This article is typical of Oil Consultant firms pitching studies to Oil Co Executives and putting out what they the herd has as understanding. Roger Inhe is touted as having 32 years in industry but my guess most is as Deloitte consultant and few years with one Major’s in Oil & Gas …… doesnt say what position he played but from gist …… it couldnt be downstream position (or if it was as is case today it was as Upstreamer put in position over Downstream operations).
I find nothing creditable in this article or its author – like lot others trying justify upstream push hive off downstream assets (as usual just before they become more profitable) and pitch a multi-client study on whose first on list for closure & how to avoid it …… only dont go to this company or consultant because he doesnt really understand downstream refining economics.
The statements of 70% shift to independents rely on idea that because Integrated Majors (COP, MAP, BP ect) separate Downstream segments that become “Pusedo-Independents” where Upstream segments trying sell crude arent going force downsteam segment to take thier crude when market turns against them or that whole company is going set itself up for lot more taxes because they cannot take profits back to lay against crude depletion tax allowances …… doesnt fly.
Additionally that is why “Downstream” margins are smalll – either they go taxes as in case Valero (that has no upsteam crude segments & no long term crude source contracts) or they have transfer price on crude that lets Upstream offset some margin/earnings against taxes/depeltion allowances. After period time all Integrated companies Upstream segments come to believe they make all profits & need get rid troublesome downstream assets …….. and they get killed in market because they dont have firm base taking crude at top market prices in down cycles.
Contrary to what Inhe is trying sell the US is rapidly becoming Crude long due to both incoming P/L Canadian crude & development of its own huge Gas & Crude reserves despite fierce decades long roadblocks by Environmentalist. There are at least 3 sites of 500 Billion Barrel reserves (with 15-20% min recovery) like Bakken in Wyoming & Heavy crude in both Texas & California that will push back on fundamentals of crude price. Additionally the legal actions to take out speculators in Wallstreet playing crude commodities as well as Cushing glut induced paper losses are going become push against shortages and future price escalation. Not to mention that when US shuts off gasoline imports – rapid reduction in foreign export refineries demand for crude & the loss of thier product export demand will make critical regional domestic impacts to East Coast & West Coast closures.
