books about online stock trading, forex, futures, stock investing, market, trading systems
To the Pipelines To the Refineries To the Consumers
Back to contents page

Once petroleum is lifted from the ground, it must be transported to refineries and then again to the end users. Although ships play an important role, pipelines are an often-overlooked method of transportation. In the United States , pipelines and the rates they can charge are regulated by the Federal Energy Regulatory Commission and various state agencies. Though revenue from a pipeline tends not to grow much from year to year, the vast majority of pipelines generate positive cash flow and provide services that are difficult to duplicate.

Pipelines also tend to be one of the energy businesses that are least sensitive to commodity prices. As long as commodity prices stay away from their extremes and volumes stay relatively consistent, pipelines are typically very profitable assets for a company to own. Major integrated oil companies generally own portions of many of the pipelines they use, but there are also several large independent pipeline companies in existence, such as Kinder Morgan.

To the Refineries

Once oil and gas makes it to the refineries, it is said to be downstream. Refineries break apart crude oil into its component parts and refine it into end products, such as gasoline, jet fuel, and heavy lubricants. Although there are a handful of independent refiners, most refineries are part of major integrated oil companies. For instance, ExxonMobil, which has some of the largest reserves in the ground, is also the largest refiner in the industry.

Over the long term, refining is typically a less profitable business than getting oil out of the ground because there is no refining cartel maintaining profits. Refining profit margins also tend to be cyclical, though the cycles do not necessarily happen "with the same frequency as commodity prices.

To the Consumers

The other portion of downstream operations is called marketing, which in­cludes operating convenience stations, as "well as marketing fuels for industrial uses and electricity production. Sometimes service stations are owned by small independent marketers who franchise brands from the big oil companies, and other times the major integrated oil companies own and operate the stations themselves. ExxonMobil and Royal Dutch/Shell are some of the largest marketers of fuel, each with nearly 50,000 stations around the globe selling their brands.

Smarter trading The art of day trading Trading Chaos Sane Investing In An Insane World
Beat The Odds In Forex Trading