Bulk Plant Update
There’s a touch of the movie Groundhog Day in the air as we move into 2013, where the protagonist keeps waking up in the same perpetual time loop. It’s a movie we’ve been replaying year after year pretty much since the economic downturn of 2008 with no to low growth, official unemployment 8 percent or higher (some measures of total unemployment 14 percent or more) and a never-ending stream of new regulation impacting the energy and retail sectors. While much of the hemorrhaging that was experienced in 2008 has settled out, we are left with what can best be described as an economic malaise.
Where petroleum more broadly is concerned, the U.S. Energy Information Administration noted in its latest Short-Term Energy Outlook that we faced another year of reduce motor fuels consumption. This year, however, is going to see a slight reversal of that trend according to EIA with projected total liquid fuels consumption anticipated to increase by 0.4 percent in 2013 and by about the same amount in 2014. Most of the consumption growth is anticipated to come from distillate fuel oil and liquefied petroleum gas largely linked to a return to more typical, colder winter weather.
Burton S. Russell, Chairman of International Liquid Terminal Association
ILTA represents 80 companies and partnerships that operate bulk liquid storage terminals in 49 countries. These facilities are located in ports and along rivers, canals and pipelines. They serve the vital economic purpose of transferring liquid products from one transportation mode to another. Products handled by its members include crude oil, refined petroleum products, chemicals, renewable fuels, fertilizers, vegetable oils, and other food grade materials.
Burton S. Russell is vice president of operations for Sprague. Founded in 1870 as the Charles H. Sprague Company, Sprague is one of the largest independent wholesale suppliers of energy and materials handling services in the Northeast with products including: home heating oil, diesel fuels, residual fuels, gasoline and natural gas. Over the years, Sprague has aggressively expanded upon its fuel procurement, handling, and delivery expertise.
FON: We’ve been going through some interesting economic times since 2008. Looking back at 2012, what were things like for Sprague?
Russell: There was no shortage of challenges, and in the end, we fared well. So our attitude is that if you’re doing okay in the tough times, then you’re doing alright. And not unlike many of our competitors, I think diversification is one of the keys. Some of the larger challenges we had last year (were mainly with the) refined products business segment where a piece of our market share is impacted by the weather and certainly the abnormally warm winter that we had last year impacted some of the volumes. And certainly the market structure that existed throughout the year provided some challenges as well.
On the plus side, our material handling business was quite strong despite really a recession that impacted some segments of it, but not overall. Some of those materials we handle are residential and building related. And the natural gas business continues to grow. So I don’t think that’s all that different from what others have seen, and we’ve tried to focus a lot on differentiating our ability to market to our customers with hedging contracts that are as small as 1,000 gallons and real-time purchasing where we put some of those technological enhancements in the hands of our customers, which they see as a very competitive market as well. We’ve seen strong customer loyalty and growth.
I think I would also mention in the larger context of our company, as with many others in the Northeast, we were affected by Hurricane Sandy. I think one of the bright spots ‘ as devastating as it was ‘ was the ability of our employees in New York, in the truck fleet as well as our terminal operators to really persevere through that whole experience. I think that also showed from an industry standpoint. The sensitivity that our industry has with its infrastructure ‘ you take a couple of terminals of operation and it generally has a devastating effect on the supply chain. But despite those challenges, we continued to service many of our New York City police and transit accounts and their emergency vehicles and that was a real highlight for us.
FON: What do you anticipate businesswise in 2013?
Russell: I think we see some of the market challenges extending into the new year, so diversification once again is a key. We always strive for and look to expand. I suppose from a terminal operations standpoint we, like others, have invested an awful lot in the safety culture over the past several years and it’s fun to see that gain a lot of traction. We really believe that by doing so we not only have a safer culture, but also greater efficiency as we leverage training and more efficient operations lead to cost reductions.
FON: The Obama administration is going to be in office for the next four years and I’ve heard rumblings that there are going to be an awful lot of new regulations in a variety of sectors coming down the pipeline. Is there anything coming up that Sprague is looking to deal with?
Russell: I think it is anything and everything. I can say this is as a former regulator myself ‘ quite a while ago ‘ but I think when it comes to new regulations there is no lack of initiative on the part of the federal government. And just because you can regulate something does not mean it’s always of value. I think that’s something that ILTA is well focused on and we are well focused on it at Sprague. And I think from both standpoints we have to make sure we invest in education and information to make sure we are proactive so as those issues come forward we are able to enable regulators and legislators (with) the best information possible prior to making decisions. There are numerous examples out there ‘ The Chemical Facility Anti-terrorism Security Act that we watch very closely and others. It is something that I think speaks to the value of an organization like ILTA as all of the other industry associations out there that are well-positioned to keep an eye on these developments and influence it on the front end to make sure the best possible regulation or legislation can result.
FON: You have also taken over as the ILTA chairman. What are some of the accomplishments you personally wish to pursue during your tenure?
Russell: You highlighted one key area and that is to proactively shape regulatory policy. The second key one is that we’ve seen tremendous change in the landscape in our industry in the last several years and ILTA wants to make sure that we explore those new markets and make ourselves available and relevant to other operators that may be moving crude from the midcontinent to the East Coast. And we also want to make sure we include bulk transporters and can speak for them as well as the Northeast shale production. There are an awful lot of companies that have been more traditional that have expanded their roles in operations that we want to make sure we expand our services so we can address their needs. And I think the last area is that I believe ILTA has done a great job in terms of providing services to our members and I think one of our focuses this year will be to enhance our own marketing of that so we can both engage existing members to be more involved in the many offerings and activities we have as well as encouraging new members into the organization. I think there is a great history of leadership within the ILTA staff where they provide far more than just running an industry association.
FON: As you touched on earlier, the natural gas side is an important part of your operations. And in the industry we are seeing natural gas play out on the motor fuel side with Class 8 trucks and then into third-party sales to residential and commercial customers. Would you mind talking a bit about what you see with natural gas?
Russell: It’s a great question and a great issue. Certainly on the East Coast there’s been a lot of activity in the last few years with the Marsalis find and the reserve and abundance are causing people to be more creative. The Northeast has some of the most densely populated areas in the country, but it also has some fairly remote areas, which cannot be easily reached by pipeline and it will be a long, long time before the economics would justify that out to some of those less populated areas. So from the standpoint of distributed fuels market, it is something that we have tried to listen to our customers and there are some opportunities there in terms of compressed natural gas that seem to make sense. I think we’ll see that continue to grow. There are some baseline infrastructure needs there, but I think it’s a market that will continue to grow.