines). Frequently, the same team and same software package that provides EPA accounting also provides financial accounting for the exact same locations; the elimination of duplication of effort is provided by using one set of numbers. Over time an acceptance of establishing a threshold for missing fuel inventory amounts had become standard procedure for many petroleum marketers. To some operators it is seemingly more expensive looking for every missing drop below a set amount. Software packages began providing exception based reporting whereby the operator sets the gallon amount for when to begin investigating missing inventory, and thanks to the EPA FMNMagazine

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and their 1% margin of error, that’s where many draw the line in the sand. Interestingly enough, the national average for un-reconciled fuel is approximately 1.1%! On average missing inventory follows this percentage breakdown:

0.5% 0.4% 0.1% 0.1% 1.1%

Short deliveries Meter drift Theft Vapor/temperature losses National average for un-reconciled fuel losses

Today, a 1% margin of error equals a bunch of money! Since we are talking percentages and basic math, let’s break it down to the lowest common denominator. Losing 1% of a standard 8500 gallon transport load of gasoline is 85 gallons, and 85 gallons of gasoline in today’s market using $3 per gallon is $255 worth of inventory. Let’s say an average c-store receives 10 loads a month/120 loads a year which is potentially $30,600 a year worth of unreconciled petroleum inventory or just call it an entire 8500 gallon transport load of fuel goes missing every year for an 85,000 gallon a month location! Clearly the value of every gallon is worth tracking.

RETAIL OPERATIONS

The Next Big Deal

THE NEXT BIG DEAL for the petroleum marketing industry is a concept known as

Continuous Fuel Monitoring The definition for Continuous Fuel Monitoring is:

A method of constantly monitoring and analyzing petroleum fuel inventories and determining precisely a petroleum delivery in comparison to a supplier Bill of Lading while accurately accounting for volumes dispensed during a delivery drop while simultaneously providing accuracy analysis for individual (hose) metered sales and identifying probable causes for losses and delivery discrepancies in an automated fashion. In layman terms a continuous fuel monitoring system should be able to account for every drop of product during a fuel delivery with every hose going at full blast! The benefits of continuous fuel monitoring are enormous. Most petroleum marketers handle more inventories and or the equivalent in cash than many local banks do on a daily basis. Yet fuel inventories and delivery techniques have limited security and verification. For instance; letâ&#x20AC;&#x2122;s compare a fueling dispenser to an ATM machine. If an ATM machine started giving out extra $20 bills, it would be detected almost immediately. The machine would be remotely put out of commission and a technician would be dispatched immediately. In addition to completely reconciling a fuel delivery, continuous fuel monitoring can identify meter drift in real-time speeds and it has been established that meter drift accounts for approximately 0.4 % of un-reconciled fuel nationwide. Retail customers routinely receive more fuel than

they pay for at the dispenser. Continuous fuel monitoring can quickly identify losses such as meter drift and it may be discovered that marketers need to calibrate meters more often than a yearly calendar event. Dispenser tampering is becoming more prevalent in our industry. Clever thieves have discovered a variety of ways to bypass metered sales or to create a condition whereby the inside sales clerk is unaware that those gallons are being lost. Continuous fuel monitoring, independently from the pump control device or POS, detect dispenser tampering or other forms of fuel theft such as a direct pump out from the tank.

Fuel lost or gained to temperature is no longer a conundrum. To just arbitrarily accuse a significant loss or gain to temperature is crazy talk! The truth of finding out the exact gallon loss/gain may be more disturbing than discovering that Aliens really did crash at Roswell! (And they are among us in Washington D.C.) A Continuous fuel monitoring system will determine exact losses/gains to temperature and the answer may be far less than previously believed! Continuous Fuel Monitoring is difficult, however, with sophisticated and proven technology an unknown becomes a readily available known! It provides both a unique means to significantly reduce irreconcilable fuel deliveries, fuel sales and fuel inventory, and the means to proactively reduce fuel losses.

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Most historians will agree that ever since World War II virtually every war has its roots over the fight for oil. The higher fuel prices become for petroleum marketers the fight for profits become more difficult. Profit margins have always been tight in our business. Today, with automation the fight for increased fuel profits via more efficient business practices is a fight that can be more easily won! n

Brian Reynolds Brian has been a petroleum marketing professional for over 40 years. He began career as a youth working in family owned petroleum marketing company in Cisco, Texas. Reynolds was a pioneer in the field of high volume supermarket fueling. The business model invented has been one of the most copied in high volume supermarket petroleum retailing for the past 20 years. He is currently a major Account Representative at Simmons Corporation for continuous fuel monitoring, regulatory environmental compliance and automatic tank gauges.

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RETAIL OPERATIONS

Fuels Institute: Vehicle Sales Rise by John Eichberger

The vehicle market continued to recover

last year, posting a 7% increase in total light duty vehicle sales according to WardsAuto. This growth was reflected in every fuels category as all vehicle types posted increases in units sold. But taking a look into the future, change is afoot. Government forecasts indicate that the composition of the market may evolve, with alternatives taking market share away from gasoline-powered vehicles.

Released in January, WardsAuto data showed that the overall market for automobiles and light trucks expanded 7% to 15,597,335 vehicles sold.

Change in Sales 2012â&#x20AC;&#x201C;2013

Within this market, gasoline-powered vehicles remained dominant with 93% of the market, but market share declined approximately 0.5% compared to 2012 sales. (Flexible fuel vehicles are not segmented in this report. The author assumes they are included in the quantities reported for gasoline vehicles.) Among the vehicles comprising the remaining 7% of the market, diesel and hybrid vehicles combined for more than 6% of total light duty vehicle sales. Diesel vehicles enjoyed a 10.6% increase in overall sales while hybrid sales grew 13.3%. Posting the strongest year over year sales gains were battery electric vehicles (BEV), increasing units sold by 241.4%. This strong growth propelled BEVs to 0.3% of the new vehicle sales market.

Source: WardsAuto

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RETAIL OPERATIONS

But Wait, There’s More

Market Share of Vehicle Sales 2012–2040

In addition to the WardsAuto report on actual sales over the past two years, the U.S. Energy Information Administration (EIA) released its Annual Energy Outlook 2014, which includes projections for vehicles and fuels through 2040. While the total vehicles sold reported by the two sources varies by 4.5% in 2012 and 7.4% in 2013 (EIA’s report was released on December 16, 2013), we can learn a lot from the EIA forecast on the market share contribution of each fuel type.

The most remarkable projection is a 5% drop in gasoline vehicle share of new sales by 2040—in spite of a 17% increase in units sold. Helping to fill the market gap left by gasoline will be an increase in market share for diesel vehicles and hybrids, expected to increase share by 3% and 2%, respectively. This growth will be achieved by increases in units sold—261% for diesel vehicles and 111% for hybrids. BEVs and plug-in vehicles are also projected to increase market share significantly over the forecast period and post sales increases of 480% and 345%, respectively. The growth in the sale of vehicle alternatives to gasoline, although limited,

Source: EIA Annual Energy Outlook 2014 Early Release

is noteworthy. The vehicle fleet takes approximately 20 years to turn over, so any change in market dynamics will take significant time. EIA’s projections through 2040 show erosion in the market dominance of gasoline vehicles, which could accelerate if alternatives continue to gain attention with consumers as they have in the past several years. The Fuels Institute is monitoring closely the changes in the market and is working on projects that will provide additional insight into the changing preferences of the consumer. We are focused on better understanding how the market operates, what opportunities and challenges are presented and how the fuels and vehicles markets will develop. Third-party resources like WardsAuto and EIA are good places to start and the Fuels Institute will produce additional valuable resources in the coming years. n

John Eichberger

EIA projects total vehicle sales will increase nearly 24% by 2040 and the composition of these sales will change only modestly.

For more information about the Fuels Institute or how you can get involved, contact John Eichberger, Executive Director, at jeichberger@fuelsinstitute.org or 703.518.7971.

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Fuel Marketer News supports the efforts of the Fuels Institute, a research-oriented think tank founded and managed by NACS. The institute is dedicated to evaluating the market issues related to consumer vehicles and the fuels that power them. We plan to regularly run materials developed by the institute, as appropriate, for the education of our readers. This article previously ran in the February 2014 issue of NACS Magazine. FMNMagazine

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RETAIL OPERATIONS

The Next Front in the Fleet Card War

by Shane Dyer There have been several transformational

events in the history of commercial fleet fueling. Our industry has progressed through major milestones such as moving from key-lock to cardlock, the rise of the reciprocal fueling networks and the emergence of universal cards.

The next front in the war of fleet cards is going to be fought through GPS technologies, also referred to as Telematics. As a fleet card issuer, your value propositions outside of the fuel itself are purchase controls, management reporting and efficiencies associated with convenient or high-speed fueling locations. Telematics are going to have an impact on this value proposition. Most significant will be minimizing the value of your reporting services. Telematics are highly efficient in managing everything from real time odometer readings, idle time, vehicle speeds, service hours and much more.

Therefore, a company with a telematics system is going to be less interested in the typical fleet card reporting package that provides such information as miles driven, miles per gallon, cost per mile and other basic metrics. However, they will be interested in obtaining an electronic file from their fuel supplier that can be imported into their Telematics system. There are several purposes of integrating a telematics system with fueling transaction data. Without this information, the system can't calculate miles per gallon or cost per mile. Additionally, most telematics systems today include asset management modules that track maintenance and other expenses. Adding the fueling data into the system provides a comprehensive picture of the asset. Finally, most telematics systems are currently capable of comparing the fueling transaction with the vehicle's location. When such a system is smart enough to identify that vehicles were not present at the fueling location, it is highly effective in mitigating unauthorized use. This minimizes the value of time date restrictions, velocity limits such as gallons/dollars per period and unusual activity reports a fleet card issuer might FMNMagazine

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provide through their product suite. In the future, we anticipate the telematics system will be integrated with the fleet card authorization host. This integration would allow the ability to actually decline a transaction if the vehicle is not physically present at the fueling location. If the telematics device is connected to the onboard diagnostic port (OBD2) it's even possible that the fuel level can be assessed and the pump only authorized to dispense the amount necessary to fill the tank. Of course, this level of system integration would require substantial sophistication and investment, but it is on the horizon. We know the major fleet card technology companies have their eyes on this battlefield. Today WEX resells a variety of telematics systems to their customers and Fleetcor acquired a telematics company called NexTraq in October 2013. According to Bernie Kavanagh, vice president, corporate payment solutions for WEX Inc., "We work with a variety of strategic telematics partners because each provider specializes in their own vertical markets. One might be better equipped to benefit a landscape company while another system would work better for a distribution company.

RETAIL OPERATIONS

Ultimately the data is what rules the decision by the fleet and WEX's goal is to integrate that data as effectively as possible into our suite of product offerings. The future is one where the systems will be integrated at the time of authorization, however, there are many logistics to work out before that happens, particularly the impact on the speed of processing the approval.â&#x20AC;?

As a fleet card issuer, you have two primary objectives to consider. First, how do you obtain a qualified telematics system to implement with your fleet customers, and secondly, if they have an existing system, what should your course of action be? There are many options

available in the market, however if you are issuing a card managed by one of the major fleet card providers, you might investigate their offering first because the necessary integration may already be done on behalf of you and your customer. Pacific Pride Services, LLC, a subsidiary of WEX Inc., anticipates their nationwide network of franchisees will be able to leverage the WEX partnerships by offering

an integrated product to their fleet customers in 2014. According to Lisa Garside, executive vice president, "We see telematics as being an important product offering that will enhance our franchisees competitive positioning.â&#x20AC;? In instances when you recognize your fleet customer or prospect already has a telematics system, it's imperative that you redirect your conversation away from your management reporting and towards integrating their transaction data through easy electronic interchange. This often means there will need to be some manipulation of the data on your part because most petroleum marketer's billing systems don't have the address, city, state, and zip code as part of their core file structure. PowerUp Fleet has built several "data bridges" between billing systems and various telematics systems. As with all technologies, telematics will continue to saturate the fleet market until it will be deployed in even the smallest five vehicle fleet. Understanding the impact this will have on your fleet card business is priority No.1, and figuring out how to capitalize on this trend is No. 2. n

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Shane Dyer Shane is the President of PowerUp Fleet, Inc. He possesses over 28 years petroleum automation, operations, and executive management experience with a focus on commercial fleet fueling and cardlock networks. PowerUp Fleet, Inc. provides sales force automation/CRM solutions specific to the petroleum industry along with sales training, sales management, and executive consulting services. Contact: 541.388.5120 or shane@powerupfleet.com and visit PowerUp Fleet at: www.powerupfleet.com.

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TERMINALS & STORAGE

Terminal Automation and Credit/Product Allocation Solutions

by Mark Garton, Senior Product Manager and Micki Verhagen, Product Manager, Schneider Electric In todayâ&#x20AC;&#x2122;s hectic world, terminal managers face many challenges

volatility on the supply chain. The continuum of suppliers, terminals and marketers face different issues depending on geography as well, with European terminals becoming increasingly automated and interconnected with suppliers, while new standards and requirements around emissions and security keep operators on their toes.

from continually improving the process of efficiently and accurately loading and unloading product to managing the effects of market

Managing these issues across the downstream spectrum requires suppliers, terminal operators and marketers to look for solutions that take them on in an integrated approach. In particular, as terminal operations become increasingly automated, it is important that those systems incorporate not only elements that ensure efficient and accurate product loading, but also ensure the physical and digital security of the facility. These will all drive towards the ultimate goal of the right carrier receiving a full load with the correct product each and every time.

Operational challenges The industry is responsible for the efficient downstream distribution of fuels and other refined products through a network of equity and third-party owned terminals throughout North America. Real-time data of when and where product is available throughout the entire evolving network is needed in order to manage position and exposure, while also controlling opportunistic buying and arbitration of product. Tightening supplies, competitive markets and the growing use of third-party terminals put increasing pressure on terminal managers to deliver on these promises. Recent market volatility and higher product costs have led some sellers to keep less inventory on hand, and have made buyers more concerned about physical security. Terminal operators must strike a balance between servicing their customers while also operating in a cost-efficient manner. In addition, the rapid growth in both biofuels and crude oil means that more product is being delivered by rail and truck as opposed to pipeline, and terminal operators must be able to manage the alternative offloading process efficiently and safely. While terminal automation may be most associated with automated loading, it is the ability to manage bill of lading (BOL) FMNMagazine

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TERMINALS & STORAGE transactions, credit limits and product allocations with the efficiency, cost-effectiveness and real-time intelligence required by today’s market that turns the above challenges into opportunities. With blending recipes changing from customer-to-customer and from season-toseason, suppliers need accurate and up-to-date information on the various products and recipes being loaded. Integration between the terminal automation system and a supply management system is key so suppliers can view the amounts of blends, components, neats and additives that were loaded, along with the products’ temperature and gravity. This includes viewing the total amount of product loaded on the BOL. While terminal automation and supply management solutions have been in production for over 20 years, current market conditions establish the new standard for management and communication of terminal credit and product allocations. In particular, as refiners increasingly sell off proprietary terminals and distribute over a network of third-party terminals, they need effective solutions to manage credit limits and product allocations and be able to communicate that to terminal managers and terminal automation systems to ensure steady availability of product.

PIDX standards European terminal operators are beginning to realize the benefits of connectivity and standardization amongst terminal automation systems. The PIDX Standards were created and are being implemented in an effort to reduce the fractured nature of European laws and business practices. For major suppliers, this is particularly important to reduce the inefficiencies of having to adapt distribution practices on a country-by-country basis. While implementing the PIDX standards may sound complex, in reality it is a relatively low-intensity adoption, especially if the terminal already uses a TAS that was designed with this kind of integration in mind. Terminal operators in Europe can expect a push from the major international suppliers to increase connectivity between their TAS and supply management systems.

New Security Threats and Regulations Access controls are an essential element of physical terminal security to prevent unauthorized access to the facility and its products. The U.S. Coast Guard - Port Security Units (PSU) have increased focus on this with stringent security requirements, presenting challenges for terminal managers. Coast Guard inspectors and captains of the port in several areas of the country have ordered terminals to employ 24-hour guards or use personnel to conduct 24-hour screening of all incoming vehicles and railcars, regardless of the previously approved security measures already in place at the terminal. Unfortunately, security threats are increasingly coming through wires and cables instead of the access gate. Cyber security is a significant concern in many critical industries, including downstream oil and gas. In a recent annual review, a team at the Department of Homeland Security counted 198 incidents of attack on critical computer infrastructure in fiscal year 2012. The events reported ranged from the use of malware to sabotage systems to phishing attacks for retrieving sensitive information. In roughly 40 percent of those cases, the target was the energy sector–“an alarming rate,” the report said. The future will hold new challenges for security; while the depth of the implementation is yet unknown, biometrics is likely to become a requirement of the TSA and Coast Guard for terminals, particularly those handling highly flammable materials. This could cause issues in colder climates, and overall the implementation of these programs is something that terminal operators should be at least considering when working with terminal automation providers. As terminal automation increasingly interfaces with the Internet, particularly through supply management systems that manage credit limits and product allocations across a network of terminals, this is a security threat that terminal managers need to be increasingly aware of. The more connection points between systems, the more penetration points there are for an external threat to exploit. This is why fully integrated supply management and terminal automation systems are critical to the digital security of terminals.

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Security and efficiency through integrations Security needs to be integral to every level of the operation, from level zero at the field I/O, to the host systems and up to the corporate layer. Suppliers, and terminal operators, need cost-effective solutions that provide centralized, consistent management of product across terminal networks, whether proprietary or third-party. Through the integration of supply management and terminal automation, terminal operators gain confidence that their terminal automation system is granting access to the proper carriers and providing them with adequate, accurate and authorized product, reducing the time and resources spent on physical security and oversight. Automated BOL reduces back-office administrative time, as well. For suppliers, seamless integration provides the tools to maintain a satisfied customer base along with the timely intelligence to make smart business decisions. Suppliers see a reduction in administrative costs by being able to manage across the terminal network, rather than one-by-one, and shorter invoice to cash cycles. Bottom line, the integration between terminal automation systems and supply management systems provides an endto-end solution for the management of carriers, drivers and the ever changing recipes to meet the seasonal and legislative pressures on today’s operations. n

Schneider Electric As a global specialist in energy management with operations in more than 100 countries, Schneider Electric (http://www.schneiderelectric.com) offers integrated solutions across multiple market segments, including leadership positions in utilities and infrastructure, industries and machines manufacturers, non-residential building, data centers and networks and in residential.

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FLEET OPERATIONS

Alternatives for Fleet (Auto) Insurance Liability Risks

The performance of the transportation industry is generally recognized as a leading indicator in evaluating the economy. Most of our trucking clients knew that the recession started in 2007 due to decreased freight volumes. The "snowball" started rolling; decreased freight meant overcapacity, which led to the inability to maintain rate, which when added to record high fuel cost, resulted in deteriorating financial results, which for some carriers ended in bankruptcies. These factors are being exacerbated by significant jury verdicts, combined with loss trends that have escalated the risk in recent years. For instance, 2009 saw the median jury award increase by 38.8 percent in motor vehicle accidents, after a 24.8 percent increase in 2008. There are several alternative insurance solutions to consider in order to mitigate these difficult business circumstances.

Lowering Your Cost The most popular method to lower insurance program costs is to go into a large-deductible insurance program. By taking on a significant per-occurrence risk, the insurance companies lower the premium rates. However, the program must be structured as a deductible in order to meet DOT requirements.

by Greg Cushard

Under a deductible, the insurance carrier is financially responsible for paying losses within the deductible and in turn seeks reimbursement from the insured. This creates a "credit risk" for the insurance company, and they require collateral, usually in the form of a letter-of-credit (LOC) to securitize the credit exposure. As banks have reevaluated their credit exposure in light of current economic conditions, the costs of LOCs have risen dramatically as well. The savings from a high-deductible plan are partially eroded by the additional LOC costs. While it's impossible to foresee the future, the banking industry appears to see these cost increases as more than just temporary. One factor in the "new normal" may be increased cost of credit.

Strategies to Reduce Collateral Transportation companies should devote resources to making sure they are obtaining the appropriate haircut on the collateral requirement by understanding

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FLEET OPERATIONS insurance company rating methodologies and their impact on program design and the transportation company's financial condition. However, those credits will typically be eliminated if the insured/insurer relationship ends, thus making it difficult to change insurance carriers. The motor carrier becomes tied to the insurer via the significant collateral pledged for deductible losses. Additionally, a firm's credit facility is reduced by the amount of LOCs posted to the insurer. Understanding the impact of the mature collateral requirement against any debt covenants and credit needs is paramount in understanding the immediate and long- term impact of a large-deductible program. Another strategy is to build a corridor deductible above the specific deductible. By taking on a set amount of additional risk, the carrier is further removed from the working layer of claims, and premiums are reduced. If properly structured, the need for collateral on the corridor layer can be eliminated. Insureds could also consider applying to become qualified self-insured with the Federal Motor Carrier Safety Administration. The FMCSA has become more stringent in the approval process in recent years and more difficult for privately held companies. The application process can extend more than a year. While the security terms extended by the FMCSA can show some benefits for motor carriers in extremely strong financial position, the current economic environment has reduced the number of motor carriers who meet the FMCSA's thresholds.

Captives and RRGs Evaluating and forming their own insurance company is another strategy that can be implemented. Both captives and risk retention groups (RRGs) are popular vehicles to use for auto liability exposures. While different, both captives and risk retention groups share some common characteristics. In both instances the client is setting up a wholly owned insurance company that must be capitalized and that will incur annual operating expenses. Those operating expenses include captive management, audit, actuarial, legal and domicile expenses. If the captive or RRG is able to qualify as an insurance company for tax purposes, there are additional tax advantages that will be available. Insurance companies can deduct a discounted portion of case and IBNR reserves, thereby lowering the taxable income of the owner of the captive. There are state tax advantages as well in that insurance companies do not generally pay state income taxes. This allows for a permanent tax savings on state income taxes until earnings are repatriated as dividends.

operates in. These requirements generally make it more expensive to operate an RRG when compared to a captive. However, the ability to eliminate fronting costs and reduce collateral may more than offset the costs of operating an RRG. While the federal act does allow the RRG to be authorized in all states, it does not alter contractual requirements that may be placed on a motor carrier for certificating A.M. Best "A" rated coverage. While a captive or RRG can become rated over time, there are significant hurdles to overcome in obtaining an "A" rating and it is likely not feasible in the first few years of a program.

Selecting Your Best Option As motor carriers attempt to structure a more efficient program, all options should be considered. No option is without some drawbacks. Through careful consideration, the best program can be selected. There are numerous factors attending the program design process that were not addressed in this discussion that may yield additional benefits. However, we caution that there is generally not a silver bullet to eliminating issues, but with proper planning, the most efficient structure can be created. n

RRGs do have a distinct advantage over captives under the federal Liability Risk Retention Act of 1986 (LRRA). Once an RRG is licensed in one state, it is authorized to operate and write insurance in all 50 states. This is in stark contrast to a captive. A captive will not have the ability to write compulsory lines of coverage like auto liability without also using an admitted insurance company as a front to evidence coverage to the FMCSA or state without becoming qualified self-insured.

Evaluating Captive Strategies Auto liability coverage is very common in captives; however, the fronting structure and collateral implications need to be evaluated against alternatives. If properly structured, the captive program will not increase collateral requirements. However, it will not lower them either. There is an ability to use premiums paid to the captive to collateralize the insurer, and those options are usually very beneficial in creating the most efficient captive program. RRGs have the potential to lower collateral requirements by eliminating the need to post collateral to the insurance company. Because every state has its own insurance laws, the federal preemption of state law under the LRRA is very favorable. However, there are considerations that need to be evaluated to determine if the RRG is the most favorable structure. While the federal law is, for the most part, a blanket exemption, some states have been resistant to RRGs through the use of "cease and desist" orders, fees and onerous filing requirements. The Government Accountability Office has been asked to study states' compliance with existing RRG law as some legislators have concerns on state reactions to RRGs. There are additional expenses associated with operating an RRG. By becoming authorized in a state, the RRG also becomes responsible for filing the annual "yellow book" financial report required by the National Association of Insurance Commissioners (NAIC) and is required to pay premium taxes in the various states the motor carrier FMNMagazine

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Greg Cushard Greg is Vice President/Producer at Lockton, leading a strategy and consulting practice. His practice expertise at Lockton is in high risk energy companies, focusing on corporate insurance brokerage, enterprise risk management, captive insurance consulting, and employee benefits. Cushardâ&#x20AC;&#x2122;s petroleum and crude oil industry expertise resides with refiners, terminal and storage facility operators, gas and convenience store operators, wholesalers, private fleet haulers, and rail exposures. Contact: gcushard@lockton.com or www.lockton.com

FLEET OPERATIONS

FUEL AUDITS: Are You Getting What You Paid For? by Gary Bevers

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FLEET OPERATIONS

How much energy did your organization put into monitoring and auditing your fleet fueling transactions before $4 per gallon fuel and SOX compliance brought such a heightened awareness to fuel costs? For most fleet managers, their efforts had been focused on discount fuel buying and efficiently fueling their vehicles. But, did they get what they paid for? Today, we face many more challenges, and in most organizations fewer people to administer all the moving parts of the procurement and fulfillment processes. So, what is required for your company to efficiently manage fuel procurement for dozens, hundreds or even thousands of assets? Like many companies, do you currently receive duplicate billings? Are your fuel transactions accurately priced? Are you even sure you are paying for the correct quantity? Can you receive odometer readings for each asset? Can you reasonably verify MPG/vehicle to minimize possibilities of theft or fraud prior to approving payment? Your responses will probably vary with a mixture of yeses and nos. When questioned, many fleets are reporting mixed audit results. Many company audits reported fueling vehicles from other branches and even outside carriers on their property. One particular company’s audit showed they paid over $200,000 in duplicate billings. Others were overcharged at rates well beyond agreed upon contracts. These occurrences were most likely due to honest human error, lost tickets and hard-to-read manual captures of fueling events. And, in some cases there are as many lost or missbillings in favor of the seller as there are in favor of the buyer.

Manual Data Transaction Capture Upon examination of common methods used to capture transactions, gather tickets, reconcile gallons, key in data, manually price tickets and upload files, it's clear the culprit is too many manual touch points. This is particularly a problem with auditing mobile fueling with its large number of small fueling transactions. Less than 20% of mobile refueling companies make deliveries that digitally post directly to payables without manual intervention. Buyers want as few service providers as possible, but it's difficult, if not impossible, to find suppliers that offer national coverage for fuel fulfillment

services. As a result, there are an increased number of manual transaction billings. The lack of a true digital thread between most fueling trucks, storage and dispensing equipment means typical fuel transactions cannot stand up to the scrutiny of SOX compliance and security audits.

Advanced Technology Many progressive fuel suppliers have invested millions in their respective fuel management, data capture and billing platforms to eliminate transaction errors. But do buyers always consider transaction integrity in their selection process? Do buyers switch providers for a penny a gallon even though the lower cost provider is performing the service without digital technology to ensure transaction integrity? Many buyers are now requiring such transaction integrity when selecting their fuel supplier. Further, for mobile fueling transactions some buyers are requiring onboard truck technology that truly captures fueling events digitally, with the highest integrity, as they happen to support a SOX compliant audit trail. Then, the verified transactions can be posted to web portals to scrub transactions with virtually no manual intervention—in real-time.

Technology Solutions Exist Today Technology solutions, from multiple vendors, are available and in use today. Imagine if your fuel supplier was able to capture these four critical data points from the first click of the meter flowing gallons into your vehicles:

1. Asset ID Number 2. Odometer readings 3. Weights and measures certified gallons 4. GPS vehicle and site locations FMNMagazine

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And then imagine your supplier could pass along that “verified data” giving you visibility into those digital transactions—as they occur and not a year later when preforming an annual audit and no one can remember who did what? Plus, what would be the added value of data automatically sent to pricing engines to generate and scrub benchmarked pricing for you the next time you select a supplier or buyer? How would your next audit look now?

Bottom Line? Even if you are not a public company, and not required to be SOX compliant, you should still examine your company’s fuel transaction auditing practices. It’s just good business sense to ensure you are getting what you pay for when it comes to your fuel bill, one of the largest costs in operating a fleet. And then the next conversation you have should be with your fuel supplier to find out what they have to offer to help you with audits, compliance assurance and managing your bottom line. n

Gary Bevers Gary has 29 years experience in product and market development for innovative eSupply Chain Marketing and Logistics solutions designed to increase downstream petroleum distribution efficiencies. His firm focuses on systems and logistics support projects that help companies drive sales and operations more efficiently, especially online. He is the publisher and a founder of Fuel Marketer News.

BUSINESS MANAGEMENT

This Drives Even the Best Marketers CRAZY by Betsi Bixby

Ever been sitting at your desk delving

into a strategic project that deserves your full time and attention, and just as you get settled into the details, the phone or intercom rings, or worst yet, someone knocks on your door and before you even respond, marches into your office. It’s urgent, so you drop what you are doing and handle it. Once you get that crisis out of the way, you try to tackle your project again. Since you were mentally derailed, it takes a little while to settle your focus back. You grab a beverage and try again. About 30 minutes later you are making great head way and BOOM! Another interruption. It’s happening again. Sound familiar?

This little scene I’ve played out happens to every CEO across America! It doesn’t matter if you run a team of hundreds and make multimillions at the bottom line or it’s just you and a handful of family struggling to make a profit. People are bound to interrupt you and make you crazy! I didn’t think about this much until the other day. I was leading one of my business coaching groups on a webinar session and decided just for fun to ask them what was making them crazy that day. I keep the session on mute, so the confidential answers began flying into my Q and A area. Can you guess what they answered? It wasn’t PCI, it wasn’t truck

technology, it wasn’t acquisitions, growth, marketing or margins. It wasn’t even tight cash flow. It was people! People issues were making them nuts! But, you aren’t surprised at all, are you. Deep down, you understand that your problems with employees, vendors, customers, and family trump just about every other challenge you have. So, how’s it going with your people—your staff, your customers, your vendors? Do you find yourself reacting to unexpected situations or just plain frustrated with people not doing their jobs to your satisfaction? If so, then check out these 12 practical tips so you can: • Have more time for strategic planning (what you are supposed to be doing!) • Have less “people challenges” in your day • Watch your cash flow grow since it’s people that create profits!

Here are those 12 practical techniques to conquer your people problems once and for all! 1. Use the Power Motivators Daily –People are desperately

4. Deal Only With Trustworthy People–stop having interaction

hungry for acceptance, approval and appreciation. As Ken Blanchard, The One Minute Manager author aptly said, your job is to catch people doing something right. John Maxwell, one of my Christian business mentors, kept a list of his staff and ticked off when he delivered kind words of approval and appreciation in his team. Now that is being deliberate. And, it was never faked. It was always sincere. Use these three powerful tools as often as you can.

with people who have proven they don’t deserve your trust. Life is too short to do otherwise. First, point the finger inward and ask yourself if you are trustworthy. Do you always do what you say you will do without excuses or blame? Next, if you have untrustworthy staff, fire them! Right now! Have customers you can’t trust? Let them go to your competitor! Vendors you can’t trust? Find new vendors. Rid yourself of people who have proven they are not to be trusted.

2. Listen More Actively–We’ve all been in situations where

5. Set General Expectations and Guidelines–If you can only

someone was talking and as they spouted on we either were thinking about something else, or brainstorming in our mind our next reply. When you do that, it’s likely you miss a good portion of the message. Not only do you lose the message, but the speaker instinctually realized you are only half-engaged (if that) so may feel disrespected. Giving them less than full attention trivializes what they are saying. Practice active listening. Shut off your brain, look them in the eye and try to hear every word.

give someone 5 or 10 minutes of time, let them know that in advance. They can either agree to your timetable or offer to defer the meeting for a better time. In addition, let them know what you intend to cover or expect them to cover in that time.

6. Verbalize Specific Expectations–Whether with a staff

member, customer or vendor, don’t expect people to read your mind. People want to know what is expected of them. Whenever possible, set expectations verbally and then follow-up with written summarization and detail. One trick I learned from one of my business coaches was have the staff person do the written summarization rather than do it myself!

3. Summarize–People feel valued when they know you’ve

heard them, and the only way for them to know you accurately heard them is to summarize what they said. This is an excellent technique particularly whenever the person speaking, be they employee, customer or vendor, is dissatisfied or angry. Check in to see if you got their message correctly. And be prepared when you open that door for them to dump more on you! That’s OK!

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Check for Understanding– You’ve just given what you believe are perfectly clear instructions. However, what your listener heard and what you thought you said may be totally different! Next time you delegate, ask the person to summarize what you asked them to do and be sure both of you are on exactly the same page. 58

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BUSINESS MANAGEMENT

8. Use Delegation Midpoint Checks– Most petroleum CEOs

recommend us to a friend or associate?” are important questions to ask regularly. In fact, there is a whole science devoted to this now called “Net Promoter Score” that tracks how well you are doing.

complain of one particular thing when it comes to delegation– they don’t have a good follow-up system. There is nothing worse than finding out at the last minute that something you delegated and trusted to get done didn’t happen. When you delegate, especially to someone whose abilities are unknown or unproven, establish mid-point benchmarks and targets. Microsoft Outlook’s Task function is a fabulous tool for follow-up tracking so you don’t forget to check in. Use the reminders for specific interim benchmarks and you will never get another nasty, last minute surprise.

11.

Ask for solutions– It’s easy for people to whine, blame and criticize. You’ll reduce these energy-draining behaviors if you constantly ask for solutions. When someone comes to you for a decision or with a problem, lead with “what do you think we should do?” Create a culture of positive expectations.

12.

9. Provide feedback with FACTS– Believe it or not, every

Document– When difficult issues arise with people, employees, vendors, or customers, write down the situation and your response. When you see repetitive patterns, whether yours or theirs, take action immediately.

human being wants feedback about how they are doing. Especially when there are problems, stick to factual, observable, quantifiable behaviors. “Mr. Customer, 4 out of the last 5 payments you’ve made we received 10 days after our cutoff date.” That is far more powerful than telling them they are always late!

As I catapult all sizes and sectors of petroleum companies on to more cash and profits, especially lately with our M-Power™ business coaching, one thing is perfectly clear to me. Profit and cash are still all about the people–employees, customers and vendors. Conquer your people challenges, and you can conquer the world! n

10. Welcome and receive feedback– Simple things like,

“What do you need from me to do your job better?” or “Did we meet your expectations?” and ultimately, “Would you

Betsi Bixby A professional financial sharp shooter, Betsi is well known for the valuable knowledge and experience she brings to petroleum consulting. With an MBA in Corporate Finance and experience as a Former VP of Commercial Lending at a major regional bank, Betsi has been applying her extensive financial knowledge and experience to the petroleum industry for the better part of two decades.

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BUSINESS MANAGEMENT

Captive Insurance: The Best Option for Significant Savings After the Rate Increases of ATRA 2012 by Fred Whitaker The American Taxpayer Relief Act of 2012

has a very misleading name. While it provides certainty and generous credits for estate taxes, it raised rates across the board for income, capital gain and dividend taxes. Based on ATRA, our goal for 2013 is to manage your tax brackets for the current year and the long term. The best long term leveraging tool to reduce current taxation is the Captive Insurance Company–specifically, Internal Revenue Code Section 831(b) small insurance company captives. Think about risks you have in your business today for which you don’t purchase insurance. Is it credit risk in your accounts receivable? Or is it environmental contamination for upset/overturn and overfill greater than the mandatory endorsement to your commercial auto policy? Or perhaps it’s environmental contamination and clean up at your sites because the State UST fund is underwater or not paying claims and you need to cover the up-front costs? Whatever the risk, if a problem happens when you are self-insured, you are paying for it out of your pocket. An actuary can calculate from industry averages and your own history on what type of premium would be needed to really insure against such losses up to a certain level. Typically, you are self-insuring these risks today because the likelihood/frequency of claims is low and/or the premiums for coverage are really high, because claims could be catastrophic in size. But what would happen if you were the insurance company? If you own your own captive insurance company, the premiums you pay are going to you. It is a real insurance company. You will have to invest some capital to pay some costs for administration, and to purchase some reinsurance to plan for catastrophic claims. However, now you get a sizeable tax deduction for premiums paid, instead of paying tax on the money you leave in the business or distribute personally to cover these risks. It gets even better because the Section 831(b) small insurance company is allowed to receive up to $1.2mm per year in

premiums without paying any federal income tax on them. It only pays tax on the investment income (next month’s article will discuss investment scenarios). So, you now have a tax deduction to help you cover your self-insured risks and no income tax in your insurance company on the premium you sent it. So, what can you do or not do with all these tax efficient funds sitting in the captive insurance company? While you are not allowed to invest in or loan back to your operating business, there are a variety of investment strategies for the captive that should be customized to the business owner’s needs and goals. Investment opportunities include: • Income producing real estate or loans. • Income producing loans to customers and ancillary companies of the operating business. • Stock market, mutual funds, and other traditional investments. • Life Insurance Of these strategies—life insurance—is one that can work particularly well. Unlike other investments, the cash build up or FMNMagazine

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cash value crediting rate inside a life insurance policy is tax free. The proceeds can be borrowed from without being taxed, and, of course, the death benefit is tax free. Life insurance can be a double tax-free benefit for the owners of the captive. Since the premiums paid to the Captive are not taxed, but the investment income is taxed, tax free growth inside a life insurance policy can be very attractive. Also, it can be a tremendous estate tax planning tool. First, you should have the second generation own the Captive. The only use of the gift tax exemption might be the initial capitalization needed for licensing. The Captive will then receive income tax free premium income, moving $1.2mm of wealth each year to the second generation without a taxable gift. Second, if you buy a life insurance policy(ies) on one or more members of the second generation, the amount of premium allocated to the provision of a death benefit is much lower than if the first and older generation was insured. This saves most of the $1.2mm to build up in the cash value investment portion of the policy tax free. Usually, within two years the cash value at the crediting rate exceeds the premiums being put in. The

BUSINESS MANAGEMENT cash value continues to grow as invested and can be borrowed out as needed for the second generation’s schooling, housing, other needs and investments. It can even be used to pay the estate tax when the first generation passes away. There is instant tax free liquidity for the family’s use. If you compare this to the standard use of an Irrevocable Life Insurance Trust to have estate tax free liquidity, it saves $480,000 a year in gift tax, based on $1.2mm in premiums. Nothing beats the double tax efficiency of the captive. Now, how do we tax efficiently exit? When an insurance company has no claims and builds up too many reserves, it is required by law to do one of two things: provide return premiums to the insured or pay dividends to the shareholders. If we return premiums to your operating company, we inadvertently create taxable income where we previously took a deduction. That is not very efficient. It can work when you need cash back in the operating company and don’t mind the taxable income. The deferral of taxation has some value. However, the best exit strategy is to instead pay a dividend to the shareholders of the Captive. In the top income tax brackets under ATRA

2012, the Federal tax rate is 20%. You just took profits taxable at 39.5% Federal and paid no tax on them for several years, then took them out at almost 20% less in taxation. If the next generation is the owners of the captive, we have added succession to the exit by moving it without the 40% gift and estate tax. We also protected it from your creditors. The final exit/succession benefit is in the transition. If you intend to pass the operating company down to the next generation, the years of premiums depressing earnings have depressed the value, helping reduce estate and gift tax and/or lowering the sales price. If you intend to sell to a 3rd party, you can demonstrate the free cash flow from discontinued premiums, increasing the sale price. So you took out profits without tax, but can still harvest the value. Nothing in the current law beats captives for the amount of tax value. Captive insurance is a great form of risk management because it helps companies shelter taxable income, set aside funds in case of catastrophic losses and if all things work well, move wealth to the next generation in a tax efficient manner. n

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Fred Whitaker Fred is the managing partner of Cummins & White, LLP. He specializes in commercial transactions and corporate governance and has a keen understanding of the petroleum industry. During his career, he was vice president and general counsel of SC Fuels in Orange, Calif., and later became chief operating officer of their Northwest Division. Whitaker is a member of Society of Independent Gasoline Marketers of America (SIGMA) and California Independent Oil Marketers (CIOMA). Contact: fwhitaker@cwlawyers.com

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INDUSTRY NEWS accidentally drives away with the nozzle still in the tank, the spout is designed to detach from the nozzle. This system allows for a quick repair by merely fitting a new spout on the nozzle. For more information, please visit www.piusiusa.com

Piusi USA Unveils the Piusi Three25 DEF Tote Pump Kit Piusi USA announces that they have developed a new, turnkey, DEF dispensing system that safely dispenses DEF fluid and prevents the possible contamination of the DEF fluid. This newly designed kit features our latest SB325 nozzle with break-away stainless steel spout, revolutionary AdBlue® 3D DEF filter, original Piusi Dispense Coupler (PDC) and more! With a fortified new mounting bracket and updates such as crimped DEF hose, this kit brings a whole new way to dispense DEF. Our innovative AdBlue® 3D Filter, misfilling spout and breakaway system are the first of their kind in the DEF industry. The main cause of fluid contamination occurs during the filling and transferring process. Our AdBlue® 3D Filter prevents the possible contamination and in turn allows for an extended life of the catalyst by using a highly efficient mechanical filtration element composed of incremental technopolymer specifically developed for the AdBlue® 3D Filter. The Piusi Three25 is equipped with the SB325 automatic nozzle. The new nozzle features a sleek, innovative technopolymer design that is reliable, ergonomic, and has a flexible shell that protects it from weathering and UV radiation. The SB325 nozzle is also available with a built-in electronic turbine meter. The spout is used in conjunction with our Piusi Magnetic adaptor to prevent a potential mis-fill. If the magnetic adapter is not in that allocated tank then the nozzle will not engage. Safety is also guaranteed by the breakaway system. In the event that a vehicle

VP Racing Fuels Named ‘Official Fuel’ of PDRA Speedy Q Markets Chooses PriceAdvantage for SMART Fuel Pricing PriceAdvantage, a division of Skyline Products, has announced that Speedy Q Markets is now using PriceAdvantage SMART Fuel Pricing as their fuels price management solution. Speedy Q Markets uses PriceAdvantage SNAP Analytics to analyze store and market performance, including volume and margins, compared to target goals. Their PriceAdvantage implementation resides “in the cloud” and includes the complete roundtrip retail fuel price change process with confirmation to the store and back, technology patented exclusively to Skyline Products as PriceAdvantage SMART Fuel Pricing™. PriceAdvantage SMART Fuel Pricing™, patented technology licensed exclusively to Skyline Products, is a highly specialized retail fuel pricing solution for the convenience store industry. Designed to maximize fuel profits, PriceAdvantage provides automation for the entire fuel pricing process from collection of competitive surveys, to sophisticated analysis for best price determination, to rapid speed-to-the-street price change execution with price change confirmation feedback. For more information, please visit www.sellmoregas.com

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The recently formed Professional Drag Racers Association (PDRA) has named VP Racing Fuels as the “Official Fuel Supplier” for the all-eighth-mile drag racing series. In addition, VP Racing Fuels will sponsor a low qualifier award for extreme pro stock at each of eight scheduled PDRA events this year. PDRA race teams also can look forward to seeing a VP Racing Fuels truck providing exclusive on-site sales at each PDRA event. PDRA Race Director Bob Harris said VP Racing Fuels also will provide spec fuels this season for the Extreme Pro Stock class, though specific blends have not yet been confirmed. Tech questions regarding VP fuels can be directed to VP Tech Support at 812-8782025 or dragtech@vpracingfuels.com. To learn more about VP Racing Fuels, visit them online at www.vpracingfuels.com. For more information, please visit www.PDRA660.com

OPW Introduces NGVLB Vent Line Breakaway for CNG Fueling Applications OPW, a Dover Company and a global leader in fluid-handling solutions, is proud to announce the availability of the new NGVLB Model CNG Vent Line Breakaway, which is a direct upgrade and replacement for OPW’s VLB Vent Line Breakaway.

INDUSTRY NEWS

The NGVLB is an in-line breakaway that fits into the vent-side of the CNG fueling hose. The NGVLB’s main operational advantage for the CNG-handler is that it is pressure-balanced to 18,129 psi (1,250 bar), which eliminates nuisance separation due to pressure surges in the CNG dispensing system during the venting sequence of the fueling operation. The NGVLB is designed for use in conjunction with any of OPW’s family of high-pressure Fill Line Breakaways in CNG applications at service pressures up to 3,600 psi (250 bar). Because of a similar length to the VLB model, it is quick and easy for operators to perform a like-for-like replacement with the NGVLB model. The body and internal components of the NGVLB are constructed of stainless steel with specially formulated seals, which provide improved performance, durability and corrosion-resistance when used in harsh operating environments and at temperatures between -40ºF and 185ºF (40ºC to 85ºC). In the event of a drive-away incident, the NGVLB is reconnectable without tools, which means it can be reused, resulting in reduced maintenance costs. The NGVLB’s passive design also allows pressure to move freely through the vent line, which allows for smoother disconnection of the CNG nozzle. If a drive-away incident does occur, the NGVLB separates with only 15 pounds of disconnection force. If repairs are required, NGVLB seal and spring replacement kits are available for in-thefield maintenance. For more information, please visit www.OPWGlobal.com

Atlas Oil Launches FuelonDemand Pricing Portal Atlas Oil Company has launched a new fixed price portal giving customers visibility into real time pricing in any region, from any terminal. Customers will now have the ability to execute fixed price contracts at their desired price point. The portal is being rolled out in phases. The first phase includes customers in Texas, Oklahoma and parts of Michigan.

Phase two will expand the offering to customers in Kansas, Missouri, Nebraska and Iowa by mid-February. We anticipate that by March 31, the portal will be offered to all other sales markets. The Atlas FuelonDemand portal is available during Nymex hours (7 a.m. – 4 p.m. Central; 8 a.m. – 5 p.m. EST). With this tool, customers can set up alerts or triggers when prices reach desired levels. In addition, customers will have access to physical inventories in specific markets, allowing for the execution of "day" deals. The portal is available in both desktop and mobile applications, giving customers flexibility and ease of use. In addition, customers who require delivered fuel can have access to delivered prices at their fingertips. For more information, please visit www.atlasoil.com

Husky® is now the one stop Source for Curb & Whip Hose Customers Husky Corporation fuel hose swivel assemblies now carry certification from UL, the independent agency that tests and validates products for safety. The designation makes Husky the one-stop source for fuel dispensing customers seeking UL certified and U.S. manufactured hanging hardware and fuel hoses. UL Certified Swivel Assemblies for Hardwall and Wirebraid Fuel Hose Swivel Hose Assembly models CP 12 (for 3/4 inch fuel hose) and CP 16 (for one-inch fuel hose) comply with all applicable UL safety requirements for use with hardwall or wirebraid curb hose and whip hose. UL sets the safety standard for customers. Certification is required for dispenser equipment on the fuel island at gas stations. FMNMagazine

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Husky swivel hose assemblies are available for hardwall or wirebraid fuel hose in any length and are manufactured with a chrome-plated finish. See swivel whip hose assembly details at http://www.husky.com/husky/huskyhoses/whip-hoses/. Swivel couplings are not available for softwall fuel hose. For more information, please call 800.325.3558.

Gilbarco Veeder-Root Acquires Outcast Media Gilbarco Veeder-Root, a worldwide leader in retail petroleum technology, has announced that it has reached a definitive agreement to acquire Outcast Media. Outcast will operate as the media business unit of Gilbarco, putting the combined company in a unique position to create the largest network of one-toone TV experiences for the on-the-go consumer. Gilbarco’s Applause™ TV delivers high entertainment value to keep consumers coming back and effective advertising content to grow awareness and retail sales. Retailers will benefit from the acquisition as Gilbarco and Outcast introduce new forms of media designed to grow c-store sales and enhance a consumer’s experience while fueling. This deal will fuel growth of Outcast’s national network currently reaching a monthly audience of 36 million viewers measured by Nielsen, which rivals the delivery of top broadcast TV shows. The network will now have more immediate access to Gilbarco’s customer base of over 60,000 retail fueling stations and will grow to more than 100 million monthly viewers over the next two years. For more information, please visit www.gilbarco.com

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ADVERTISERâ&#x20AC;&#x2122;S INDEX

Our Advertisers Company

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Airtab

BlueSky DEF

Blue1USA

Bottom Line of MN

Colder Products Company Dennis K. Burke Diesel Direct

FireStream WorldWide Fluidall

Formashape FPPF

GEMRIK USA, LLC

The Gorman-Rupp Company Hightowers Petroleum

Innospec Fuel Specialties

Lightning Eliminators & Consultants, Inc. The Lubrizol Corporation

Matrix Capital Markets Group, Inc. MID:COM

MidContinental Chemical Company Patriot Capital PIUSI

Renewable Energy Group

Schaeffer Manufacturing Company Scully Signal Company

SIMMONS Corporation SSCS

Stanadyne Corporation Trinium Technologies ValvTect Petroleum

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Inside Back Cover 34-35 27 25 59

28-29 61 5

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