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Document Number: 

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Docket Number: 

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eia The U.S. Petroleum Refining 

and Gasoline Marketing 

Industry: 

- 1 - / 

J / 

MAR - 6 2C0I 

EPA AIR DOCKET 

Update of Selected Tables and Figures Available 

Overview of Domestic Petroleum Refining and Marketing 

The U.S. refining and marketing industry has been characterized by unusually low product margins, 

low profitability, selective retrenchment, and substantial restructuring throughout the decade ofthe 

1990's. Costs involved in complying with environmental laws have grown substantially during the 

period and have also affected the profitability ofthe domestic industry. (Note 1) Profitability 

(measured by rate of return on investment) from the refining operations of domestic petroleum 

companies has varied widely, even before the 1990's (Figure 1). Consequently, refiners' abilities to 

recoup their investment have been impaired. 

However, the profitability of U.S. refining and marketing during 1997 was the highest since 1989, 

when the return on investment from these operations last exceeded 10 percent (Figure 1). Refiners 

were able to achieve their high level of profitability partly because of events of 1997 (such as lower 

energy costs) and partly because of efforts and developments over the last several years (such as 

lower marketing costs). (Cost-cutting through a number of downstream mergers, as well as the 

formation of a number of downstream alliances and joint ventures, also underlie the current 

profitability in downstream operations. For a more extensive discussion of these developments, see 

the section entitled "Recent Structural Changes in U.S. Refining: Joint Ventures, Mergers, and MegaMergers.") 

The experience ofthe majors illustrates financial developments in U.S. refining and marketing. The 

average price received by the U.S. majors for refined petroleum products fell by 4 percent between 

1996 and 1997. Motor gasoline prices registered a slight 1-percent decline,-with most ofthe overall 

refined products price decline attributable to other products. (Note 2) This pattern of price change 

reflected the relatively greater growth in demand for transport fuels, due to generally strong economic 

growth, and a drop in demand for heating fuels, due to mild winter weather in 1997. (Note 3) 

In total, the U.S. majors more than survived these price reductions and the resulting reduction in their 

revenues as their costs of purchased materials and products (mainly crude oil costs) fell by more than 

the overall decline in refined product prices. Consequently, gross margins (refined product revenues 

less raw material and product purchases divided by refined product sales volume) were substantially 

higher in 1997 than in 1996 and were the highest since 1992 (after adjusting for inflation). (Note 4) 

Although gross margins were at their highest level since 1992, the primary reason that net refined 

product margins (petroleum product revenues minus all out-of-pocket refining and marketing 

expenses divided by refined product sales volume) were so high during 1997 was that majors also 

reduced their operating costs by 6 percent between 1996 and 1997. This reduction was part of a 

longer-term trend. All categories of operating costs (such as marketing, energy, and other costs to 

operate refineries) have been reduced since 1990, a stated goal ofthe U.S. majors for several years 

including 1997. (Note 5) 

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Marketing costs were reduced by 28 percent between 1990 and 1997 and by 5 percent during 1997 

(Table 1). The reduction in marketing costs is partially due to many ofthe U.S. majors divesting 

themselves of their credit card operations and undertaking other cost reduction efforts during the 

1990's. (Note 6) Additionally, the U.S. majors reduced their number of branded outlets by 34 percent 

over the same period of time, becoming more regional in their approach to marketing, a move that led 

to reduced expenses. 

The U.S. majors reduced energy costs by 24 percent between 1990 and 1997 and by almost 6 percent 

between 1996 and 1997. Many of these are utilizing cogeneration to provide at least some of their 

electricity needs. (Note 7) Thus, although the gross refined product margin fell by 21 percent between 

1990 and 1997, the net refined product margin increased by almost 1 percent over the same period 

because ofthe substantial reduction in costs (Table 1). (Note 8) 

In total, the U.S. majors' refined product margin increased by almost 70 percent between 1996 and 

1997. Although the refined product margin increased for all groups of U.S. majors (ranked by the size 

of total energy assets), the largest U.S. majors led with an increase of 108 percent. The group of 

smallest companies closely followed the group of largest companies with an increase of 76 percent. 

Trailing was the group of mid-sized companies, which had an increase of 33 percent. (Note 9) 

Upgrading Capacity: Sophisticated Refiners 

May Buy Low, Sell High 

Starting in the late 1970's and continuing to the present, the U.S. majors have invested heavily in 

their refineries in order to utilize heavier, more sulfurous crude oils as inputs. Over the same period, 

the U.S. majors have invested in upgrading their refineries to produce greater proportions of lighter, 

higher valued products, particularly motor gasoline (Table 2). The actual returns to these investments 

depend not only on the levels of input and product prices, but also can be strongly affected by the 

differences in prices of light and heavy petroleum products and high and low quality crude oils. 

A refinery with a large capital investment directed toward processing lower quality crude oils will do 

better financially than less versatile refineries when the difference in price between high quality crude 

oils and low quality crude oils is large. Similarly, a refinery that has been upgraded to produce a 

larger yield of light products will do better than a less sophisticated refinerx_when the difference 

between lighter products (e.g., motor gasoline) and heavier products (e.g., residual fuel oil) is large. 

Part ofthe reason for the uptick in profitability in 1997 appears grounded in the refinery upgrades 

that the U.S. majors have made. The upgrades have increasingly enabled the U.S. majors to process 

relatively lower quality crude oil. In 1996 and 1997, the spread between high quality and low quality 

crude oil increased, reversing a prior five-year trend (Figure 2), a move that generally favored the 

majors' typically upgraded refinery. 

The upgrades also resulted in proportionately more valuable light products as well as greater 

quantities through the addition of downstream processing units such as catalytic cracking and 

catalytic reforming units. (Note 10) The difference between the selling price for light products and 

the selling price for heavier products (Note 11) has increased over the past few years after narrowing 

during the early 1990's (Figure 3). (Note 12) The increase in quality price spreads from 1995 to 1997 

has favored upgraded refineries and contributed to the recent upswing in the profitability ofthe U.S. 

majors' U.S. refining/marketing operations. 

Further impetus to upgrade the refineries ofthe U.S. majors has been provided by the creation of joint 

ventures with several non-U.S. producers of crude oil. Venezuela's Petroleos de Venezuela, S.A. 

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(PdVSA), Mexico's PEMEX, (Note 13) and, more recently, Norway's Statoil (Note 14) have allied 

themselves with U.S. refiners. For example, Coastal Corporation and PdVSA formed a joint venture 

to operate Coastal's Corpus Christi refinery. (Note 15) The refinery will process heavy crude 

produced in Venezuela by the joint venture. (Note 16) Similarly, Phillips Petroleum plans to 

construct a 58,000-barrels-per-day (b/d) coker unit and related facilities in Venezuela to allow heavy, 

sour Venezuelan crude to be upgraded (i.e., transformed into lighter crude oil). In addition to making 

a long-term agreement to provide crude oil to the refinery, in some cases crude oil producers have 

provided a portion ofthe funding for refinery upgrades needed to enhance the refiner's ability to 

manufacture light petroleum products. (Note 17) (See the section "Recent Structural Changes in U.S. 

Refining: Joint Ventures, Mergers, and Mega-Mergers" for a more extensive discussion ofthe recent 

wide use of joint ventures in U.S. petroleum refining.) 

Domestic refinery capacity has also expanded through conventional projects (e.g., adding a catalytic 

cracking unit) and through debottlenecking (Note 18) investments, which are marginal investments 

that increase throughput and thereby effectively create additional refining capacity from the same 

physical structure. The additional capacity gained through debottlenecking is termed "capacity 

creep." (Note 19) Total U.S. crude oil distillation capacity has increased substantially since 1990 (by 

more than 340,000 b/d) as a result of both conventional investments and debottlenecking 

investments. This capacity expansion was achieved even with the closing of 41 refineries with more 

than 1.1 million b/d of crude distillation capacity (Table 3). As a result, capacity per operating 

refinery increased by 28 percent (to 97,060 b/d) over the 1990 to 1998 period. 

Environmental Issues and Costs 

Refining investment in recent years has been driven largely by the environmental requirements ofthe 

Clean Air Act Amendments of 1990 (CAAA90). The CAAA90 required a phased reduction in 

vehicle emissions of regulated pollutants, met primarily through the use of reformulated gasoline. 

Phase 1 of CAAA90 required refiners to produce oxygenated gasoline by November of 1992. Lowsulfur diesel fuel was required by October 1993. By January 1,1995, reformulated gasoline had to be 

available. Thus, consistently through the first half of the 1990's, domestic refiners were faced with 

deadlines for new products requiring new capital investment. 

Since reaching a decade peak in 1992 of $5.2 billion, domestic refining capital expenditures by the 

major U.S. oil companies have fallen an average of 15 percent per year, reaching the decade's low 

point in 1996 at $2.1 billion. Correspondingly, investment related to pollution abatement also peaked 

in 1992 and has since declined, according to information from the American Petroleum Institute. 

(Note 20) 

Nonetheless, compliance with environmental regulations will most likely continue to affect domestic 

refiners. One recent environmental restriction affecting the U.S. downstream petroleum industry was 

the December 22,1998 deadline for upgrading or replacing underground storage tanks installed at 

marketing outlets prior to December 22,1988. (Note 21) Although the Environmental Protection 

Agency (EPA) issued the regulation in 1989, an estimated 20,000 outlets (Note 22) (about 11 percent 

of total U.S. outlets according to the latest National Petroleum News survey (Note 23)) had not 

completed the necessary work by the December 22,1998 deadline. A grace period announced by 

EPA just prior to the deadline has led to criticism by some trade associations and created uncertainty 

concerning the end ofthe grace period as well as what, if any, penalties will be assessed for noncompliance. (Note 24) 

Two other significant environmental considerations facing U.S. refiners are Phase 2 CAAA90 

reformulated motor gasoline (RFG) requirements and the growing public opposition to the use of 

methyl tertiary butyl ether (MTBE). In order to meet Phase 2 RFG requirements U.S. refiners will 

incur numerous expenses and make substantial investment (see "Demand and Price Outlook for 

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Phase 2 Reformulated Gasoline, 2000" for a more extensive discussion ofthe effects of these 

requirements). 

MTBE is an additive that increases the oxygen content of motor gasoline, causing more complete 

combustion ofthe fuel and less pollution. A relatively inexpensive way for petroleum refiners to meet 

Phase 1 CAAA90 RFG requirements was to blend MTBE into the motor gasoline. Since late March 

1999 California's governor has called for a 3-year phase-in of a ban on the use of MTBE (Note 25) 

and U.S. representatives and senators from California and New Jersey have proposed similar Federal 

legislation (Note 26). If MTBE were banned in California and other states, the effects could be 

widespread and highly variable. For example, California motor gasoline prices could increase 

substantially as more costly alternatives to MTBE are utilized, which at least initially will be 

imported from other regions ofthe United States, exposing California to production and price 

variability from those regions (Note 27). 

Another interesting development related to the environment is the announcement of two partnerships 

between major U.S. oil companies and U.S. auto manufacturers to "... develop cleaner and more 

efficient fuels." (Note 28) The partnerships will focus on improved conventional fuels in addition to 

alternate fuels such as fuel cells and natural gas. 

Recent Structural Changes in U.S. Refining: Joint 

Ventures, Mergers, and Mega-Mergers 

Joint ventures are one ofthe mechanisms that the major U.S. oil companies (U.S. majors) have used 

to consolidate their downstream (Note 29) petroleum operations. Such deals may provide these 

companies with a way of reducing their costs by sharing assets and operations without some ofthe 

problems of a full-scale merger ofthe two companies involved. (In addition to forming downstream 

joint ventures and alliances in the United States, some ofthe U.S. majors also are forming alliances 

abroad. (Note 30) 

The largest of recently completed domestic joint ventures combines the U.S. refining and marketing 

assets of Texaco, Star Enterprise (a joint venture between Texaco and Aramco, the Saudi Arabian 

state oil company), and Shell Oil (the U.S. subsidiary of Royal Dutch/Shell). The joint venture was 

announced in late 1996 and resulted in the creation of two companies, Equilon Enterprises L.L.C. and 

Motiva Enterprises L.L.C. (in January and May, 1998, respectively). Equilon consists ofthe 

companies' western and midwestern U.S. operations as well as their nationwide trading, 

transportation, and lubricants businesses. (Note 31) Part ofthe consent agreement with the U.S. 

Federal Trade Commission reduced Equilon's assets. (Note 32) In particular, Texaco agreed to sell 60 

retail outlets in southern California and Hawaii (Note 33) and Shell Oil agreed to sell its Anacortes, 

Washington refinery (108,200 barrels per day (b/d) capacity). (Note 34) Motiva consists ofthe 

companies' eastern and Gulf Coast U.S. operations (with the exception of Shell's Deer Park, Texas 

refinery, which also is operated as a joint venture between Shell Oil and the state oil company of 

Mexico, Petroleos Mexicanos). 

The resulting ventures has combined assets with a book value of approximately $10 billion. Equilon 

has 7 refineries with a total crude oil distillation capacity of approximately 846,000 b/d and slightly 

more than 9,000 retail outlets in 32 states. Motiva has 4 refineries with a total crude oil distillation 

capacity of 819,000 b/d and almost 14,000 retail outlets in 27 states. (Note 35) Overall, the TexacoStar-Shell alliance is anticipated to reduce the aggregate operating costs ofthe companies by $800 

million annually. (Note 36) 

As of January 1,1998, USX-Marathon Group, a subsidiary ofthe USX Corporation, and Ashland 

Oil, an affiliate of Ashland Inc., merged their downstream assets into a joint venture (called Marathon 

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Ashland Petroleum L.L.C). USX-Marathon Group is operating the joint venture and is the majority 

partner with a controlling interest of 62 percent. (Note 37) The venture has a combined refining 

capacity of 924,300 b/d (Note 38) and more than 3,000 retail outlets. (Note 39) The joint venture is 

anticipated to result in savings of $200 million annually in operating costs. 

Other joint ventures are more limited in their scope, involving a single refinery with each partner 

having a 50-percent share ofthe venture. As with the larger ventures, they too are aimed at reducing 

costs either through reducing or eliminating redundancies, reducing logistical costs, or reducing 

unused capacity. 

Amerada Hess and Petroleos de Venezuela, S.A. (PdVSA), the state oil company of Venezuela, 

formed a refinery joint venture in 1998. Hess provided its St. Croix, Virgin Islands 495,000 b/d 

refinery, (Note 40) receiving $62.5 million in cash and a 10-year note in the amount of $562.5 

million. A delayed coking unit will be constructed at the refinery. The resulting joint venture 

company, Hovensa L.L.C, signed a long-term supply contract with PdVSA under which it will 

receive 155,000 b/d of Venezuelan crude with another 115,000 b/d of heavy Venezuelan crude after 

the delayed coking unit is completed. (Note 41) 

Mobil and Citgo (the wholly-owned U.S. affiliate of PdVSA) formed a joint venture during 1997 to 

operate Mobil's Chalmette, Louisiana refinery beginning in 1998. Mobil contributed the 159,000 b/d 

refinery (Note 42) and PdVSA will contribute at least part ofthe crude oil processed at the refinery. 

(Note 43) 

Along the same lines, in late 1998 Phillips Petroleum and PdVSA finalized a refinery joint venture 

involving Phillips' 200,000 b/d Sweeny, Texas refinery. (Note 44) Phillips and PdVSA will each own 

50 percent of a $450-million, 58,000 b/d coking unit scheduled to be operational by the end of 2000. 

The unit upgrades the refinery's ability to process heavy crude oil. (Note 45) Additionally, PdVSA 

will supply as much as 165,000 b/d of heavy Venezuelan crude oil for processing at the refinery. 

With the announcement of two mega-mergers, the year 1998 was one ofthe more eventful years in 

U.S. petroleum history. The first was the acquisition ofthe U.S.-based Amoco Corporation by the 

UK-based British Petroleum, resulting in the creation of BP Amoco p.l.c, at the time the secondlargest oil company in the world behind Royal Dutch/Shell. However, if the second merger, Exxon's 

acquisition of the Mobil Corporation (both U.S.-based companies), is approved by regulatory 

authorities, it will result in the creation of world's largest oil company. 

The merger of BP and Amoco was approved on December 30,1998 by the U.S. Federal Traded 

Commission, subject to a consent agreement. The consent agreement required the sale of 9 terminals 

and 134 retail outlets, mostly in the southeastern United States, and guaranteed 1,600 independent 

branded outlets the opportunity to change brands should they wish. BP stockholders received 

ownership of 60 percent ofthe resulting company, BP Amoco p.l.c. (Note 46) The two companies 

produced a total of 1.89 million barrels of crude oil and natural gas liquids (3 percent of world 

production (Note 47)) and 5.66 billion cubic feet of natural gas (7 percent of world production (Note 

48)) per day during 1997. Also during 1997 the merging companies sold 4.5 million barrels per day 

of petroleum products through 27,200 outlets worldwide (15,960 of which were in the United States 

and constituted 9 percent of all domestic motor gasoline retail outlets (Note 49)). The companies 

reported combined revenues of $108 billion and net income of $7.3 billion from assets valued at $53 

billion. (Note 50) 

On December 1,1998, Exxon announced that it had signed a merger agreement with Mobil that 

would create the world's largest oil company with $80 billion of assets. The two companies had joint 

revenues of $203.1 billion during 1997, resulting in net income of $11.8 billion. The companies had 

worldwide crude oil and natural gas liquids production of 2.5 million barrels (Note 51) (3 percent of 

world production (Note 52)) and 10.9 billion cubic feet of natural gas production per day (14 percent 

of world production (Note 53)). Also during 1997 the two companies sold 8.7 million barrels per day 

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of petroleum products through 48,500 motor gasoline retail outlets (15,900 of which were in the 

United States and amounted to 9 percent of all domestic motor gasoline retail outlets (Note 54)). 

In addition, during 1997 and 1998 substantial mergers have occurred between independent refiners 

and marketers in the United States, and the resulting companies also appear to be interested in 

pursuing joint ventures. For example, in October 1998 the independent refiner/marketer Ultramar 

Diamond Shamrock (UDS), which acquired Total Petroleum North America in 1997 (including 3 

refineries and more than 2,100 marketing outlets), announced a joint venture with Phillips Petroleum. 

(Note 55) However, the venture was abandoned in March 1999 when the firms could not reach 

agreement on the final terms. (Note 56) This effort represented Phillips' second unsuccessful attempt 

to form a downstream joint venture. In 1996, Phillips' attempt to form a downstream joint venture 

with DuPont/Conoco was thwarted, as the companies were unable to agree on the value ofthe assets 

each would contribute to the venture. (Note 57) 

Thus, as the 1990's draw to a close, distinctions in downstream petroleum operations between the 

majors and the independents are substantially less than at the outset ofthe decade. (See the section 

"U.S. Downstream Independents Acquire National Prominence" for more extensive discussion ofthe 

reduced differences between the U.S. majors and independent refiners.) 

Consolidation of Marketing Operations 

Gasoline marketing in the United States has undergone dramatic changes over the past 15 years. The 

major U.S. oil companies have refocused their marketing operations, narrowing their focus to those 

regions in which they have had the most success, i.e., the greatest profitability or the greatest market 

share. 

The average decline in states of operation per major oil company was from 32 states in 1984 to 23 

states in 1997, a decline of 28 percent. However, this decline is only part ofthe consolidation story, 

as the majors also have substantially fewer branded outlets. The majors' branded outlets declined 

from 92,344 in 1984 to 33,753 in 1997, a 63-percent decline. (Note 58) The 5-percent average annual 

decline in the number ofthe majors' branded outlets between 1991 and 1997 was much greater than 

the 2-percent average annual decline in the total number of U.S. gasoline stations (regardless of 

ownership) between 1991 and 1997. (Note 59) In other words, as a result of consolidating and 

refocusing their gasoline marketing efforts, the majors have closed gasoline stations at a rate more 

than twice as fast as the national average. •*•*• 

In contrast to the majors, foreign-owned and independent refining and marketing companies have 

expanded their scope of operations, either through the acquisition of refineries, outlets, or both. For 

example, Citgo, a wholly-owned subsidiary ofthe Venezuelan state oil company PdVSA, has 

expanded its operations from 31 states in 1984, just prior to its 1986 acquisition by PdVSA, to 48 

states in 1997, an increase of 55 percent. Similarly, the Connecticut-based Tosco has gone from retail 

operations in no states in 1990 (they only had wholesale operations) to 37 states in 1997. (Note 60) 

(See the section "U.S. Downstream Independents Acquire National Prominence" for a more extensive 

discussion ofthe expansion of foreign-owned and independent U.S. refiners during the 1990's.) 

U.S. Downstream Independents Acquire 

National Prominence in the 1990's 

Significant Redistribution of Refining Assets 

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Due to a long period of low profitability in the refining/marketing line of business, the U.S. majors 

began a process during the 1990's of selective refining/marketing divestiture. In 1990, the U.S. 

majors (including their joint ventures) held 72 percent of U.S. refining capacity. The independent 

refiner/marketers who pursued acquisition growth strategies in the 1990's (the "fast-growing 

independent refiners") then held only 8 percent of domestic capacity, with 20 percent being held by 

all other refiners. By October 1998, the U.S. majors' share of domestic crude distillation capacity had 

fallen to 54 percent (60 percent including their joint ventures), and the fast-growing independent 

refiners had earned their name by increasing their share to 23 percent, an almost threefold increase. 

The remaining capacity (18 percent) is still held by all other refiners (Figure 4). 

The majors' divestitures of downstream assets created opportunities for smaller, independent U.S. 

refiner/marketers to acquire domestic refineries and petroleum marketing outlets and to move into 

market areas formerly dominated by the U.S. majors. (For the purposes ofthis discussion, an 

independent refiner/marketer is one that has no significant crude oil production.) 

The first independent to acquire a refinery from a U.S. major was Tosco Corporation, who acquired 

Exxon's 200,000 b/d Bayway, New Jersey refinery in April 1993. (Note 61) Several other 

independents subsequently pursued a similar acquisition and growth strategy. As a result, a large 

amount ofthe U.S. majors' refining and marketing assets changed hands in the 1990's. 

An examination ofthe data indicate that the U.S. majors have added some capacity to the refineries 

that they retained, and other capacity gains have been made by the same independent 

refiner/marketers who undertook a growth strategy in the 1990's. Among independent refiners, 

growth has been largely concentrated in the following group of companies: Citgo/PDV America, 

Clark Refining and Marketing, Ultramar Diamond Shamrock, Koch Industries, Tesoro Petroleum, 

Tosco Corporation, and Valero Energy (Figure 5). (Note 62) As a group, these companies owned 12 

refineries with a combined refining capacity of slightly more than 1.3 million barrels per day in 1990, 

about 8 percent of total U.S. refining capacity. (Note 63) By October 1998, the companies owned a 

total of 29 refineries with a combined refining capacity of approximately 3.7 million barrels per day, 

about 23 percent of total U.S. refining capacity (Figure 4). (Note 64) 

The near tripling ofthe refining capacity ofthis group was largely accomplished through acquisition 

of refining capacity (88 percent), 66 percent of which was acquired from the U.S. majors (Table 4). 

Acquisitions by Tosco (since April 1993) include six refineries from the majors (Exxon-1, BP-2, and 

Unocal-3) with a total refinery capacity of 747,000 barrels per day (b/d). Since the 1996 merger of 

Ultramar with Diamond Shamrock, (Note 65) the resulting company (Ultramar Diamond Shamrock) 

has acquired Total Petroleum's distillation capacity of 141,600 b/d. (Note 65) UDS also attempted to 

gain control of Phillips Petroleum's 345,000 b/d capacity through the formation of a new UltramarPhillips joint venture, Diamond 66. (Note 67) However, agreement by both companies on the final 

terms ofthe venture could not be reached and the venture was abandoned in March 1999. The rate of 

refining capacity acquisition in the United States was especially high during 1998, as thirty-three 

percent ofthe capacity acquired between 1991 and 1998 was acquired during 1998 alone. 

Gasoline Marketing Operations Also Redistributed 

Not only has the crude distillation capacity ofthe fast-growing independent refiners grown markedly 

since 1990, so too has their presence in gasoline retailing, as measured by number of motor gasoline 

retail outlets. In contrast to the U.S. majors, the fast-growing independent refiners have expanded 

their scope of operations, both through acquiring and building new outlets. The number of branded 

outlets ofthe fast-growing independent refiners nearly doubled from 1990 to 1997, to 25 thousand 

(Table 5). Rather man consolidating the geographic scope of their gasoline marketing networks (the 

concentration strategy pursued by the majors), the fast-growing independent refiners have expanded 

their scope. For those independent refiners owning gasoline outlets in 1997, the average number of 

states in which they retail gasoline increased from 14 states in 1990 to 24 states in 1997. 

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Recent gasoline marketing acquisitions by independents include Tosco, which has added 

approximately 2,000 outlets (632 from BP and 1,317 from Unocal) since April 1993. Additionally, in 

1996 Tosco acquired the Circle K convenience store chain and its 1,900 gasoline outlets. Prior to this 

acquisition, Tosco had owned relatively few convenience store operations. Also, the 1996 merger of 

Ultramar (which had 420 outlets in California in late 1996) and Diamond Shamrock (which had 

1,324 retail outlets in eight different Midwestern States) merged with Ultramar created Ultramar 

Diamond Shamrock (UDS). Since then, UDS has acquired Total Petroleum (with a total of 560 

outlets), (Note 68) but failed in attempts to create joint ventures with Petro-Canada in 1998, and with 

Phillips Petroleum in 1999. (Note 69) Despite these two recent setbacks, the significance of UDS 

and, more generally, the group of fast-growing independent refiner/marketers in the U.S downstream 

petroleum industry has become greater during the 1990's. 

Neal C Davis, Energy Information Administration, April 1999 

For information on EIA forecasts for the years 1999 and 2000, see the projections in EIA's ShortTerm Energy Outlook. Longer-term forecasts can be found in EIA's Annual Energy Outlook 1999 and 

International Energy Outlook 1999. 

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This document was prepared by the Energy Information Administration (EIA), the independent 

statistical and analytical agency ofthe Department of Energy. The information herein should not be 

construed as advocating or reflecting any policy position ofthe Department of Energy or any other 

organization. 

Related EIA Documents 

See Energy Information Administration, "The U.S. Petroleum and Natural Gas Industry" (June 28, 

1999), for a review ofthe domestic upstream petroleum industry. 

Energy Information Administration, Annual Energy Review 1997, DOE/EIA-03 84(97) (Washington, 

DC, July 1998). 

Energy Information Administration, "Financial Performance: Low Profitability in U.S. Refining and 

Marketing," (November 3,1997). 

Energy Information Administration, "The Impact of Environmental Compliance Costs on U.S. 

Refining Profitability," (November 3,1997). 

Energy Information Administration, International Energy Annual 1997, DOE/EIA-0219(97) 

(Washington, DC, April 1999). 

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Energy Information Administration, Performance Profiles of Major Energy Producers 1997 (pdf 

format) (DOE/EIA-0206(97)) (Washington, DC, January 1999). 

Energy Information Administration, Petroleum Supply Annual 1997, Volume 1, DOE/EIA-0384 

(97/1) (Washington, DC, June 1998). 

Energy Information Administration, Petroleum Supply Annual 1996, Volume 1, DOE/EIA-0384 

(96/1) (Washington, DC, June 1997). 

Energy Information Administration, Privatization and Globalization of Energy Markets (DOE/EIA0609) (Washington, DC, October 1996). 

Energy Information Administration, "Why Do Motor Gasoline Prices Vary Regionally? California 

Case Study," (June9,1998). 

Endnotes 

1. See "Financial Performance: Low Profitability in U.S. Refining and Marketing," for a more 

complete discussion of domestic refining and marketing profitability over the last several 

years. 

2. Energy Information Administration, Performance Profiles of Major Energy Producers 1997 

(pdf format), DOE/EIA-0206(97) (Washington, DC, January 1999), Table 12. 

3. Energy Information Administration, Short-Term Energy Outlook (pdf format) (April 8,1999), 

Table A2. 

4. Energy Information Administration, Performance Profiles of Major Energy Producers 1997 

(pdf format), DOE/EIA-0206(97) (Washington, DC January 1999), Figure 13. 

5. For example, see Exxon Corporation, Annual Report 1997, (October 25 1998), pp. 1 and 3; and 

Coastal Corporation, "Refining, Marketing, and Chemicals" (October 25, 1998), p. 2. 

6. This trend continued through 1997 as Texaco reported that it received $ 13 million for the sale 

of its credit card operation. See Texaco, 1997 Annual Report, p. 31. 

7. For example, during 1997 both Exxon and Phillips mentioned in their annual reports that 

cogeneration plants had been completed at refineries, or were under construction. See Exxon 

Corporation, 1997 Annual Report, p. 12 and Phillips Petroleum, 1997 Annual Report, p. 16. 

8. Financial Analysis Team, Office of Energy Markets and End Use, Energy Information 

Administration, Financial Reporting System. 

9. Energy Information Administration, Performance Profiles of Major Energy Producers 1997 

(pdf format), DOE/EIA-0206(97) (Washington, DC, January 1999), Table 14. 

10. Catalytic cracking is the refining process of breaking down the larger, heavier, and more 

complex hydrocarbon molecules into simpler and lighter molecules. Catalytic cracking is 

accomplished by the use of a catalytic agent and is an effective process for increasing the yield 

of gasoline from crude oil. Catalytic cracking processes fresh feeds and recycled feeds. A fresh 

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feed is crude oil or petroleum distillates, which are being fed to processing units for the first 

time. A recycled feed is one that is continuously fed back for additional processing. Catalytic 

reforming is a refining process using controlled heat and pressure with catalysts to rearrange 

certain hydrocarbon molecules, thereby converting paraffmic and naphthenic type 

hydrocarbons (e.g., low-octane gasoline boiling range fractions) into petrochemical feedstocks 

and higher octane stocks suitable for blending into finished gasoline. Catalytic reforming is 

reported in two categories, low pressure and high pressure. A low-pressure unit operates with 

less than 225 pounds per square inch gauge (measured at the outlet separator) and a highpressure unit operates with 225 (or more) pounds per square inch gauge. See Energy 

Information Administration, Petroleum Supply Annual 1997, Volume 1, DOE/EIA-0340(97)/1 

(Washington, DC, June 1998), pp. 126-127. 

11. Higher quality products are those such as motor gasoline, jet fuel, and aviation gasoline. 

Alternatively, lower quality products are those such as residual fuel oil. 

12. The quality cost spread is the difference between the prices of higher quality (i.e., lighter and 

sweeter) crude oil and lower quality (i.e., heavier and more sour) crude oil. The relative 

viscosity of crude oil is determined by its API gravity. Light crude generally has an API 

gravity of 38, or greater. Heavy crude oil has an API gravity of 22, or less. Intermediate crude 

has an API gravity that falls between 22 and 38. The amount of sulfur in crude oil determines 

whether the crude is considered sweet (i.e., it has a low percentage of its weight contributed by 

sulfur), or sour (i.e., it has a high percentage of its weight contributed by sulfur). 

13. PEMEX has a prospective joint venture with Mobil involving the Beaumont, Texas refinery, 

which has a capacity of 157,500 b/d. See Petroleum Intelligence Weekly, Volume 37, Number 

23 (June 8,1998), p. 3. 

14. Petroleum Intelligence Weekly, Volume 37, Number 24 (June 15,1998), p. 8. 

15. "Venezuela: US Operations," IAC (SM) Newsletter Database, Arab Press Service 

Organisation, APS Review Downstream Trends, Volume 49, Number 25 (December 22,1997). 

16. Hillary Durgin, "Coastal Corp. Says It Intends To Make Canadian Acquisitions," The Houston 

Chronicle (May 8,1998), p. 2. 

17. Products such as such as motor gasoline, jet fuel, and diesel fuel. 

18. Debottlenecking investments are upgrades to one or more parts of a refinery that thereby allow 

fuller use of other parts ofthe refinery without making any direct changes to them. Such 

relatively inexpensive investments in a refinery may result in substantial increases in the 

capacity ofthe refinery. 

19. Capacity creep is the increased capacity of refining units resulting from debottlenecking 

investments. 

20. American Petroleum Institute, Petroleum Industry Environmental Performance 6th Annual 

Report (pdf format) (Washington, DC). 

21. Mitchel Benson, "Gas Stations Imperiled by Tank Law," The Wall Street Journal (February 11, 

1998),pXAl^ ... ._ _ ... r _ 

22. Gas Stations Face Closure on EPA Tank Rules Today," The Wall Street Journal (December 22, 

1998). 

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The U.S. Petroleum Refining and Gasoline Marketing: Page 11 of 14 

23. National Petroleum News, Volume 90, Number 8 (mid-July 1998), p. 124. 

24. "Associations Oppose Delay in EPA's UST Rule," Oil and Gas Journal, Volume 97, Number 1 

(January 4, 1999). 

25. "Calif Gov Davis Orders Ban of Fuel Additive MTBE," Dow Jones Newswires (March 25, 

1999). 

26. "N.J. Congressman Introduces Bill to Ban Use of MTBE," Dow Jones Newswires (April 12, 

1999). 

27. Hart's Oxy-Fuel News, Volume 11, Number 12 (March 29,1999). 

28. "Ford, Mobil To Make Cleaner Fuels," Associated Press (March 5, 1998). 

29. Downstream petroleum refers to petroleum refining, marketing, and transportation. However, 

transportation (chiefly pipelines and marine transport) is omitted from this discussion. 

30. See Energy Information Administration, Performance Profiles of Major Energy Producers 

1997 (pdf format), DOE/EIA-0206(97) (Washington, DC, January 1999) for a discussion of 

one ofthe most significant ofthe foreign alliances. In particular, see the Chapter 3 Highlight 

entitled "BP-Mobil Alliance of European Refining Operations." 

31. Shell Oil owns 56 percent of Equilon and Texaco has a 44-percent share. See "Shell, Texaco, 

and Saudi Refining Inc. Announce Approval of Eastern/Gulf U.S. Downstream Alliance: 

Motiva Enterprises," Business Wire (May 2,1998). 

32. Shell Oil, 1997 Annual Report, p. 52 and Texaco, 1997 Annual Report, p. 20. 

33. Shell/Texaco Seeking Buyer of 60 U.S. Gas Stations," Reuters World News Service (July 7, 

1998). 

34. Energy Information Administration, Petroleum Supply Annual 1996, Volume 1 DOE/EIA0340(96)/l (Washington, DC, June 1997), Table 40. 

35. Shell, Texaco, and Saudi Aramco Announce Formation and Operational Start-Up of Motiva 

Enterprises," Business Wire (July 2,1998). 

36. Hillary Durgin, "Marketing, Refining Pact Signed; Texaco, Aramco, Shell Teaming Up," The 

Houston Chronicle (May 28,1998), p. 1. 

37. "Ashland, Marathon Ink Merger Agreement After FTC Clears Deal," Octane Week, Volume 

12, Number 49 (December 15,1997). 

38. Energy Information Administration, Petroleum Supply Annual 1996, Volume 1 DOE/EIA0340(96)/l (Washington, DC, June 1997), Table 40. 

39. National Petroleum News, Volume 90, Number 8 (mid-July 1998), p. 47. 

40. Energy Information Administration, Petroleum Supply Annual 1996, Volume 1 DOE/EIA0340(96)/! (Washington, DC, June 1997), Table 40. 

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Ihe U.S. Petroleum Refining and Gasoline Marketing: Page 12 oi 14 

41. "Amerada Hess Announces Establishment of Refinery Joint Venture with Petroleos de 

Venezuela," PRNewswire (November 2,1998). 

42. Energy Information Administration, Petroleum Supply Annual 1996, Volume 1 DOE/EIA0340(96)/l (Washington, DC, June 1997), Table 40. 

43. Mobil Corporation, 1997 Annual Report, p. 42. 

44. "Phillips, PdVSA Agree to Build Coker at Phillips' Sweeny, Texas Complex," Phillips News 

Release (November 2, 1998). 

45. "Phillips, Corpoven Sign Principles of Agreement To Build New Coker," Phillips News 

Release (August 22, 1997). 

46. Tom Doggett, "U.S. Approves BP-Amoco Merger, Seeks Divestitures," Reuters (December 30, 

1998). 

47. Energy Information Administration, International Energy Annual 1997, DOE/EIA-0219(97) 

(Washington, DC, April 1999), Table Gl. 

48. British Petroleum, BP 1997: BP Statistical Review of World Energy (June 1998), p. 23. 

49. National Petroleum News, Volume 90, Number 8 (mid-July 1998), pp. 44,124. 

50. BP Amoco, p.l.c, "BP and Amoco Merge to Enter Global Top Trio of Oil Majors (August 11, 

1998)." 

51. Exxon Corporation, "Exxon and Mobil Sign Merger Agreement (December 1,1998)." 

52. Energy Information Administration, International Energy Annual 1997, DOE/EIA-0219(97) 

(Washington, DC, April 1999), Table Gl. 

53. British Petroleum, BP 1997: BP Statistical Review of World Energy (June 1998), p. 23. 

54. National Petroleum News, Volume 90, Number 8 (mid-July 1998), pp. 44,124. 

55. "Ultramar Diamond Shamrock and Phillips Petroleum to Form Joint Venture Creating Largest 

Independent Refining and Marketing Company in North America," Phillips News Release 

(October 8,1998). 

56. "Phillips, UDS Scratch Diamond 66 Plans," The Oil Daily, Volume 49, Number 55 (March 23, 

1999). 

57. "Conoco CEO Sees Company Going It Alone in U.S. Downstream," Dow Jones News Service 

(November 10,1997). 

58. Energy Information Administration, Performance Profiles of Major Energy Producers 1997 

(pdf format), DOE/EIA-0206(97) (Washington, DC, January 1999), Table B30; and Energy 

Information Administration, Form EIA-28 (Financial Reporting System). 

59. National Petroleum News, Volume 90, Number 8 (mid-July 1998), p. 120 and National 

Petroleum News, Volume 84, Number 7 (mid-June 1992), p. 119. 

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60. National Petroleum News, Volume 77, Number 7 (mid-June 1985), pp. 44-51 and National 

Petroleum News, Volume 90, Number 8 (mid-July 1998), pp. 44-52. 

61. Energy Information Administration, Petroleum Supply Annual 1993 Volume 1 (DOE/EIA0340(93)/l) (Washington, DC, June 1994), Table 49. 

62. During 1996 Ultramar and Diamond Shamrock merged, forming Ultramar Diamond Shamrock. 

63. Energy Information Administration, Petroleum Supply Annual 1990, Volume 1, DOE/EIA0340(90)/l (May 1991, Washington, DC), Tables 36 and 39. 

64. Energy Information Administration, Petroleum Supply Annual 1996, Volume 1 DOE/EIA0340(96)/l (June 1997, Washington, DC), Tables 36 and 40 and Energy Information 

Administration, Petroleum Supply Annual 1997, Volume 1, DOE/EIA-0340(97)/1 (June 1998, 

Washington, DC), Table 38. 

65. Ultramar also had substantial Canadian operations that became part of Ultramar Diamond 

Shamrock after the merger. Ultramar owned a 150,000 b/d refinery in Quebec, and a total of 

1,341 retail outlets in Canada. Energy Information Administration, Petroleum Supply Annual 

1996, Volume 1 DOE/EIA-0340(96)/1 (Washington, DC, June 1997), Table 40; and National 

Petroleum News, Volume 88, Number 8 (Mid-July 1996), p. 80. 

66. Alan Kovski, "BP quitting Northwest with sale of refinery, outlets to Tosco," The Oil Daily, 

Volume 43, Number 187 (September 29,1993), p. 3; Robin Sidel, "Tosco to Stay on Growth 

Track," Reuters Financial Service (February 16,1996); and "Ultramar to Announce Purchase 

of Total U.S. Assets," Reuters Financial Service (April 15,1997); Energy Information 

Administration, Petroleum Supply Annual 1996, Volume 1 DOE/EIA-0340(96)/1 (Washington, 

DC, June 1997), Table 49; and Energy Information Administration, Petroleum Supply Annual 

1997, Volume 1, DOE/EIA-0340(97)/1 (Washington, DC, June 1998), Table 38. 

67. "Ultramar Diamond Shamrock and Phillips Petroleum to Form Joint Venture Creating Largest 

Independent Refining and Marketing Company in North America," Business Wire (October 9, 

1998). 

68. Alan Kovski, "BP quitting Northwest with sale of refinery, outlets to.Tosco," The Oil Daily, 

Volume 43, Number 187 (September 29,1993), p. 3; Robin Sidel, "Tosco to Stay on Growth . 

Track," Reuters Financial Service (February 16,1996); and "Ultramar to Announce Purchase 

of Total U.S. Assets," Reuters Financial Service (April 15,1997); Energy Information 

Administration^ Petroleum Supply Annual 1996, Volume 1 DOE/EIA-0340(96)/1 (Washington, 

DC, June 1997), Table 49; and Energy Information Administration, Petroleum Supply Annual 

1997, Volume 1, DOE/EIA-0340(97)/1 (Washington, DC, June 1998), Table 38. 

69. "Phillips, UDS Scratch Diamond 66 Plans," The Oil Daily, Volume 49, Number 55 (March 23, 

1999). 

File last modified: September 6,2000 

Contact: 

Neal C Davis 

neal.davis@eia.doe.gov 

Fax: (202) 586-9753 

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