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Winter Issue 2015

Your Source for News and Information

Saudi Arabia: Restraining from Restraint? Why are Voters in Denton Texas Afraid of Fracking? Fleet Card Programs: An Evolving Success Story DEF Demand Projections & DEF Product Roundup

SUPPLY, MARKETING, DISTRIBUTION, TRANSPORTATION & LOGISTICS


PUBLISHER’S NOTE

A note from Gary Bevers Group Publisher Your Source for News and Information

A Publication of FMN Media, LLC EDITORIAL STAFF Publisher Gary Bevers gbevers@fmnweb.com Editorial Director Keith Reid kreid@fmnweb.com Managing Editor Tricia Corrigan tricia.corrigan@fmnweb.com

Oh what a difference a year makes… Here we are at the start of 2015. I believe our industry has every reason to be optimistic about the coming year. At the same time, it’s hard not to be a bit confused and maybe amused. Going into 2014 it was accepted wisdom in many circles: “We are running out of Fossil Fuels.” “We need more efficient cars—America cannot afford the high price of gas at the pump.” “Fracking is bad for the environment and the economy.” “We don’t have enough Oil to meet our fuel demand.”

Copy Editor Kathy Bevers kbevers@fmnweb.com

“Drill Baby Drill is a Bumper Sticker; it won’t lead to Energy Independence.”

Columnists 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

But somewhere over the last year reality snuck up and proved the “collective” brain trust to be wrong. Funny thing about facts—

Editorial Board Ed Burke Lisa Calhoun George A. Overstreet, Jr. Joseph H. Petrowski Art Director Jeff Beene jbeene@sbcglobal.net Advertising Sales Greg Mosho 115 Tinton Falls Road Farmingdale, NJ 07727 732.610.5735 Mobile gmosho@fmnweb.com Mailing Address 15201 Mason Road Suite 1000-288 Cypress, TX 77433

www.FuelMarketerNews.com

© Copyright 2015, Fuel Marketer News All rights reserved.

— Too many names to attribute

• The United States became the No. 1 oil and natural gas producer in the world! • We became a “net exporter” of refined petroleum products—pretty good for a country that was running out of oil. • The increase in US produced crude supply helped drive oil to record low prices. • Gasoline prices at the pump dropped to levels that few thought we would ever see again. • US households should save roughly $1,000 in 2015—courtesy of our industry. OPEC who? Venezuela who? They no longer have a “monopoly effect” on the market price of oil and may never again play that role…unless we give back our energy independence. In this print issue of Fuel Marketer News, our energy-expert columnists deliver objective analysis of the facts, changes and trends in our industry and what it means to you as a fuel marketer. Whether your interest is in traditional fossil fuels (gasoline and diesel) or alternative fuels (ethanol, isobutanol, biodiesel, CNG, LPG, hydrogen, electric), we strive to thoroughly and objectively cover the information that matters to your business. For my part, looking forward to 2015, I am very optimistic. It’s an exciting time to be in the fuel business and our goal is to provide you with valuable information, education and analysis from the seismic shifts in crude production to the nuances of motor fuels retailing and forecourt technology. Don’t wait for the next issue of the print magazine—you’ll miss out on too much quality content and timely coverage. Register for our e-newsletter at www.fuelmarketernews.com to get in the loop as new content gets posted. Registration is free, and the process is short and easy. We will work hard in 2015 to make sure you have every reason to make us your go-to news site for motor fuels marketing, retailing and supply.


TABLE OF CONTENTS

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PUBLISHER’S NOTE

The Church of “What‘s Happening Now”

FUELS & SUPPLY

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POLICY BRIEF: Big Green gets a Win—For Now

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POLICY BRIEF: Obama Administration’s EPA Launches Costly Ozone Standards Revision

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The Church of “What’s Happening Now” by Joe Petrowski

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Why Oil Prices Declined Now and Where They Go From Here by Doug Haugh

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The Growing Power of American Crude by Alan Levine

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Why are Voters in Denton Texas Afraid of Fracking? by Dr. Barry Stevens

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Saudi Arabia: Restraining from Restraint? by Dr. Nancy Yamaguchi

by Joe Petrowski

Why Oil Prices Declined Now and Where They Go From Here by Doug Haugh

The Growing Power of American Crude

RETAIL OPERATIONS

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Fleet Card Programs: An Evolving Success Story by Maura Keller

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The Mixed Bag that is Apple Pay by Vlad Collak

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DEF Demand Projections Pull Strong Infrastructure Growth by Dr. Jeanne Riot

by Alan Levine

Why are Voters in Denton Texas Afraid of Fracking? by Dr. Barry Stevens

PRODUCT ROUNDUP

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DEF Product Roundup

The Mixed Bag that is Apple Pay

FLEET OPERATIONS

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by Vlad Collak

Making “Return-To-Work” Work for Transportation by Dr. Charlie Cartwright

DEF Demand Projections Pull Strong Infrastructure Growth

BUSINESS OPERATIONS

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Just What is Big Data and How Will it Transform Your Business? by Chris Santy

by Dr. Jeanne Riot

ADVERTISER’S INDEX FMNMagazine

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Keystone XL

FUELS & SUPPLY POLICY BRIEF

by Keith Reid

Big Green

gets a win—for now On November 18, a bill to authorize

American Petroleum Institute President and CEO Jack Gerard said in a released statement that the Senate’s initial failure to pass legislation to build the Keystone XL pipeline shows that a few stood in the way of the largest bi-partisan jobs and energy security bill, ignoring the will of the American people on Election Day.

construction of the Keystone XL (KXL) oil pipeline was defeated by one vote in the Senate (59 – 41), after similar legislation passed in the House. It was uniformly supported by Republicans and managed to gain 13 votes among Senate Democrats. More recently, with the shift in Republican control in the Senate to go with the House, President Obama indicated on January 6 that he would veto that bill if it now made it to his desk.

“A handful of Senators blocked a long overdue decision on KXL defying the will of the American people,” said Gerard. “Instead of seizing a rare bipartisan opportunity to help American workers and strengthen our energy security, a few Senators returned to politics as usual. This is not what the electorate voted for two weeks ago and it doesn’t bode well for future bipartisanship.

The result is disappointing, but not surprising, and of course, useless as an environmental victory by any reasoned analysis:

“Keystone XL is not going away; the president will have to deal with it, if not now then next year. We will work with the new Congress to focus on getting this important jobs project approved. We will not give up until the pipeline is built.”

1. For even the most hardcore climate

change alarmists, Canada’s oil sands are going to be utilized regardless of whether the pipeline eventually goes south, or alternative pipelines carry the product east and west.

2.

While the economic benefits trend more general than US-specific, there will still be jobs gained in constructing the pipeline, maintaining it and in the refinery sector.

Sierra Club Happy For some opposing the pipeline, environmentalism is not just a good thing but a quasi-religious belief tied into a strong sense of personal identity. These true environmental believers can certainly be considered part of the Democratic base, and they are far from happy with any “all of the above” energy policy even if it is highly generous to alternative fuels and energy sources.

3. If not the US processing the oil (diluted

The Sierra Club was, as would be expected, pleased with the vote (and apparently not so pleased that we have a legislative branch and the separation of powers in the United States). “We applaud the Senators who stood up for the health of our families and our climate by fighting back against this big polluterfunded sideshow,” said Sierra Club Executive Director Michael Brune, in a release. “There’s no good reason the Senate should have wasted all this time on yet another meaningless push for Keystone XL. Since day one, the decision on the pipeline has belonged to President Obama, and he has repeatedly said he will reject this pipeline if it contributes to the climate crisis. As there is no doubt that it does, we remain confident that is precisely what he’ll do.”

4.

Unions Not so Happy

bitumen, actually) then one likely processor is China, a country that has shown little interest (far less than the United States) in processing or using fossil fuels in an environmentally friendly manner.

Pipelines are largely an environmentally safe and proven technology. Product from the tar sands is still moving from Canada to US refineries supported by less reliable and somewhat less safe rail and truck transport.

Yet the lame-duck Senate falling in line to support the goals of a segment of its base, perhaps out of defiance (or spite?) following the disastrous 2014 midterms, is not an entirely easy explanation. This was a slap in the face to another Democratic constituency—the unions. FMNMagazine

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FUELS & SUPPLY POLICY BRIEF

Big Green Gets a Win—for Now

Terry O’Sullivan, General President of LIUNA—the Laborers’ International Union of North America—made the following statement on the US Senate vote regarding the Keystone XL Pipeline:

On a smaller scale, failed solar panel manufacturer Solyndra’s main backer, George Kaiser, apparently raised between $50,000 and $100,000 as a bundler for President Obama’s 2008 campaign. Subsequently (a coincidence, no doubt), the company received a government loan guarantee for $535 million in spite of entirely valid concerns raised by the Treasury Department. The company had apparently spent nearly $1.8 million on lobbying previously, according to Business Insider.

“Today’s failure of the US Senate to authorize the Keystone XL Pipeline is a vote against all construction workers, a vote to keep good, middle-class jobs locked out of reach and a vote to continue to rely on nations that hate America for our energy.”

And then there are the individual billionaires philanthropists like former hedge fund manager Tom Steyer and his NextGen Climate Action Committee. As Keystone XL is not going away; the the Huffington Post outlined in an article president will have to deal with it, if in September during the midterm not now then next year. We will work campaign, NextGen is backing up its sometimes zany stunts with a whole lot of That Democrats would block the pipeline’s with the new Congress to focus on cash, setting its efforts apart from the approval, in spite of the fact that repeated getting this important jobs project environmental campaigns of yesteryear. environmental impact statements have all approved. We will not give up until the As of its last filing with the Federal concluded that the Keystone XL will have no pipeline is built. Election Commission, the group had appreciable impact on greenhouse gas spent $30.5 million in the 2014 electoral emissions, leaves us disillusioned, disgusted American Petroleum Institute cycle, according to the Center for and exasperated with the current majority Responsive Politics. Of that, $11.5 million party and it leaves no doubt as to why they President and CEO Jack Gerard has gone to independent expenditures, will soon be the minority party. Continued almost all of that for attacks on pandering to environmental extremists who Republican candidates. (NextGen Climate want to hamper the American economy and Action has an affiliated 501(c)(4) nonprofit destroy jobs is a recipe for continued status, but the group says all its 2014 electoral work has been election losses. done through the super PAC.) The majority of Democrats in the Senate and the White House To the true environmental believers, shutting down the just don’t get it, even though the recent election results surely Keystone XL pipeline is seen as an ethical or even a moral should have sunk in by now. They have lost their way, their issue. It might hurt the US economy to the benefit of China— purpose and their base. with no net environmental improvement (perhaps even the opposite)—but it’s “the right thing to do.” And for those whose environmental interest is more the green of Of course, “when in doubt follow the money” must also be government subsidies and regulatory support, stopping the considered. The clean energy industry is no small potatoes, Keystone XL just goes along with the overall program. even if you don’t include the major oil companies that busily expanded their natural gas portfolios to play the role of “energy As noted, a variety of groups were less pleased with this vote companies” at the expense of the coal industry. and undoubtedly pleased with the president’s veto opposition to a future, similar bill. There are certainly financial The 13th annual edition the Clean Energy Trends, published by incentives for the oil industry and construction unions to the research and advisory firm Clean Edge, projected the global support the pipeline. And there are people who would want clean energy industry at $247.6 billion in 2013 and $397.8 billion the economic benefits of the pipeline for nationalistic reasons by 2023. even if there was notable environmental risk. In this case, the evidence supports that what’s best for our economy, the And while unions donate heavily to (mainly Democratic) political unions and even, ultimately, the environment, also supports campaigns, the clean energy industry is just as free with its building the Keystone XL pipeline. n campaign dollars as any other. There’s nothing wrong with that under our current system of government, but at the same time there is no reason to ignore that fact either. As the White House politicized the construction of the pipeline, 41 Senate Democrats cowardly stepped in line, throwing one of their own colleagues, Sen. Mary Landrieu, along with hard working bluecollar construction workers under the bus.

Show Me the Money

The Solar Energy Industries Association spent $570 thousand on lobbying in 2014, according to Open Secrets. That was down a bit compared to the roughly $1.4 to $1.6 million it spent each year between 2008 and 2011. FMNMagazine

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FUELS & SUPPLY POLICY BRIEF

by Keith Reid The Environmental Protection Agency (EPA) is looking to substantially tighten up current ozone air quality standards. The proposal, still technically open to stakeholder input, looks to set a standard of between 65 – 70 parts per billion (ppb) instead of the current 75ppb set in 2008. EPA is also proposing to strengthen the “secondary” ozone standard to a level within 65 to 70ppb to protect plants, trees and ecosystems from “damaging” levels of ground-level ozone. As EPA noted, The Clean Air Act requires EPA to review the standards every five years. EPA will issue the final ozone standards by October 1, 2015. “Bringing ozone pollution standards in line with the latest science will clean up our air, improve access to crucial air quality information, and protect those most at-risk. It empowers the American people with updated air quality information to protect our loved ones—because whether we work or play outdoors—we deserve to know the air we breathe is safe,” said EPA Administrator Gina McCarthy. “Fulfilling the promise of the Clean Air Act has always been EPA’s responsibility. Our health protections have endured because they’re engineered to evolve, so that’s why we’re using the latest science to update air quality standards—to fulfill the law’s promise, and defend each and every person’s right to clean air.” A cynic might simply consider this to be another example of the many assaults on fossil fuels by the Obama administration, using agency regulations to accomplish what cannot be accomplished legislatively in Congress. According to EPA, the examination of numerous scientific studies indicate: ...that exposure to ozone at levels below 75 ppb—the level of the current standard— can pose serious threats to public health,

Obama Administration’s EPA Launches Costly Ozone Standards Revision

Photo courtesy Matthew Paul Argall

harm the respiratory system, cause or aggravate asthma and other lung diseases and is linked to premature death from respiratory and cardiovascular causes. Ground-level ozone forms in the atmosphere when emissions of nitrogen oxides and volatile organic compounds “cook” in the sun from sources like cars, trucks, buses, industries, power plants and certain fumes from fuels, solvents and paints. People most at risk from breathing air containing ozone include people with asthma, children, older adults, and those who are active or work outside. Stronger ozone standards will also provide an added measure of protection for low income and minority families who are more likely to suffer from asthma or to live in communities that are overburdened by pollution. According to EPA: …strengthening the standard to a range of 65 to 70ppb will provide significantly better protection for children, preventing from 320,000 to 960,000 asthma attacks and from 330,000 to one million missed school days. Strengthening the standard to a range of 70 to 65ppb would better protect both children and adults by preventing more FMNMagazine

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than 710 to 4,300 premature deaths, 1,400 to 4,300 asthma-related emergency room visits, and 65,000 to 180,000 missed workdays. EPA states that speculative health savings will far offset any actual costs; EPA estimates that the benefits of meeting the proposed standards will significantly outweigh the costs. If the standards are finalized, every dollar we invest to meet them will return up to three dollars in health benefits. These large health benefits will be gained from avoiding asthma attacks, heart attacks, missed school days and premature deaths, among other health effects valued at $6.4 to $13 billion annually in 2025 for a standard of 70ppb, and $19 to $38 billion annually in 2025 for a standard of 65ppb. Annual costs are estimated at $3.9 billion in 2025 for a standard of 70ppb, and $15 billion for a standard at 65 ppb. Obviously, there is significant industry push back. National Association of Manufacturers (NAM) President and CEO Jay Timmons issued this statement in


FUELS & SUPPLY POLICY BRIEF

response to EPA’s announcement: “Manufacturers in the United States are working hard for a manufacturing comeback, attempting to utilize America’s unmatched energy resources, building hundreds of billions of dollars’ worth of new facilities across the country. These are the facilities that make advanced cars and trucks, steel pipelines, fertilizer to grow our crops and roofing and insulation that keep our energy bills down. This new ozone regulation threatens to be the most expensive ever imposed on industry in America and could jeopardize recent progress in manufacturing by placing massive new costs on manufacturers and closing off counties and states to new business by blocking projects at the permitting stage. “This new standard comes at the same time dozens of other new EPA regulations are being imposed that collectively place increased costs, burdens and delays on manufacturers, threaten our international competitiveness and make it nearly impossible to grow jobs. Before the Obama Administration moves the goalposts with yet another set of requirements that will make it more difficult for manufacturers across the country, they need to allow existing ozone standards to be implemented and give time to American businesses to meet those already stringent and onerous requirements.” A NAM study estimates that this regulation could reduce gross domestic product (GDP) by $270 billion per year and carry a compliance price tag of $2.2 trillion from 2017 to 2040. On the fuels front, according to EPA: A combination of recently finalized or proposed air pollution rules—including “Tier 3″ clean vehicle and fuels standards—will significantly cut smogforming emissions from industry and transportation, helping states meet the proposed standards. EPA’s analysis of federal programs that reduce air pollution from fuels, vehicles and engines of all sizes, power plants and other industries shows that the vast majority of US counties with monitors would meet the more protective standards by 2025 just with the rules and programs now in place or

Obama Administration’s EPA Launches Costly Ozone Standards Revision

Bringing ozone pollution standards in line with the latest science will clean up our air,

improve access to crucial air quality information, and protect those most at-risk. It empowers the American people with updated air quality information to protect our loved ones—because whether we work or play outdoors—we deserve to know the air we breathe is safe. EPA Administrator Gina McCarthy

underway. Local communities, states, and the federal government have made substantial progress in reducing groundlevel ozone. Nationally, from 1980 to 2013, average ozone levels have fallen 33 percent. EPA projects that this progress will continue. PMAA President Dan Gilligan noted the following in an FMN interview: “The revised ozone standards are another big deal, and not just for us but the entire country,” he said. “If EPA does the worst, Yellowstone will end up in nonattainment. It’s hard to believe, but it’s absolutely true. Once they start tightening down the ozone standards the reformulated gasoline markets will expand, perhaps doubling, and right there you’re talking a dime a gallon in most cases. That is certainly a concern. “I’m going to guess that they are going to lower the current standard, and they might set it at 70ppb or whatever the number is, but even that is going to be costly. But it’s not going to be deadly costly. Now that the election is over, those are things they are going to get done before they leave, but maybe they will make some mistakes and give lawyers something to go to court over—which is always the hope.” API President and CEO Jack Gerard stated the following in a release: “Air quality has improved dramatically over FMNMagazine

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the past decades and will continue to improve as EPA and states implement existing standards, which are the most stringent ever,” Gerard said. “Careful review of the science shows that the current standards already protect public health. Tightening these standards could be the most expensive regulation ever imposed on the American public, with potentially enormous costs to the economy, jobs, and consumers.” API noted that states have only just begun to implement the 2008 standards. EPA’s implementation guidance for the 2008 rule has not yet been released, and the challenges of meeting new standards would be massive and disruptive to states and businesses. “Tightened standards could impose unachievable emission reduction requirements on virtually every part of the nation,” Gerard said. “Even pristine areas with no industrial activity such as national parks could be out of attainment. Needless to say, operating under such stringent requirements could stifle new investments necessary to create jobs and grow our economy. The right policy choice is to implement the current standards and allow air quality to continue to improve.” It should be noted that while it’s not uncommon for industry groups to magnify policy impacts to benefit their positions, the same is certainly true of governmental entities. EPA began seeking public comment on the proposal on November 26, which will continue for 90 days. The agency also plans to hold three public hearings. EPA openness to stakeholder points of view has been mixed, at best, but in this case the agency might be very receptive. It noted that such input might even suggest lowering the standard further than initially suggested, to 60ppb. n

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FUELS & SUPPLY

The Church of “What’s Happening Now” or Why Most “Experts” on Energy Prices Have Been Wrong

At first we had: Then:

“WE are running out of oil; peak oil is here.”

OPEC “needs $100 barrel oil.”

Now: by Joe Petrowski

FMNMagazine

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“This is not all good. The price slide is a sign of world deflation; capital investment will dry up; we should not invest in energy infrastructure and exports will hurt us.”

fuelmarketernews.com


Nonsense. T

he reality of what has happened and what is happening now is a simple case of movement along the supply and demand curve. Demand for energy has dampened because of several factors including efficiency, demographics and regulatory mandates. US low-cost shale supply has displaced high cost producers whose own ineptitude, corruption and capital-starved diet has made them even higher-cost producers (Venezuela, Mexico, Nigeria, Iran and Russia).

Breakeven, Brent (US$/boe)

140 120

60

High Production Cost:

Efficiency

100 80

What is less appreciated and less understood is that the curve has shifted because of US ingenuity, and the wonders of capitalism. This is a discovery more shocking and terrifying to most on the left than the fact that hydrocarbons are not practically finite, but ubiquitous to the universe and whose supply is determined by price and technology. This movement along the curve as well as the shift is demonstrated in the accompanying graph. The cost to find, drill and extract oil and gas has fallen actually faster than the overall price.

............................................................................

Traditional Vertical Wells, Off-Shore, Nigeria, Russia, Venezuela, Mexico, Iran

Low Production Cost:

Eagle, Ford, Marcellus, Bakken, Saudi, Kuwait

40 20

...... $64 US$/Target

0 1

3

5

7

9

11

13 15

17

19

21 23

25 27

29 31

33

35

Price for Crude

Projected Production (2020) Mboe/d

Production While permits for new drilling have softened, and the disposition of existing leaseholds has increased, we are still producing more hydrocarbons per well through the more efficient use of rigs, pads and frack stagings. While we were at one time drilling 10 wells off of one pad, we are now doing 30 to 40 with as many 16 – 20 stages per well. This has not only increased the amount of gas and oil produced, but has also lowered the per-unit extraction cost dramatically due to the efficiencies generated through multistaging in sand, fluid use and removal. There are still a significant number of projects that will be drilled below $50/barrel in the United States. In fact, much of the capital investment that has, and is, being made in United States drilling (and has apparently has been missed by some prognosticators, even those with Nobel prizes), has been in seismic technology, lateral drilling techniques, fracking fluid composition, recovery and disposition. These investments have contributed to a revolution in how we find and remove oil. “Trees do not grow to the sky,” and while technology does not get “unlearned” it will be difficult to sustain the cost improvements in the United States much below $40/barrel. With $10/barrel in refining, $6/barrel in wholesale and transport, and $8/barrel in retailing, a $64/barrel seems to be the target price for gasoline before taxes. That is $1.53/gallon, or just under $2 for gasoline with taxes (and expect higher taxes). If anyone does not think this is positive for American and equities please, burn your money to put it to a better use. n FMNMagazine

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Joe Petrowski Petrowski has had a long career in international commodity trading, energy and retail management and public policy development. In 2005, he was named President and CEO of Gulf Oil LP and elected to the Gulf Oil LP Board of Directors. In October of 2008 he was named CEO of the now combined Gulf Oil and Cumberland Farms whose annual revenues exceed $11 billion and that now operates in 27 states. In September 2013, Petrowski stepped down as CEO of The Cumberland Gulf Group. He is now managing director of Mercantor Partners, a private equity firm investing in convenience and energy distribution.


As the Keystone XL project has languished, pipeline companies have proposed a number of other projects to move oil out of Alberta, most of them entirely on Canadian soil. TransCanada, the company that wants to build Keystone XL, recently took the first step in the approval process for a different pipeline, a massive project that would snake nearly 2,800 miles from Alberta to Eastern Canada. “Energy East” would transport a whopping 1.1 million barrels of crude a day to refineries in Quebec and terminals on the Atlantic coast. The next largest project, Kinder Morgan’s proposed TransMountain pipeline, would carry about 890,000 barrels a day in the other direction to the coast of British Columbia. Enbridge, another major Canadian pipeline company, has two projects in the works—the Northern Gateway, which would send 520,000 barrels a day to the coast of British Columbia, and its Line 3 replacement, which could move 760,000 barrels a day from Canada into Wisconsin. Because Line 3 would replace an existing cross-border pipeline, the company argues it would not need the presidential permit that has held up Keystone XL. NBC News, What Happens if the Keystone XL Pipeline Isn't Built? By Lisa Riordan Seville Bottom Line: Canadian tar sands are going to be exploited and the resulting fuels will be refined and burned in engines and power plants. The only question is if that process will benefit the United States in terms of jobs and revenue.

exploding production READ MORE at fuelmarketernews.com


FUELS & SUPPLY

Why Oil Prices Declined Now by Doug Haugh


and Where They Go From Here A

fter three years of eerie calm in the oil market, volatility has returned with a vengeance. With prices down $50 in the past few months it seems the market is ignoring the wars in the Iraq, Syria and Libya. Normally, any one of those would be enough to at least keep prices up, if not rising. So is it the rise of US production? Domestic production has been rapidly rising for the past three years and is making new records each month. What about the reduced expectations for demand growth in China? Well, those are both having an impact, but neither were the tipping point that brought volatility and lower prices back to the market. We can thank two big factors for providing an economic stimulus to the US economy that is actually bigger than the $787 package the Obama administration promoted and passed in 2009. Citigroup estimates the stimulus impact of oil prices that are now down by 30% to be $1.7 trillion dollars. If that number isn’t mind numbing enough, try this one—$2.5 billion in savings per day. The first and single biggest factor is a familiar one: Saudi Arabia. Once the Saudis signaled that they would accept significantly lower prices on October 1, the race to $50 per barrel and potentially lower was on. The Kuwaitis quickly moved to support the Saudis, signaling on October 14 that they would follow the Saudi move down. The second big factor is the rising dollar. Despite the Euro and Renminbi (China) gaining acceptance as global currencies to rival the US Dollar, oil is still bought and sold in dollars. The dollar is back, and Japan’s recent moves just added fuel to the fire and would seem to be a prelude to even bigger moves up in the weeks and months to come.

So with further pressure from a rising dollar and the Saudis determined not to cede further market share, where do we go from here? Well, the immediate question is: Are US producers going to slow down and stop drilling? We are already seeing drilling budgets slashed for this year, but most of these moves are with resources that are easier to throttle up and down, like conventional drilling and development of newer shale basins. Longer-term projects, like those in the deepwater Gulf of Mexico and Canadian oil sands, can take a decade to bring to market. These will continue to be developed, but there will certainly be some reduction in pace. There is still more supply coming in the next few months from wells already drilled that are coming on stream. Beyond those wells we still have many domestic producers, especially the smaller more vulnerable ones who are significantly hedged for the next two years. The Financial Times pointed out that Pioneer Natural Resources reported in August that it had bought options to sell in 2016 54,000 barrels of oil a day— about 65% of its oil production in 2014— with an average floor price of $85.83 per barrel. So with a lot of production locked in at prices over where we are already, and some out through 2016, it seems that while we’ll see things slow down, some producers will stay at it while they have hedges in place to cover that production. We also cannot forget about those longterm Gulf of Mexico projects. We have over 500,000 barrels per day of new production coming on stream from these new fields in 2015. Those fields took tens of billions in capital to develop, and now finished, they will be put on line no matter the price. We are, of course, still subject to the winds of war or dramatic changes in the political climate that can drive prices up overnight, but I think this stimulus will last quite a while. FMNMagazine

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Even if the reprieve is short-lived, many customers have already captured the benefits for their 2015 budget and some now covering 2016 as well. With costs 20 – 40% below the expense budget end users had planned on, we have been very busy securing those long-term costs for customers. Those savings for large energy users are big enough to enhance earnings for many of them by 2 – 3%. Boosted earning power like that will support further hiring and a more confident expansion. It will need to be that trend of an expanding economy and growing demand to lead prices back up from here as there is just no compelling case for reduced supplies that would launch us back up to triple digits. n

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

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FUELS & SUPPLY

by Alan Levine

The Growing Power of American Crude A

merica’s growing energy independence is impacting global markets in ways not generally anticipated when North American crude oil production bottomed in 2008. Higher crude oil levels have given American oil merchants assurance of a more secure source of product supply. They have also translated into lower prices and expanded profit margins on many products. And, since the laws of supply and demand have not been overturned, lower price has encouraged demand. More broadly, North American energy independence has lowered imports and helped reduce our balance of trade. Moreover, the competitive balance between natural gas and oil has improved. Another important change has been the realization that having so much crude oil available provides the United States with a big voice in international supply affairs. This country has long been the focus of petroleum consumption policies. Matters of production have more typically been directed to the Organization of the Petroleum Exporting Countries (OPEC) and its policies. Today, the United States and Russia figure importantly into world supply/demand balances.

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Crude oil production was on the wane when output reached five million barrels daily in 2008. This was roughly the same as experienced in 1949. Most recently, crude oil production has reached nine million barrels per day. The United States relied heavily on imports of crude oil and products to meet its needs in 2008. Crude oil imports approached 13 million barrels daily in that year. This was more than 80% of crude oil run in refineries. Energy independence has sharply reduced this country’s reliance on foreign sources. Imports of crude oil are now running around 6.9 million barrels daily, less than 47% of runs. The United States, along with Canada, is now contesting for global production leadership. Since mid-2014, the combined oil production of the United States and Canada rose nearly one million barrels daily (mbd) to a record 12.7 mbd, well exceeding that of both Saudi Arabia (12.7 mbd) and Russia (10.6 mbd).

The United States carries a lot of weight when thinking about controlling the supply of crude oil. Russia is contributing more than ten million barrels per day to global crude oil supply. Together they have much to say about where price might be going. As their power grows, that of OPEC wanes.

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FUELS & SUPPLY

International uncertainties abound. There are always possibilities for supply curtailment during which OPEC crude oil could become more important. Barring such situations, the availability of North American crude oil has shifted the locus of pricing and supply for a long time to come. Much is being made of the Saudi initiative to maintain production at the expense of price. Some analysts see this as an attack on new shale based production in the United States. Others point out that different motives may be at play, including an attempt to inflict economic damage on Iran, a challenger for primacy in the Persian Gulf region. Many observers do not believe that an agreement by OPEC members to reduce production in support of price is likely to occur. If there is no consensus and non-OPEC North America and Russia stand ready to supply, the value and even viability of OPEC must be questioned. A little more than forty years ago, OPEC initiated an embargo with long lasting impact on the

The Growing Power of American Crude

United States. That event explains today’s barriers to export of crude oil. It also signaled wresting of control of production from the international major oil companies. Subsequently, OPEC set production quotas intended to support price. With some notable exceptions, this system has remained in place. But the world has changed. Large-scale unrest in the Middle East and North Africa became known as the Arab Spring. To appease restive populations, many Middle East and North African (MENA) governments spent heavily on social programs. These came at a price. The International Monetary Fund (IMF), for example, estimates that the United Arab Emirates’ budget requires a crude oil price of $80 to balance. In 2008, the comparable number was around $25. As crude oil prices have softened, other OPEC nations have expressed concern. Venezuela, which needs around $100 per

barrel to balance its budget, has expressed interest in collective reduction of output among OPEC members. Saudi Arabia has been disinclined to agree. The newest factor impacting OPEC’s ability to control price is production growth in North America and Russia. Analysts expect the United States to pass both Saudi Arabia and Russia to become the largest oil producer in the world. Compounding the problem, global demand has been wavering. Moreover, Japan’s use of natural gas is growing. Assaults from alternative fuels are sure to impact OPEC’s ability to set the agenda for crude oil production in the years ahead. There are other ramifications for international affairs flowing from OPEC’s loss of control over output. Independence is a powerful weapon in the hands of the United States. It allows the country to take a more balanced stance in international affairs—less beholden to supplier nations. n

Alan H. Levine Alan is CEO of Powerhouse, a company offering the Power of Price Protection. Alan has served the energy industries since 1969 and focused on hedging and price risk management since 1977. He can be reached at alan@powerhouseTL.com and (202) 333-5380.

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Why are Voters in Denton Texas

Afraid of Fracking? by Dr. Barry Stevens

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Election Day 2014, voters in the City

Before discussing the rationale behind the proposition, let’s take a look at the Barnett Shale play. The Barnett Shale reserve is an onshore geological formation of sedimentary rock made of clay and quartz with a rich source of natural gas about a mile and half below the surface, and from 100 to 500 feet thick. Barnett, the nation’s first big shale play, contains about 39 trillion cubic feet (Tcf) of natural gas, and spans 5,000 square miles stretching from the city of Dallas west and south. Barnett covers four core North Texas counties (Denton, Johnson, Tarrant and Wise) and 21 non-core North Texas counties. One aspect of Barnett is its proximity to densely populated areas such as Fort Worth, the 17th-largest city in the United States and the fifth-largest city in Texas (2013 Census).

of Denton, Texas, a city within Barnett Shale gas field with a population of 123,099 (2013), approved by a 59% majority a proposition essentially banning hydraulic fracturing within city limits. Denton, strategically positioned within the Dallas/Fort Worth Metroplex, forms the apex of north central Texas’ “Golden Triangle.” The proposition states: “Shall an ordinance be enacted prohibiting, within the corporate limits of the city of Denton, Texas, hydraulic fracturing, a well stimulation process involving the use of water, sand and/or chemical additives pumped under high pressure to fracture subsurface non-porous rock formations such as shale to improve the flow of natural gas, oil, or other hydrocarbons into the well, with subsequent high rate, extended flowback to expel fracture fluids and solids.”

Historically, Barnett was the first unconventional shale formation to yield large quantities of natural gas, demonstrating that hydraulic fracturing and horizontal drilling could produce shale gas economically and profitably. The first well was drilled in Wise County in 1981. After almost 20 years of experimentation with hydraulic fracturing and new drilling techniques, production took off in 2003. Since 2000, the Railroad Commission of Texas—the state agency with primary regulatory jurisdiction over the oil and natural gas industry—has issued over 24,000 drilling and reentering permits in Barnett (Figure 1).

Figure 1: Barnett Shale Drilling Permits Issues 2000 through 2014 5,000

4,065

4,000

3,622

3,000

2,510 2,128 2,000

1,629

1,000

832

965

973

2002

2003

2,008

1,719 1,182

1,114

940

921

2013

2014 Jan-Oct 2014

276 0

2000

2001

2004

2005

2006

2007

2008

2009

2010

Source: Texas Railroad Commission Drilling Permit Query (Includes New Drill & ReEnter Permits)

2011

2012

As of Jan 2013, the Texas Commission on Environmental Quality estimates there were 17,361 producing gas wells and an additional 1,018 producing oil/condensate wells.


FUELS & SUPPLY

Why are Voters in Denton Texas Afraid of Fracking?

To round out the metrics, Figure 2 illustrates the production profile of natural gas production in the Barnett. In 2000, the shale produced 216 million cubic feet (MMcf) of natural gas per day and by 2012 production peaked at 5,748 MMcf per day. From 2000 to April 2014, the Barnett produced about 16.6 Tcf of natural gas— 45% of the entire estimated reserve.

Figure 2: Texas Barnett Shale Total Natural Gas Production

The statement “Fracking is a major reason why Denton has the most unhealthy air and highest rates of childhood asthma in Texas” is misleading and fails to address the impact of population growth and increase in traffic and road construction in Denton and the adjacent counties.

Million Cubic Feet (MMcf) Per Day

7,500

5,688 5,754 4,921

5,000

5,159

5,354 4,845

4,441

3,045

According to U.S. Census Bureau 2012 population estimates, the City of Denton, population 121,123, experienced a 6.8% increase in growth from 2010 to 2012. In 2011, Denton was ranked 7th among the fastest growing cities with populations of 100,000 or greater.

Furthermore, The Texas Commission on Environmental Quality stated, 1,384 “…point sources account for only 1,041 834 605 about one-tenth of the total NOx 369 216 (nitrogen oxide) emissions in the 0 Dallas-Fort Worth area. The majority 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Jan-Sept of NOx emissions in the DFW area Source: Texas Railroad Commission Production Data Query System (PDQ) 2014 come from on-road mobile sources 2 (cars and trucks) and non-road mobile The economic impact of the Barnett play is huge in terms of creating jobs, reducing sources (such as construction equipment, consumer cost of natural gas and electricity, increasing federal, state and local tax aircraft, and locomotives). NOx emissions revenue, and stimulating economic growth. lead to formation of ozone. 2,500

1,973

Despite fluctuating natural gas prices and a decline in the number of drilling rigs in the Barnett play, according to a new economic impact study by The Perryman Group— • The Barnett Shale natural gas field still contributes $11.8 billion a year to the North Texas economy, $700 million higher than what was reported in the firm’s last study in 2011. • Barnett Shale-related business activity accounts for about 108,000 jobs. • Local and state tax revenue from Barnett Shale activity totaled $1.1 billion: tax receipts of $480.6 million for local governments and $644.7 million for the state. • Banning fracking would cause potential losses of $251.4 million in economic activity in the city over 10 years and more than 2,000 jobs. The concern over hydraulic fracturing in Denton began as a grass roots campaign by the advocacy group Frack Free Denton. FFD’s website claims: • “OUR AIR—Fracking is a major reason why Denton has the most unhealthy air and highest rates of childhood asthma in Texas. • OUR WATER—Fracking a single well contaminates 4 – 8 million gallons of precious freshwater forever. • OUR HEALTH AND SAFETY—Denton residents pay the costs of pollution, toxic spills, and blowouts. • OUR ECONOMY—Fracking is a drag on economic development and accounts for only 0.2% of Denton’s economy. FMNMagazine

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In “Hell Is I-35 This Weekend,” The Dallas Observer advised on August 1, 2014, “If you had planned to drive anywhere near Interstate 35W in Fort Worth and Denton County this weekend, we and the Texas Department of Transportation have one request: Don’t. Really. Please, just don’t. If it seems like I-35W is perpetually under construction, the history of the road shows that it kind of has been. The 3.7-mile stretch north of Fort Worth is known to be the single most congested road in Texas, which is not news to any poor soul who has spent rush hour there.” The Denton Record-Chronicle reported, “The average number of ozone days in Denton County has dropped but remains well above the three days per year.” Emissions from natural gas production equipment were cited as a possible contributing factor to the problem.” Whatever the cause or causes of the regions’ nonattainment zone status by the US Environmental Protection Agency (EPA),


FUELS & SUPPLY

Why are Voters in Denton Texas Afraid of Fracking?

rather than taking the drastic measure to outlaw hydraulic fracturing, Denton’s lawmakers could have taken a more pragmatic approach by mandating the use of natural gas or electric powered drilling and fracking equipment instead of commonly used diesel fueled machinery. A nonattainment area is considered to have air quality worse than the National Ambient Air Quality Standards as defined in the Clean Air Act Amendments of 1970.

Whatever the cause or causes of the

regions’ nonattainment zone status by the US Environmental Protection Agency, rather than taking the drastic measure to outlaw hydraulic fracturing, Denton’s lawmakers could have taken a more pragmatic approach by mandating the use of natural gas or electric

Similarly, this and other less radical solutions could have been stipulated in conjunction with accompanying compressor stations, processing plants and trucks that also contribute to the pollution problem. In terms of methane emissions, many producers and suppliers have already deployed relatively inexpensive methane detection, capture technologies and are able to realize profits from the use of these techniques. It is important to note that the Barnett Shale is on the decline in drilling and production. NASDAQ reported, “The current surge in Texas is the rapidly developing Eagle Ford and Permian Basin production areas, which lifted the state’s output back above 3 million barrels per day (bpd) for the first time in more than three decades. That put the Lone Star state at more than a third of total US oil production, vs. about 12% for No. 2 North Dakota. Texas is on track to outpace Iraq, which, at 3.2 million bpd in April, is the Organization of the Petroleum Exporting Countries’ second-largest producer, behind Saudi Arabia.” The point is, as of July 2, 2014, no counties in the Permian Basin are classified a nonattainment zone by the EPA. “Contaminating 4 – 8 million gallons of precious water forever” is incorrect. Up to 50% of the contaminated frack water flows back to the surface within the first 30 days after hydraulic fracturing. This flowback water can be economically treated for reuse in another frack job or recycled into the environment to meet fresh water standards. The remaining 50% of the water either stays downhole or slowly returns to the surface with formation water during the life of a well. Here again, this produced water can be treated for reuse or recycling.

powered drilling and fracking equipment instead of commonly used diesel fueled machinery.

The point that “Denton residents pay the costs of pollution, toxic spills and blowouts,” is shortsighted. Texas is a strong home rule state that grants cities, municipalities and/or counties the ability to pass laws to govern themselves as they see fit (so long as they obey the state and federal constitutions). This enables municipalities to adopt regulations and issue a final permit for each drilling project in order to protect public health, safety and welfare of the citizens of the community. The permitting process also ensures the activity conforms with the established codes and regulations while minimizing any adverse impact to the public.

Forty-two miles from Denton, also in the Barnett shale gas play, Arlington, Texas, adopted an ordinance that states: “The exploration, development, and production of shale gas is an activity that necessitates reasonable regulations to ensure that all property owners and mineral rights owners, have the right to peaceably enjoy their property and its benefits and revenues. It is hereby declared that the purpose of this Ordinance is to establish equitable and uniform limitations, safeguards, and regulations for present and future operations on private and public property that will serve as a minimum standards for exploring, drilling, producing, transporting, and storing of gas, and other substances produced with gas within the City to protect the health, safety, and general welfare of the public; minimize the potential impact to private and public property and mineral rights owners; protect the quality of the environment, the water we drink and the air we breathe; and encourage the orderly production of available mineral resources.” Finally, it is unclear how Frack Free Denton arrived at the statement, “Fracking is a drag on economic development and accounts for only 0.2% of Denton’s economy.” There are misleading articles such as the one from EcoWatch, which headlined “Study Finds More Costs Than Benefits From Fracking.”

This gives Denton the authority to— • Impose penalties for failure to comply or engage in activities not permitted. • Ensure oversight through inspection and reporting requirements. • Regulate technology including green compliance, operations, equipment, fire prevention, air and water testing, noise, dust, vibration and odor restrictions. • Require security instruments by the permit holder in the form of cash, bonds, letters of credit, and insurance to recover any fines, penalties, defaults or violations. FMNMagazine

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However, the study’s executive summary is somewhat different from that implied by the headline. According Policy Matters, the study’s sponsor: “Shale industry development is shifting the economy, environment and culture of communities like Carroll County, Ohio. Drilling is supporting local businesses, gas stations, hotels and farms. It brings revenue to landowners and some jobs. The story, however, is complicated. Whether it ultimately helps or hurts will be determined by whether money stays in the community, who gets jobs, whether the gas is refined locally, whether local businesses provide services, and what the costs are.”


FUELS & SUPPLY

Why are Voters in Denton Texas Afraid of Fracking?

Additionally, the American Enterprise Institute, a private, conservative, not-for-profit institution dedicated to research and education on issues of government, politics, economics and social welfare, points out: “Along with its direct effects within the shale gas extraction industry, fracking has had a traceable effect on other industries as well. As natural gas production has increased over the past five years, so has its consumption within the USA—moving from a historical center at about 23 quadrillion BTUs per year to 24.256 in 2010 and 24.757 in 2011.” Much of this increase is attributable to electricity generation, where plants have switched some input from coal to natural gas as natural gas prices have dropped in the wake of its increased supply. Natural gas-fired electricity generates half the carbon dioxide of coal-fired production. An estimate of the indirect benefit of fracking should include an estimate of the potential social gains from this reduction. In closing, the ban is far from a done deal. Less than a day after Denton voters approved the proposition to ban hydraulic fracturing, the Texas Oil and Gas Association and the state’s General Land Office filed separate lawsuits to block Denton officials from enforcing the new law that bans hydraulic fracturing in city limits. The association and the land office called the ban unconstitutional. “By imposing a complete ban on hydraulic fracturing on oil and gas leases within its city limits, the city of Denton undermines this comprehensive state system of regulating oil and gas development,” says the lawsuit, prepared by former Texas Supreme Court Chief Justice Tom Phillips. “The ordinance’s complete ban second-guesses and impedes this state regulatory framework.” The battle lines are drawn, and a long and expensive fight lies ahead. n

Test Your FMN Acumen

In our industry, we use lots of esoteric acronyms. The list below represents many acronyms used in articles in this issue of Fuel Marketer News.

API ASTM BBPD Bcf BOE BPD Brent BTU CAGR CCA CRM CSA DEF DOT DWT EGR EMV EPA GDP HDPE

American Petroleum Institute (formerly known as) American Society for Testing and Materials Billion Barrels Per Day Billion Cubic Feet Barrel of Oil Equivalent Barrels Per Day Global Oil Benchmark British Thermal Unit Compound Annual Growth Rate Caucasus and Central Asia Customer Relationship Management Canadian Standards Association Diesel Exhaust Fluid Department of Transportation Double Wall Tank Exhaust Gas Recirculation Europay MasterCard VISA Environmental Protection Agency Gross Domestic Product High-Density Polyethylene

Dr. Barry Stevens Barry is an accomplished business developer and entrepreneur in technology-driven enterprises. He is the founder and President of TBD America Inc., a global technology business development group serving the private and public sectors in energy, fuels and water industries. The opinions expressed in this article are solely those of the author Dr. Barry Stevens, an accomplished business developer and entrepreneur in technologydriven enterprises. He is the founder and President of TBD America Inc., a global technology business development group serving the private and public sectors in energy, renewable energy, fuels and water industries. To learn more about Barry, please visit: http://www.tbdamericainc.com/Leadership.html

What Does That Mean

IBC IEA IMF ISO

Intermediate Bulk Container International Energy Agency International Monetary Fund International Organization for Standardization kbpd thousand barrels per day KXL Keystone XL oil pipeline LIUNA Laborers’ International Union of North America Mbd Million Barrels Daily Mcf Thousand Cubic Feet (natural gas) MENA Middle East and North African region Mmbpd Million Barrels Per Day MMcf Million Cubic Feet NACS National Association of Convenience Stores NAM National Association of Manufacturers NFC Near Field Communication NOx Nitrogen Oxide

OECD OPEC PAC PLC POS ppb Quad RoHS RTW SaaS SCADA SCR Tcf UL UV WCRI WTI

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?

The Organisation for Economic Co-operation and Development Organization of the Petroleum Exporting Countries Political Action Committee Programmable Logic Controller Point of Sale parts per billion Quadrillion BTUs Restriction of Hazardous Substances (UK) Return to Work Software as a Service Supervisory Control and Data Acquisition Selective Catalytic Reduction Trillion Cubic Feet Underwriter’s Laboratory Ultraviolet Workers Compensation Research Institute West Texas Intermediate


by Dr. Nancy Yamaguchi

Saudi Arabia:

Restraining from Restraint?


FUELS & SUPPLY

Saudi Arabia and the Relaxation of Crude Prices

The Global Crude Balance After oil prices spiked in 2008, the United States, and many other key consuming countries, toppled into a severe recession. According to the International Energy Agency (IEA), oil demand in the Organisation for Economic Co-operation and Development (OECD) countries fell by 3.9 mmbpd between 2007 and 2009. Demand has stagnated since then, and many forecasts anticipate a continual, gentle decline in OECD oil demand. European demand has slumped. The IEA forecasts that European demand will be 200 kbpd lower in 2014 than it was in 2013, and that it will decline by another 100 kbpd in 2015 . OECD supply, in contrast, is expanding because of the advances in shale oil development in the United States and the growth of production from oil sands in Canada. North American crude production has grown by approximately 4.3 mmbpd.

W

hen Saudi Arabia recently announced that it was reducing its official selling price for crude oil to the United States, the market responded immediately. As of the time of this writing in late November 2014, spot crude prices are at their lowest levels in four years (just under $76/barrel for West Texas Intermediate (WTI) and just under $80/b for Brent.) The Organization of the Petroleum Exporting Countries (OPEC) meeting was just held on November 27th, 2014. Analysts around the world have been watching every movement of every oil minister in every OPEC country, as well as the leaders of key producing countries such as Russia, Mexico, the United States and Canada. At the meeting, OPEC decided to maintain its production ceiling of 30 million barrels per day (mmbpd). The announcement is interpreted as a signal that the members will not make any significant cuts in production to strengthen crude prices. Current production levels are approximately 300,000 barrels per day (bpd) above the ceiling, but it is unclear who will reduce production by even that much. It is assumed that production would have to be cut by 1 to 1.5 mmbpd in order to truly strengthen prices, since output from the United States and Canada has grown so strongly. Therefore, a continued weakening of oil prices is likely.

The Middle East has lost ground in relative terms as a global supplier. Figure 1 illustrates how OPEC crude exports have fallen as a percentage of global supply. Using BP’s data series, in the year 2000, OPEC crude exports accounted for 24.6% of global oil demand. By 2013, this share had fallen to 21.5%. By this measure, OPEC crude exports have lost relevance in the global market.

There is intense focus on short-term market movements, yet the medium- and long-term movements also deserve consideration, since market supply has been growing while demand has been weak for several years. The market response is more than merely a drop in price. It signifies that many market participants are pondering the deeper meaning and the longer-term implications. Among OPEC members, who, if any, will reduce production? Will some expand output in efforts to balance government budgets? In the past, Saudi Arabia has played the role of swing producer and moderator. How many times has Saudi restraint prevented oversupply and price weakness? Conversely, how many times has market tightness been eased by Saudi ability and willingness to use its spare production capacity? The recent Saudi price cut coupled with the OPEC decision not to lower the production ceiling may signify that Saudi Arabia has grown weary of its role as moderator. There are many good reasons to believe that Saudi Arabia intends now to restrain itself from its policy of restraint.

Figure 1: Middle Eastern oil exports have fallen as percent of global demand

Saudi Arabia has massive oil reserves, extensive upstream and downstream infrastructure, strong international ties and a determined government. It is easy to see why it plays a major leadership role within OPEC and in the world oil market as a whole. Yet in some ways, it has lost ground, and the recent price drop may signal that Saudi Arabia intends to regain it, both upstream and downstream.

Figure 2 (next page) shows Saudi Arabia’s crude exports by destination, as reported by OPEC. Crude exports were typically around 7 mmbpd during the 2004 – 2008 period before falling to 6.3 mmbpd in 2009 in response to the global economic downturn. Exports recovered, and they climbed above 7.5 mmbpd in 2012.

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Source: BP

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FUELS & SUPPLY

Saudi Arabia: Restraining from Restraint?

However, exports remained flat in 2013, and some OPEC countries would like to change this.

Saudi Arabia made history in the mid-1980s when it decided to capture more value from its crude resource by building export-oriented refineries. Saudi Arabian refining capacity doubled from 0.7 mmbpd in 1980 to 1.4 mmbpd in 1985. Crude distillation capacity in 2014 was approximately 2.5 mmbpd, with another 0.4 mmbpd (the new YASREF refinery project) coming onstream. Although many other Middle Eastern countries followed suit and began to expand their domestic refining industries, a great deal of the product that was intended for export eventually ended up feeding domestic demand. Some Middle Eastern countries even became product importers.

kbpd

Figure 2: Saudi Arabia crude exports by destination

AP/unspec

Afr

ME

Eur

S.Am

Saudi Arabia remains a major exporter of refined product. It continued to invest in refining, with an emphasis on petrochemical-refinery integration. But product exports, while significant, have shrunk. As Figure 4 shows, product exports reached a peak of approximately 1.5 mmbpd in 1996, fell below 1.0 mmbpd in 2002, climbed back to 1.4 mmbpd in 2005 then slid to below 0.8 mmbpd in 2013. Refinery utilization rates have been suboptimal.

N. Am

Source: OPEC

Figure 4: Saudi Arabia product exports by destination

OPEC also has lost relevance on the refined product export side. Most OPEC countries subsidize fuel prices to their own consumers, which has stimulated demand growth. The strong internal demand has eaten into refined product exports. Refinery capacity has grown in the Middle East, but as Figure 3 illustrates, Middle Eastern refinery throughput as a percentage of global refinery output has stagnated since 2006, and it has fallen between 2011 and 2013.

kbpd

The Refined Products Side, and Output from Three New Saudi Refineries

Figure 3: Middle Eastern refinery capacity has increased, yet throughput has stagnated

AP/unspec

Afr

ME

Eur

S.Am

N. Am

Source: OPEC

Despite continued weak demand and low utilization, however, three Saudi megaprojects already were in the works, and two are now complete. The new 400,000 bpd Saudi Aramco Total Refining and Petrochemical Company refinery at Jubail was commissioned in 2013, and it shipped its first product in September. The 400,000 bpd Yanbu Aramco Sinopec Refining Company started coming onstream in the third quarter of 2014. The 400,000 bpd Jazan refinery is scheduled to be completed in 2016. Thus, Saudi Arabia will have an additional 1.2 million bpd of refinery capacity. All three refineries are highly sophisticated, deep conversion refineries, capable of producing high-quality fuels. Will Saudi Arabia run the new capacity flat out? If so, how much fuel will be produced?

Source: BP

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FUELS & SUPPLY

Saudi Arabia: Restraining from Restraint?

To answer this, the author used refinery modeling tools to build up the appropriate downstream configurations for these refineries, charged 400 kbpd of Arab Heavy crude to each, and quantified the potential output. Figure 5 presents the results, summarized as follows: • Middle distillates 614 kbpd • Gasoline 292 kbpd • LPG and naphtha 95 kbpd • Coke, fuel oil and other products 92 kbpd

Figure 5: Refinery Model Output, three New Saudi Refineries

Saudi Arabia and the United States: Two Export Refiners

95.28338637

92.3338818 614.456654

Saudi Arabia’s decision to reduce crude prices to the United States indicates that it wishes to remain competitive, particularly in the US Gulf Coast. One of the reasons that US domestic crude prices have been suppressed is the localized surplus of crude supplies in the center of the country. Shale oils are produced in this central corridor, and Canadian crudes and bitumen-based products also flow south through this heartland. The US government places restrictions on exports of US domestic crudes, and many American companies have responded by increasing their refinery crude throughput and exporting refined product instead. US refined product exports jumped from 863 kbpd in 2000 to 2,790 kbpd during the first three quarters of 2014.

291.59

LPG/Nap

Gasoline

Middist

Coke/FO/Other

Source: Trans-Energy Research Associates

Assuming this output, Figure 6 compares Saudi Arabia’s historical refinery output 2002 – 2013 (per OPEC) with what it might reach in 2016/2017 if the new output is added to the level of output in 2013—which, as noted, is less than the Saudi refining system is capable of producing. Seen in this light, the new refineries may create a huge leap in output, raising the questions of where the product will go, and what impact it will have on product prices.

So, we can now identify an important parallel between the United States and Saudi Arabia: both are export refiners competing in a less than lustrous market. Saudi Arabia will be able to refine an additional 1,200 kbpd within the next two or three years (400 kbpd was added in 2013, another 400 kbpd in 2014, and another 400 kbpd is scheduled for 2016). By expanding refinery capacity, Saudi Arabia will be able to use an additional 1,200 kbpd of crude to produce petrochemicals and petroleum products without violating its commitment to stay within OPEC crude production ceilings.

Figure 6: Saudi Arabian refinery output 2002– 2013, with possible 2016/2017 output

kbpd

Most of the product should flow to Asia, but some additional volumes inevitably will flow into Europe where demand is weak and refinery utilization rates already are low. Although the United States has been exporting most of its refined product to Latin America, it also has exported increasing volumes to Europe. Diesel exports in particular have grown recently, heading for the Netherlands, France, Belgium, Italy, Spain, the United Kingdom and Turkey. While Saudi Arabia and the United States have often been viewed as partners in some ways, they will become more competitive in terms of export refining. Europe is likely to be the key battleground, and it bodes ill for certain European refineries that already are languishing.

Source: 2002 – 2013 per OPEC, 2016/17 forecast per Trans-Energy Research Associates *Trans-Energy's forecast model output

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Saudi Arabia: Restraining from Restraint?

A Final Note: Saudi Restraint and the End of the Oil Age? Despite immense resources and wealth, Saudi Arabia has tended toward restraint in crude marketing. It has often served as a market moderator within OPEC. But rather than lose market share, it now seems likely to keep exports high and allow prices to weaken. Also, the country just completed two new refineries of 0.4 mmbpd each, with another 0.4 mmbpd refinery underway. Therefore, Saudi Arabia will be able to transform 1.2 mmbpd of crude into refined products, competing with refineries in Asia, Europe, and the United States. Both crude and product prices are likely to decline, making it difficult for oil exporters to balance their budgets, but increasing disposable income for consumers. As a final note, BP places Saudi Arabia’s current reserves-to-production ratio at 63.2 years. It does not take a huge leap of imagination to foresee the end of the “Oil Age” within those sixty-three years. Accordingly, it does not take a huge leap of imagination to see the economic sense of a new Saudi Arabian policy of restraining from its past policies of restraint. It is logical to think that there will always be oil available for a price, and it is logical to assume that there will always be some demand for it. But it also makes sense from a Saudi standpoint to use the resource wisely and invest in the future, rather than leave decades worth of oil in the ground while its neighbors continue with business as usual. n Author’s Postscript: This article was written in November 2014, but went to press in January 2015. WTI spot prices have continued to fall to below $50/b.

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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 TransEnergy 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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RETAIL OPERATIONS

by Maura Keller

Fleet Card Programs: An Evolving Success Story The fleet fueling industry originated in the late 1970s around private label fleet cards, which were primarily issued through petroleum marketers who owned bulk fueling locations and needed a method for dispensing fuel into commercial vehicles—other than through a dispenser attached to their bulk fueling station. “The solution was found in the form of a technology called ‘cardlock,’” said Shane Dyer, president of PowerUp Fleet. “This automated fueling system enabled a petroleum marketer to set up a fueling location, often directly attached to the bulk plant tanks, and issue cards that provided their customers with both security and control over their employees’ purchases.” PowerUp Fleet is a leading authority on commercial fleet fueling. They support over 100 clients nationwide in designing, marketing, and supporting their proprietary fleet card programs. Their expertise includes the evaluation, design and implementation of transaction processing systems, fleet fueling based accounting system implementation, sales force automation and customer relationship management specific to fleet fueling, and sales force training services.

As Dyer explains, in the mid to late 1980s, the petroleum marketers who owned these cardlock locations formed cardlock networks that allowed each other’s customers to share the facilities under reciprocal agreements. “These agreements ensured that the fuel purchased by the customer using a reciprocal location would be based on the wholesale cost and not a retail price,” Dyer said. “This enabled the petroleum marketer to expand their footprint of locations whereby they could offer both a competitive price and enjoy the greatest margin possible.” These networks were owned and managed by petroleum marketers who were mutually dependent upon the viability of the network. On a concurrent path, owners of service stations had commercial customers buying fuel under house accounts. These were simply ledger cards that recorded the fuel purchased and subsequently were billed to the business. “There was no security, control, or detail similar to the cardlock fueling option,” Dyer said. “However, major oil companies recognized the need to assist their dealers in carrying the credit for

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RETAIL OPERATIONS these accounts and began developing ‘fleet credit cards.’” These cards were limited in functionality; however, they worked in every location that was branded by the major oil company. In time, these card processing services developed by the major oil companies morphed into what our industry now recognizes as universal cards. These two parallel paths progressed separately until early 2000, when the industry began a consolidation and merger of the fleet card options. The reciprocal cardlock networks began integrating retail fueling locations under their model, and universal cards began integrating acceptance into the cardlock locations. As a result, there occurred a blending of two distinctly different fleet fueling experiences. “Jumping forward to today, our industry has gone through a major consolidation of card processors whereby most fleet card options that petroleum marketers might consider engaging are limited to those offered by Fleetcor, WEX Inc., or Voyager—all multinational corporations focused on the growth of their transaction processing services,” Dyer said. “In this transformation, the core value of proprietary cards treasured by the petroleum marketer and fleet customer alike is being diminished. Most important is a loss of control over their customer base and destiny. As a result, petroleum marketers are seeking proprietary card solutions that return control so that they can isolate and protect their hard earned customers.”

Ramel Lindsay, U.S. Bank Fleet Product Manager, said data collection on today’s fleet cards is more sophisticated and more comprehensive than ever, and that data is being integrated with information from other sources to help organizations operate their fleets more and more efficiently. “As resources and time become more constrained, fleet managers find it very important to have systems in place that can pool all of their fleet-related data

Technological Advancements

Fleet Card Programs: An Evolving Success Story rather than have it reside in separate buckets,” Lindsay said. “This integrated approach greatly improves financial forecasting, risk management and pricing, among other things.” In the case of the U.S. Bank Voyager Fleet Card, every card transaction captures 117 pieces of information. Whether you need a high level glimpse of operations or a microscope into specific activity, it’s as easy as setting report parameters.

“Fleet managers can be more ‘surgical’ in their fleet management decisions because they can get specific real-time information on vehicle location, fuel usage, speed and mileage. They can compare reports month-to-month or year-to-year, going back as long as three years to detect patterns,” Lindsay said.

“Petroleum marketers who secure fleet fueling customers are developing a clientele that they can directly control and influence over a long-term business relationship,” Dyer said. “This is in contrast to retail customers that can ebb and flow in and out of your site.” Shane Dyer, president of PowerUp Fleet

More private label card programs also are now offering options for “cardless” purchases in emergencies or at times when purchasing with a card is not an option. For example, this year U.S. Bank launched U.S. Bank Fleet Virtual Pay. As Lindsay explained, when a driver is unable to use the Voyager card for an unexpected repair in an unexpected place, the service provider calls a toll-free number to get a unique, single-use account number for a cardless transaction. “The number is generated by MasterCard, which effectively extends the Voyager Card’s reach beyond the Voyager network of 230,000 locations to all MasterCardaccepting locations,” Lindsay said. “At the same time, the transaction generates the FMNMagazine

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detailed ‘Level III’ data, based on MasterCard Fleet prompting and capture, that our Voyager Network customers expect—information like odometer reading, fuel type selected, gallons pumped and price per gallon. This gives organizations greater visibility and control over driver spending.”

According to a recent industry survey, the fleet market in the United States represents $235 billion annually, with only $85 billion currently being charged to a fleet card product.

Advantages Aplenty

“The opportunity for proprietary fleet cards is huge, and thus why the stocks of Fleetcor and WEX have been skyrocketing,” Dyer said. An overall fleet services approach typically encompasses vehicle leasing, maintenance, and logistics in addition to fuel. ”Fuel is the No. 1 expense and priority for most fleets,” Dyer said. While many companies are trying to bundle all of these components into a single service, most businesses are going to work with the fleet fueling provider who offers the best value. That value is a composition of controls, efficient fueling environments, reporting, and competitive price. “The truth of the matter is, there is no real value in bundling your fuel with a total service provider, and it often ends up costing you more than if you were to strategically work with a proprietary card issuer,” Dyer said. “The concern of data integration is simple. As a proprietary fleet card issuer, you have to use billing systems capable of producing the data that can be imported into the Telematics or fleet maintenance systems.” “Petroleum marketers who secure fleet fueling customers are developing a clientele that they can directly control and influence over a long-term business relationship,” Dyer said. “This is in contrast to retail customers that can ebb and flow in and out of your site.”


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As Dyer explains, with fleet customers, they are going to be bound to using your locations because you offer a controlled fueling environment that reduces or eliminates unauthorized purchases, expedites the fueling process to allow their employees to be more productive, and provides complete accountability over their fuel consumption. “The most appropriate customer for a fleet card program is a business with employees driving vehicles where they are concerned about control and security,” Dyer said. “A mom and pop operation is less likely to value the programs being offered. Petroleum marketers who invest in a proprietary fleet card program rather than partnering with a major card issuer enjoy better control and profitability as they don’t have to share both valuable customer information and revenue.” S. David Padgett, sales and marketing executive of Davison Fuels, launched the Fuel Masters Fleet Card on the U.S. Bank

Fleet Card Programs: An Evolving Success Story

Embracing Successful Programs

Voyager Network a little over two years ago.

“We did it because we had spoken to others in the industry who confirmed Voyager’s reputation in the marketplace for being a quality partner to wholesale petroleum distributors like us,” Padgett said. “The Voyager Network has nationwide acceptance and excellent online tools to help our customers manage their fleet programs.” Padgett said the main advantage of a cobranding relationship is that it allows you to build your own brand with the help of another well-respected company. Davison Fuels has experience with this kind of arrangement. “For 25 years we have sold our ‘Pride’ brand of quality lubricants, which has been very successful,” Padgett said. “So when we decided it was time to launch the Fuel Masters Fleet Card, it only made

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sense to take a similar approach, and it only made sense to go with Voyager, one of the most established and respected fleet networks in the marketplace.” Co-branded fleet cards are those cards issued by the major fleet card processing companies such as WEX, Fleetcor, or Voyager. As Dyer explains, the cards are programmatically the same as the issuer’s card, and they carry the issuer’s logo on the front. However they are co-branded with the marketing company’s logo as well. “The marketing company is paid a commission in most cases for marketing the card,” Dyer said. “The card typically works in every location where the card is accepted. Therefore a petroleum company wanting to issue a card through one of these major processors, and have that card only work at their own sites, would not want to issue a co-branded card.” Instead they would issue a “private label” card through the major processor. It’s the same card programmatically, however it is restricted to the designated


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Fleet Card Programs: An Evolving Success Story

locations and doesn’t carry the card issuer’s logo on the card.

Whether co-branding or going solo, industry experts agree that creating and implementing the proprietary card is the easiest part. Where most proprietary fleet card issuers fail is in successfully creating and following though on a marketing campaign that includes the hiring and training of effective salespeople. “The old adage of ‘build it and they will come’ doesn’t apply,” Dyer said. “Also, a common mistake is the failure to recognize the importance of having a quality billing system capable of delivering the best value to the fleet customer. Billing systems are not all created equal when it comes to managing a proprietary fleet card, and they can spell the difference between success and failure.” Padgett said one of the U.S. Bank Voyager Network’s biggest strengths is its internetbased program management tool, which they call Fleet Commander Online.

Whether co-branding or going solo, industry experts agree that creating and implementing the proprietary card is the easiest part. Where most proprietary fleet card issuers fail is in successfully creating and following though on a marketing campaign that includes the hiring and training of effective salespeople.

“It’s a very user-friendly portal that helps end users in many different ways to organize their cards: setting up accounts, deleting them, setting up security, and accessing data that gives them what they need to manage their business,” Padgett said. “Our customers have really benefitted from that.” But be careful, Padgett stresses that if you partner with an organization that does not

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live up to the quality and service expectations your customers are used to having from you, you can do great damage to your brand. “Your name is on the front, you’re the one they blame,” Padgett said. “You need to choose your partners carefully. Our choice of U.S. Bank Voyager has been fantastic. They hold us, and all of their partners to high standards for creditworthiness and other key criteria. We were impressed with that.” Prior to jumping on the proverbial private fleet card program, you should consider if it can help you build your brand, and that the partner has the same high standards that you do. “For us, teaming up with U.S. Bank and the Voyager Network is paying off,” Padgett said. “We started from zero and are now doing millions in volume. It has pleasantly exceeded our growth expectations for two years running and we look forward to keeping it growing.”


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Fleet Card Programs: An Evolving Success Story

On the Horizon

Indeed, the future is bright for proprietary cards. Here’s why: “As the industry continues to consolidate towards monopoly status, which I think we are already there in a couple of instances, the desire for fleets to have alternatives is going to increase,” Dyer said. “The proprietary card issuers will be in a great position to capitalize on this.” Dyer’s prediction is that fees to the end user are going to increase through those monopolizing the industry. This, in turn, will drive demand back to the proprietary providers.

“”

“There’s a point when big becomes too big,” Dyer said. “I believe we’ve reached that point in our industry.” Lindsay also points out that the technology around card programs is constantly advancing. “We’re also currently rolling out pump shut off technology to enforce adherence to fleet policy spending limits,” Lindsay said. “It leaves nothing to chance; drivers cannot

exceed established spending thresholds when purchasing fuel, maintenance or additives at participating locations.” And next year U.S. Bank is planning to introduce a mobile fuel locator to help drivers find the lowest prices or the specific kind of fuel they need. This will give drivers and fleet managers a third way to locate merchants—the others being a webbased merchant locator and, of course, 24/7 access to our customer service representatives. “Mobile solutions in general are the next major evolution in the fleet space,” Lindsay said. “Some oil companies already use them for their rewards programs. Our own product development is focused on how to incorporate more of our solutions into the so-called mobile wallet.” Finally, EMV is on the way in the US to provide an extra level of security for cardholders. EMV (Europay MasterCard VISA) cards are imbedded with a computer chip that generates a unique code for every transaction, thus greatly reducing fraud risk. n

Safety and Security in Fleet Card Programs There are several best practices that U.S. Bank Voyager recommends managers and drivers do to ensure success from an efficiency and security standpoint.

Fleet managers should • Review transaction reports frequently, between monthly billing statements. • Be mindful of how card data is stored and destroyed. • Keep driver account records current. Ask for and schedule fraud control reports from your card provider to verify that appropriate fraud controls are in place and that adjustments are being made as appropriate. If a driver leaves the organization for any reason, ensure the card is returned to the fleet manager.

Drivers should • Store cards in a safe and secure location – never leave them out in the open.

“Onerous new regulations could threaten the shale energy revolution, America’s role as a global energy superpower, and the dramatic reductions in CO2 emissions made possible by an abundant and affordable domestic supply of clean-burning natural gas. We need our government to implement sound policies, but this plan seems to be based on politics. We hope EPA will work with industry during the regulatory process to ensure that any regulations are based on science and technology and do not impair the industry’s ability to supply America with energy.”

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• Store driver ID/contract information in a separate secure location and never in the same wallet as the card. • Report lost or stolen cards immediately. • Report any questionable transactions fleet managers immediately. • Never let an unauthorized person use the card. • Never use fuel pumps that appear to have been tampered with. • Watch cards carefully during in-store transactions and ensure they are returned promptly.


RETAIL OPERATIONS

by Vlad Collak

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The Mixed Bag that is Apple Pay This summer I wrote an article about the

emergence of mobile payments. The article both explored the potential and the promise of mobile payments, as well as covered several emerging mobile payment platforms. As it is often the case, a lot can happen in short few months. Since then Apple, in its typical fashion, released a product called Apple Pay that seems to be taking the world of mobile payments by the storm. If nothing else, there is a lot of buzz surrounding Apple’s new innovation, so some exploration into what it is and how it works seems warranted. Specifically, this article will dive into what Apple Pay is, what are some of its end-user benefits, as well as what’s in it for merchants, banks and Apple itself. Lastly, the article also touches on Apple Pay’s adoption thus far, and discusses some of its weaknesses. The basic premise of Apple Pay is allowing consumers to purchase products and services using their iPhones. The process typically starts at the payment terminal itself. Instead of swiping a card, consumers would place their phone near the terminal while placing a finger on the phone’s fingerprint reader. The rest of the process follows a familiar path, often even bypassing the need to sign for the transaction. While on the surface, the technology is just as simple as the traditional magnetic credit card system, behind the scenes it is much more complex and secure. To start with, the process itself does not work without the user’s fingerprint. Unlike credit cards that can be stolen, lifting someone’s fingerprint is a bit more complicated. Likewise, while behind the scenes Apple Pay uses credit card networks and leverages the consumer’s actual credit card, the card number itself is never transmitted. This additional layer of security also prevents hackers from stealing credit card numbers directly from

merchants’ point of sale systems as it was in the case of last year’s Target breach. As a result, the chief consumer benefit of Apple Pay is security. Similarly, the technology also offers more privacy when compared to swiping a traditional credit/debit card simply because no private information including the consumer’s name is ever shown or transmitted. Likewise, Apple does not share the purchase history with the merchant, thereby making the transaction completely private1. Apart from security and privacy, the new payment system also has a potential to redefine the end-user experience at the store itself. For instance, with the advent of new wearable technologies like the Apple Watch, users will be able to pay with the watch making the entire process even more frictionless. In addition consumers now have the ability to purchase a product online and pick it up at the store when ready, thus potentially bypassing long lines at the register. Although a little bit more muted, merchants can see some benefits as well. Outside of providing a better and safer FMNMagazine

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shopping experience for their customers, merchants can benefit from what the behavioral economists call decoupling. Specifically, studies have shown that the more shoppers are distanced from the actual currency, the more they tend to spend. This is because decoupling mentally separates consumers from their money, making it easier for them to spend it2. This is partly why credit and debit cards have been so successful and why companies like Starbucks already use their own forms of mobile payments. In theory, the same should extend to Apple Pay, and therefore providing merchants with more sales opportunities. Banks will likely see some positives as well. Because of the increased security that Apple Pay provides, banks can potentially curb fraud committed using traditional magnetic stripe credit cards, thus eliminating costs. This is why Apple was able to persuade them to share a fraction of the interchange fees. Specifically, according to some sources, Apple receives 0.15% of each transaction value3.


RETAIL OPERATIONS

The Mixed Bag that is Apple Pay merchants, there is no automatic way to tie a transaction to customer’s loyalty account. For now, that can only occur outside of Apple Pay, for instance, in a form of entering a loyalty number at the payment terminal prior to completing the purchase. However, it is rumored that Apple will add a loyalty component at some point in order to provide additional incentive for iPhone users to leverage Apple Pay8. What is unclear is whether the same mechanism will also allow merchants themselves to leverage the loyalty program or whether this is merely an Apple-only mechanism. Even Apple partners are not all too thrilled with this status quo. When asked about the inability of Apple Pay to integrate with merchant loyalty programs, Blaine Hurst, Panera Bread’s executive vice president for technology and transformation said, “Obviously, that’s not where we want to be.”7

Banks will likely see some positives as well. Because of the increased security that Apple Pay provides, banks can potentially curb fraud committed using traditional magnetic stripe credit cards, thus eliminating costs. This is why Apple was able to persuade them to share a fraction of the interchange fees. Specifically, according to some sources, Apple receives 0.15% of each transaction value3.

Unsurprisingly, any new technology will likely have both its fans as well as critics. It will also likely have both benefits and downsides for its various stakeholders. However, one true success measure of any new technology is its level of adoption and growth. In terms of Apple Pay, Apple is partnering with three out of four major US credit card networks including Visa, MasterCard, and American Express9. (Discover is not part of Apple Pay.) Further, 19 card issuers (banks)— including top five largest US banks: Chase, Bank of America, Citi, Wells Fargo, and US Bank—have signed deals with Apple10. In terms of merchants, Apple Pay is accepted in approximately 220,000 retail stores in the United States including merchants like Walgreens, Subway, Staples, Macy’s, McDonald’s, Cumberland Farms, Chevron and Texaco and others. That number represents roughly 6% of all retail locations in the United States11.

Even though there is no doubt that Apple Pay has an enormous potential, there are those who are vocal about its shortcomings. In all likelihood, the adoption rates are likely to As Lyle Beckwith, senior vice president of climb further. A contributing factor may be that government relations for the National merchants themselves actually do not need to Association of Convenience Stores (NACS) officially partner with Apple to enable Apple astutely pointed out in his Wall Street …it is rumored that Apple will add a Pay. They simply need to have and enable near Journal article, Apple Pay fell short of field communication (NFC) on their payment revolutionizing the entire end-to-end loyalty component at some point in terminals. That adoption is likely to accelerate system of payment processing. Because order to provide additional incentive quickly as all major US credit card networks set the technology still relies on the for iPhone users to leverage Apple some requirements around the new types of established credit card processing system, Pay8. What is unclear is whether the terminals. Specifically, after October 2015 any it does not eliminate the interchange fees. merchant that is not compliant with the new On average, the fee in the US is 2% of same mechanism will also allow EMV standard will assume responsibility for each transaction amounting to merchants themselves to leverage the fraudulent transactions where card was approximately $50 billion every year4. loyalty program or whether this is present. While that’s not directly tied to Apple According to NACS, convenience stores Pay and NFC, many of the new terminals merely an Apple-only mechanism. alone paid $11 billion in fees last year, and already include NFC12. For instance, when the fees often exceeded the profits these Cumberland Farms upgraded their 600 Florida merchants made on some products. in-store terminals recently, Apple Pay worked Moreover, according to Beckwith the fees out of the box13. have tripled over the past decade and already represent the “second-highest operating expense for All in all, the fundamental takeaway is this: While it is doubtful that merchants” up from fourth largest cost in 2004 as reported by Apple Pay will become a dominant method of overall payments Peter Lucas6. anytime soon, it’s plausible that it may become one of the two (or three) dominant mobile payment platforms. With a rapid adoption Another Apple Pay criticism stems from its inability to integrate of new payment terminals and given the fact that consumers actually with merchants’ loyalty programs. Specifically, because purchase like the new payment experience, it’s conceivable that Apple Pay will transactions do not reveal user identifiable information to

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The Mixed Bag that is Apple Pay

be reasonably successful. Having said that, one would only hope that Apple continues to improve the platform and eliminates some of its weaknesses, including the inability to draw directly from customers’ bank accounts and thus giving merchants and consumers a choice to eliminate the interchange fees. n References 1. “Retail Chains, QSRs to Join Apple Pay.” September 11, 2014. http://www.nacsonline.com/News/Daily/Pages /ND0911142.aspx#.VHiyTqTF89a 2. “Is Apple Pay a Retailer’s Best Friend?” October 21, 2014. http://www.nacsonline.com/news/daily/pages/ nd1021141.aspx#.VHZezVXF84J 3. “Apple Pay gets a cut of debit card (not just credit card) purchases, analyst says.” November 3, 2014 http://venturebeat.com/2014/11/03/applepay-gets-a-cut-of-debit-card-not-just-creditcard-purchases-analyst-says/ 4. “The Worm in Apple Pay.” http://online.wsj.com/articles/lyle-beckwiththe-worm-in-apple-pay-1415059532

“”

http://www.creditcards.com/credit-cardnews/emv-faq-chip-cards-answers-1264.php

13. “Cumberland Farms embraces Apple Pay.” November 25, 2014. http://www.techrepublic.com/article/cumber land-farms-embraces-apple-pay-to-add-inapp-pay-at-the-pump/

Vladimir Collak

Kristen Parker of Delta Township, Michigan, said her 2002 Pontiac Bonneville is on its last legs and she’ll likely replace it with another sedan. But she’s at least considering a smaller SUV. “Had it been a year ago there is no way I would have looked at an SUV,” said Parker, a public relations professional and mother of three, whose other car is a minivan. “I thought if I can get myself into an SUV while the gas prices are lower ... I’m going to do it now.” Associated Press article, January 12, 2015

5. “Merchant Acquirers and Payment Card Processors: A look inside the Black Box.” First Quarter 2006. http://cdn.arstechnica.net/wpcontent/uploads/2014/10/erq106degennaro1. pdf 6. Lucas, Peter. 2004. Why gasoline retailers are fuming. Credit Card Management (August): 20. 7. “Apple Pay is Too Anonymous for Some Retailers.” October 20, 2014. http://www.businessweek.com/articles/201410-20/apple-pay-is-too-anonymous-forpanera-starbucks-and-other-retailers 8. “Rumor: Apple Pay loyalty program could launch in time for Christmas.” October 21, 2014. http://appleinsider.com/articles/14/10/21/rum or-apple-pay-loyalty-program-could-launch-intime-for-christmas 9. “Apple Pay.” http://www.macrumors.com/roundup/applepay/ 10. “Apple Pay participating issuers.” http://support.apple.com/en-us/HT6288 11. “Retail’s Impact.” https://nrf.com/advocacy/retails-impact 12. “8 FAQs about the new EMV credit cards.”

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Vlad currently serves as president and CEO of Ignite Media. Ignite builds mobile and web solutions primarily for the Oil & Gas industry that includes clients such as Mansfield Oil, Enbridge, Total Safety, Universal Plant Services and others. Prior to Ignite he served at FuelQuest as manager of research and development and at Xerox Connect as principal consultant providing technology solutions to clients including Continental Airlines and Equifax. Vladimir holds a Bachelor of Science degree in Information Technology. He also holds an MBA degree from the University of Texas at Tyler. He can be found on his blog at www.collak.net and at vlad@collak.net


RETAIL OPERATIONS

DEF Demand Projections Pull Strong Infrastructure Growth by Dr. Jeanne Riot The Diesel Exhaust Fluid (DEF) market is expanding strongly; consumption is expected to surpass one billion gallons by the end of the decade. Ensuring DEF is available across North America opens up new challenges and opportunities for fuel retailers and truck stop operators. How is DEF supplied and how is infrastructure evolving to meet the demands of increased DEF usage? In line with increasingly stringent environmental regulations, one of the main challenges for diesel-powered vehicles is to keep engine NOx emissions low. All truck and several passenger car manufacturers have chosen to use Selective Catalytic Reduction (SCR) after-treatment technology in order to meet requirements. To operate, this technology requires the use of diesel exhaust fluid, an aqueous urea solution. DEF can be delivered in several formats and packaging options to serve different consumer segments. The smallest packaging options consist of 1-gallon or 2.5-gallon jugs. Easy to use, distribute and store, these can be used as a carry-on solution for heavy-duty trucks and for the majority of diesel passenger cars and light-duty vehicles equipped with SCR.

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DEF Demand Projections Pull Strong Infrastructure Growth

However, these formats are more expensive and inadequate for larger consumption requirements such as those of truck fleets. Bulk DEF deliveries are an option for truck and bus fleets that require larger quantities of DEF and choose to install permanent storage tanks. These fleets typically purchase DEF in volumes ranging from 500 to 8,000 gallons (full truck load deliveries). However, even if larger deliveries can help reduce costs for end-users, upfront investment remains significant and maintenance of these storage facilities is costly.

Tennessee and California. The only states that are yet to open DEF pump locations are Alaska, Hawaii and Vermont, with the latter being the only state in the contiguous 48 states without DEF pumps. In Canada, the province of Ontario has the largest DEF network, with 27 equipped locations operating in October 2014. Prince Edward Island is the only province in Canada with no DEF pump locations. None of Canada’s territories (Yukon, Northwest Territories and Nunavut) have opened DEF equipped locations yet.

Figure 2: DEF Pump Locations on All Major Interstate Trucking Routes

Businesses with a smaller number of vehicles requiring DEF and off-highway equipment owners can also rely on 275 or 330 gallon tote containers, which present an intermediate solution between jugs and bulk deliveries. Though cheaper and easy to store, totes present higher risks of contamination if not refilled correctly. Retail pumps at DEF truck stops present an alternative for end-users. It is, however, worth noting that the price per gallon of DEF at the pump is higher than bulk delivery pricing. This option could, in time, become an alternative to additional equipment investments, such as buried storage tanks or electric pumps at fleet terminals—the costs of which are currently borne by business owners. With pump delivery systems though, costs would shift from the end-user to fuel retailers, as they would be the ones making important infrastructure investments upfront.

Figure 1: Estimate of US DEF Market Share by Format, 2014 Jugs Totes Bulk Other

Pilot Flying J Love’s TA Other

Source: DiscoverDEF, October 2014

America can be found in Oklahoma, Indiana, Ohio, Illinois, Tennessee and California. The only states that are yet to open DEF pump locations are Alaska, Hawaii and Vermont, with the latter being the only state in the contiguous 48 states without DEF pumps. In Canada, the province of Ontario has the largest DEF network, with 27 equipped locations operating in October 2014. Prince Edward Island is the only province in Canada with no DEF pump locations. None of Canada’s territories (Yukon, Northwest Territories and Nunavut) have opened DEF equipped locations yet. Three main truck stop brands operate most DEF filling stations: Pilot Flying J, Love’s Travel Stops and TA Travel Centers. These were the first brands to install DEF at the pump and they now offer DEF at nearly all locations.

Source: Integer Research

The North American truck stop infrastructure has grown dramatically over the past four years. According to Integer’s database, more than 1,800 truck stops offered DEF as of October 2014. This points to a network that is now fairly well spread throughout the United States. On the other hand, the Canadian DEF retail network is still in its early stages, with only 71 locations currently in operation.

Pilot manages a total of 670 locations, of which 574 operate bulk DEF dispensers as of October 2014, and is present in both the US and Canada. Love’s is the second largest operator in North America with 329 operated locations with bulk DEF available at all of them. TA Travel Centers operates the third largest DEF network in North America. It operates 208 locations under the TA name and an additional 41 locations operated under the name Petro, therefore TA’s total DEF network consists of 249 locations.

The ten states with the largest DEF infrastructure represent 45% of North America’s entire DEF truck stop network. Texas holds the largest number of DEF truck stop locations, with more than 150 sites. The other largest DEF networks in North America can be found in Oklahoma, Indiana, Ohio, Illinois,

Other notable brands in the US include Pacific Pride cardlocks, Speedway and Roady’s. They operate smaller networks compared with the major brands, but continue to expand month-on-month. In Canada, the other main brands are Petro-Canada and Husky, which are contributing to the expansion of Canada’s DEF infrastructure.

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Dr. Jeanne Riot Despite this widespread availability of DEF dispensed at truck stop locations, some areas still remain uncovered by DEF pumps, especially on the West Coast and in Central Canada, where as a result, DEF is often delivered in bulk across long distances. DEF consumption is set to quadruple in the next ten years and several factors will impact its growth, for example, the expected increase of diesel powered vehicle sales. According to Integer’s estimates, North American diesel vehicle sales will account for more than two million units across segments in 2025. Another factor is legislation. After 2017, new targets to lower particulates will imply higher engine-out NOx emissions. Vehicle manufacturers will therefore increasingly resort to SCR technology to meet environmental targets and DEF dosing rates are likely to increase in order to reduce engine NOx emissions. Moreover, a combination of higher DEF consumption and fuel economy requirements is driving new smaller tank sizes based on a 1:1 refill ratio, which means refills will be more frequent. It is quite likely that the scenario developing for trucks will also expand to passenger cars, pickup trucks and sport utility vehicles, and that the sight of a wider range of drivers refilling with DEF at the same time as diesel will become more common. n

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Jeanne is an Industry and Market Analyst at Integer Research and contributor to “The DEF Market Dynamics Report.” Riot also covers North American DEF markets for “The Monitor” and “DEF Tracker.” Data in this article is taken from “The DEF Market Dynamics Report.” New from Integer Research, this report covers legislation, supply, demand and pricing and was developed to bring industry players fully up-to-speed with DEF market developments that have occurred over the last four years. Integer Research also publishes “The Monitor,” a quarterly update on AdBlue, DEF and ARLA 32 prices and network developments, and “DEF Tracker,” a monthly DEF pricing reference. To enquire, please email publications@integer-research.com.


Sierra Club primer on Natural Gas: Increasing reliance on natural gas displaces the market for clean energy and harms human health and the environment in places where production occurs. Fracking for natural gas damages the land, pollutes water and air, and causes illness in surrounding communities. It is also a major threat to our climate. It is clear that we cannot transition from one fossil fuel to another and expect to see major climate benefits. We need to move beyond natural gas. Bottom Line: For environmental extremists, truth is an obstacle to “progress” and no fossil fuel—even the most environmentally friendly—will ever be acceptable. Ever. Something to keep in mind as the energy debates continue and discussions turn to the need for those on the fossil fuel side to compromise in what will invariably be a one-sided effort.


DEF Solutions Roundup

DEF Solutions

ROUNDUP

Here are some of the most established and innovative solutions and solution providers serving those who need to dispense diesel exhaust fluid.

Blackmer® has developed a line of sliding vane pumps specifically for use in Diesel Exhaust Fluid applications. The models included are SX1-DEF, STX2ADEF, STX1220A-DEF and STX3A-DEF. All Blackmer SX/STX-DEF Series pumps have been designed to meet precise DEF compatibility requirements and handling demands. They are constructed of 316 stainless steel, and feature special elastomers and mechanical seals. These allow the pumps to meet the ISO 22241 certification for material compatibility required for DEF handling applications. Blackmer www.blackmer.com

As one of the world’s leading manufacturers of safe, reliable DEF equipment, Blue1USA has the right above ground storage solution for any retail requirement. All products are finished in

an aesthetically pleasing, glossy white finish, which is perfect for private branding. The compact, narrow footprint is designed for easy, convenient installation so you can remain competitive by offering DEF at the pump. Our systems are compatible for integration with retail dispensers and POS systems. Our weights and measures approved storage and dispensing systems are perfect for card lock locations and unattended fuel sites. Every turnkey system is pre-wired to meet UL508A and CSA C22.2 electrical standards to enable quick permitting approval and many years of safe operation. Blue1′s sealed systems meet ISO 22241-3, 4 and PEI RP1100 material compatibility standards, protecting you and your customers from harmful contamination problems. Blue1USA www.blue1usa.com

Since 2010, Blue Sky has been providing among the highest quality diesel exhaust fluid to satisfied customers throughout North America. Whether in vehicles large or small, on- or off-road, Blue Sky DEF is a trusted and environmentally responsible emission-control solution for diesel-powered engine operators everywhere. We are more than just a manufacturer of high-quality diesel exhaust fluid—we are the DEF experts. Our representatives work with you to develop customized DEF programs and strategies to meet your needs, regardless of whether you are in charge of a modest FMNMagazine

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truck fleet, a large rail or marine business, a sprawling power generation station or anything in between. With quantities ranging from bottle to bulk, we have the right solutions for you. Of course, none of these matters if a supplier isn’t reliable. Once again, Blue Sky has you covered. With multiple manufacturing facilities throughout North America, our extensive distribution network means that we can provide a steady supply of DEF almost anywhere. Blue Sky www.blueskydefna.com

Brenntag is a leading international Diesel Exhaust Fluid (DEF) distributor. With an expansive and efficient DEF distribution infrastructure compromised of over 140 stocking locations across the United States and Canada, Brenntag employs stringent quality processes that ensure the product meets specifications. With the winter months approaching, be sure to take proper precautions when storing your Diesel Exhaust Fluid. DEF will begin to crystallize at 12°F, but will remain unharmed if it freezes; the urea and water will not separate nor will the DEF decrease in concentrations. While the DEF will not be harmed, you will need to protect your equipment from the freezing temperatures. With 15 dedicated DEF sales representatives, Brenntag is available to assist your dealer network in growing your UltraPure™ DEF market share. Brenntag www.brenntagdef.com


DEF Solutions Roundup

At Certified DEF we pride ourselves in being a national producer and distributor of diesel exhaust fluid. We operate an extensive network of DEF production and packaging facilities located across the country. Our strategic network was created to service more efficiently and effectively by providing quality products within a close proximity to our customers throughout the United States— significantly improving economics and freight costs. Our mission is to be a long-term supplier of diesel exhaust fluid. We believe through our network of production and packaging facilities, product offerings, delivery fleet and committed people we’re strongly positioned to supply high quality products at low competitive prices now and into the future. We proudly define the production and supply of DEF.

Isolate DEF and other chemicals from contaminants with Colder Products Company’s DrumQuik PRO chemical dispensing solutions. The closed-system design protects DEF during transport and dispensing, and it is ideal for single-trip drum or multiple-use IBC tote applications. DrumQuik allows easy transfer of DEF from drums, IBCs or other containers— with no leaks or spills. The cost-effective dispensing system works with common DEF pumping systems and tamper-evident container seals. The design of the DrumQuik system enables container change-out in seconds. Made from ISO 22241 approved and RoHS compliant materials, the drum insert and dip-tube can be recycled with the container for easy disposal, and the dispense head coupler can be reused many times. 2” buttress, 2” NPS and European thread options fit most drums or IBC tote caps. UN/DOT approved per CFR 49.178 regulations for drums and IBC totes. DrumQuik is a product of CPC.

Certified DEF www.certifieddef.com

Colder Products Company cpcworldwide.com

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Dennis K Burke offers some of the highest quality DEF equipment from standard closed loop systems to customized solutions. We supply both out of the box systems by Liquid Dynamics, or customer specific customized solutions. We use remote DEF tank monitoring that ensures adequate product, eliminates run outs, maximizes efficiency and gives 24-hour monitoring and alerts for peace of mind. We also deliver from a dedicated DEF trailer with insulated stainless steel inner wall, transit heat system and cabinet heater and 1 micron filtration to maintain the highest product integrity on full metered deliveries. Dennis K. Burke www.burkeoil.com

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DEF Solutions Roundup

Diesel Direct is one of the transportation industry’s largest dedicated national mobile fueling companies, servicing tens of thousands of trucks each day from a fleet of customized fueling trucks. Specializing in mobile fueling and bulk deliveries, Diesel Direct provides fuel services and solutions for local, regional and national truck and equipment fleets. By focusing on using technology and innovation, Diesel Direct has developed a state of the art proprietary on-site fuel management process and system that gives customers accurate and meaningful data to both assist the management of their fuel consumption and meets the needs of continuously evolving business requirements. Additional services offered include DEF replenishment, BARLOC® fleet management technology, fuel additives for enhanced performance, generator fueling services, tank monitoring, business continuity programs, marine fuel and double-wall tanks. Diesel Direct www.dieseldirect.com

primarily to dispense fluids from bulk or mini- bulk tanks, intermediate bulk containers (IBCs), drums and for similar applications. The pump can be configured with a variety of brackets, dip tubes, flowmeters, fittings, hoses and valves to provide a complete pumping system. Flowserve www.flowserve.com

Flowserve is a leading manufacturer of comprehensive flow management products and services. We provide outstanding customer support, exceptional quality and swift lead times. Our self-priming pumps are designed to meet the most comprehensive DEF transfer applications. The CT6 is a six-chamber diaphragm pump designed for chemical transfer applications. It is self-priming with wetted parts compliant to DEF requirements. The CT6 is also resistant to many agricultural and industrial chemicals. The CT6 is used

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Fluidall’s portable DEF storage package includes a 120-gallon forklift-ready DEF tank with portable dispense options that transports easily for refills in-shop, infield and on-the-road. Refillable from large bulk DEF, our portable DEF solution is manufactured for multi-use applications and utilizes the Micro-Matic contaminant-free closed coupling system. Our proprietary portable DEF storage tank offers a visual fluid DEF inventory and is constructed from UL rated food-grade virgin polyethylene resins. Fluidall offers an array of pump


DEF Solutions Roundup packages to suite your DEF dispensing needs. Contact a Fluidall Representative for more information at sales@fluidall.com or 800.849.0591. Fluidall, LLC www.fluidall.com

Gilbarco’s Encore S Dispensers remain an industry standard for reliability with travel centers and retailers seeking to offer consumers diesel and DEF fueling options on their sites. The Encore DEF+1 dispenser provides retailers the highest quality Encore design, advanced mass flow metering technology and all within the familiar Encore package. Retailers can offer diesel and DEF at the same dispenser and within the same transaction, providing their customers the most convenient fueling experience. In fall 2014, Gilbarco Veeder-Root released the Enhanced Cold Weather Protection Kits to provide greater resistance to rapid temperature changes in cold climates. These kits are available to purchase today for field retrofits of installed DEF dispensers and can be ordered on new factory-installed Encore DEF + 1 dispensers.

Since 2010 GEMRIK USA, LLC has been developing, designing and manufacturing our exclusive DEF Shelter™ series for DEF Gilbarco Veeder-Root storage protection. As a premier DEF mini www.gilbarco.com bulk storage protection manufacturer, we are fortunate to have earned long term and repeat business relationships with both international and regional transportation, DEF distributors, and oil and lubricant distributing companies. Our DEF Shelters™ are manufactured with everything that is needed to offer affordable protection for mini bulk DEF storage without “unnecessary overbuilding.” We bring one of the highest quality and most functional products to the market at an affordable price. Being first to market with unique concepts such as modular construction, on-site storage expandability, custom configuration, skid mounted units and solar power options is proof of our ongoing commitment to the growing DEF industry.

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GEMRIK USA, LLC www.gemrikusa.com

“Saudi Arabia and all of the countries were caught off guard. No one anticipated it was going to happen. Anyone who says they anticipated this 50% drop (in price) is not saying the truth.” Saudi Prince Alwaleed bin Talal, interviewed in USA Today on January 11, 2015

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Hose Master DEF flex connectors offer a highly flexible solution when transferring diesel exhaust fluid. Designed and manufactured to meet the specific corrosive environments encountered in this application, Hose Master’s DEF connectors are constructed from 100% stainless steel, feature increased flexibility with Hose Master’s proprietary hydroforming process and are fabricated with a unique tube seam weld technology that resists oxidation. DEF connectors are available with hex male or female union fittings, and are offered in the same designs as the Fire Shield QuickClamp assemblies. QuickClamp configurations make flex connector installations as simple as possible—offering installers the ability to fasten one or both ends of a flex connector within a piping system with the minimal use of tools, thus eliminating timely labor costs and increasing profits. Hose Master guarantees the quality and performance of all its flexible metal connectors. Hose Master www.hosemaster.com


A new report from Navigant Research analyzes the emerging global market for technologies that improve fuel economy, including global market forecasts for light-duty vehicle sales, segmented by powertrain, region, and number of cylinders, through 2025. Multiple factors, including increasingly strict global standards to limit carbon dioxide (CO2) and other greenhouse gases, are driving manufacturers to produce more efficient vehicles. Although the use of alternative fuels and electric power is expected to continue growing, gasoline is anticipated to remain the leading fuel in the coming years, albeit in unconventional vehicles that employ a range of fuelefficiency technologies, such as smaller engines and turbocharging. “There is no single technology that will dominate fuel efficiency improvements over the forecast period

through 2025,” says David Alexander, senior research analyst with Navigant Research. “The focus, instead, will be on incremental improvements in engines and transmissions, along with weight reduction in as many places as possible.”

Bottom Line: Alternative fuels like biodiesel and E85 have traditionally grabbed the headlines, but the automakers have been far broader in their approaches to solving mileage demands and environmental concerns. For example, a variety of turbocharged 4-cylinder engines are being fielded to replace 6-cylinder engines in sedans and crossovers. However, these engines typically require premium to achieve both their power and mileage goals. So, don’t be in a big rush to convert that premium gas tank to something else.

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DEF Solutions Roundup

Husky Corporation, a leader in developing and manufacturing highperformance, American-made fueling products, and Benecor, a leading US manufacturer of DEF products, have come together to create a strong alliance. This strategic partnership now allows Husky to provide its customers with advanced storage and dispensing solutions for DEF, UREA, AdBlue and clean diesel for North American truck and automotive OEMs, diesel fueling centers and tank farms. As the first company in North America to offer DEF pumps, Benecor boasts one of the most extensive lines of DEF pumps and products in the industry. Husky will market Benecor’s DEF product line to its long list of distributors, sales representatives and direct customers in the petroleum dispensing industry. Trusted, reliable, proven. Depend on this Husky and Benecor partnership for all of your DEF product needs. Husky® Corporation www.husky.com/benecor

KleerBlue offers one of the widest selections of diesel exhaust fluid handling equipment in the industry. Our products range from drum and tote pumping solutions to fuel islandfriendly mini-bulk tanks and larger bulk tanks, from portable DEF delivery systems to fully automated blending and dilution facilities. No matter the size of your DEF distribution, we have a solution for you. Expertly crafted and supported, our DEF storage and dispensing products are designed to last. Contact us today to find out why KleerBlue has become known as the trusted brand in the industry. KleerBlue www.kleerbluesolutions.com

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Liquid Controls (LC) manufactures highaccuracy positive displacement flowmeters, electronic registers, data management systems and metering accessories. At the Liquid Controls facilities in Lake Bluff, Illinois, LC employees configure these components into complete metering systems. These systems measure, record, and manage the metrological data of gasoline, DEF, diesel, ethanol, and biodiesel transfers. Liquid Controls products are available through a worldwide network of highly trained, full service distributors. Liquid Controls is our Energy and Fuels business unit. Liquid Controls www.lcmeter.com

OPW’s Kamvalok® Dry Disconnect Couplers bring unique poppet action to eliminate spillage of any residual liquid contained within the line after disconnection. This makes OPW Kamvaloks perfect for transfer points where product loss is unacceptable, and is approved for DEF applications. Available in a variety of sizes, stainless steel and aluminum materials, and 360 degrees of orientation, OPW Kamvaloks can be optimized for your needs. Plus, no matter the material being transferred, connections and disconnections are a snap. Fluids will only flow when there is an appropriate connection, keeping the operator safe and the commodity inside the line. A FMNMagazine

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DEF Solutions Roundup machined groove around the mating adaptor and easy lever actuation are two of the more advanced design features that allow the Kamvalok to operate in high-pressure environments.

allows for an extended life of the catalyst by using a highly efficient mechanical filtration element composed of incremental technopolymer specifically developed for DEF. Come visit us at these upcoming tradeshows WPMA, MATS, and AUTOMECHANIKA.

OPW Engineered Systems www.opw-es.com

Piusi www.piusiusa.com

If you thought BlueDEF was just another diesel exhaust fluid, you’re missing out on the confidence, convenience and large volume cost savings available from one of the country’s leading DEF brands. In addition to being a leading supplier of DEF fluid, BlueDEF offers a full line of tanks, pumps and equipment for transporting, storing and dispensing diesel exhaust fluid. Specially designed to maintain DEF purity from the minute it’s manufactured to the moment it’s pumped into the tank, Blue DEF equipment can ensure equipment is always ready to roll. PEAK Commercial & Industrial www.PEAKHD.com

Discover a new dimension of fluid handling with the Piusi Three25. This newly designed kit features our latest SB325 nozzle with break-away stainless steel spout, revolutionary 3D-10 micron DEF filter, original Piusi Dispense Coupler 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 3D Filter, misfiling spout and breakaway system are the first of its kind in the DEF industry. The main cause of fluid contamination occurs during the filling and transferring process. Our 3D10 micron DEF filter prevents the possible contamination and in turn

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Rovanco Piping Systems has been a leader in custom pre-insulated preengineered piping systems and double wall containment systems for over 45 years. It is no surprise that Rovanco is now a leader in pre-insulated Diesel


DEF Solutions Roundup Exhaust Fluid piping. Rovanco’s products are custom manufactured for each installation. Whether the DEF piping is going below ground or above ground, Rovanco has the ideal product for your needs. Rovanco utilizes stainless steel, fiberglass and highdensity polyethylene as a carrier pipe to convey diesel exhaust fluid from the tanks to the pumps. This carrier pipe is completely bonded and insulated with high quality energy saving foam. We have the capability to include heat tracing as well. Rovanco manufacturers one of the most cost effective DEF piping products on the market and our lead time is less than two weeks.

in the United States, Semler has produced a variety of bulk transfer and dispensing systems for mobile and stationary applications. Working with customer needs and industry trends, Semler’s engineering team has designed a comprehensive line of DEF Distributor™ delivery systems to meet the needs of any DEF or lubricant marketer. Semler is an excellent candidate to build and deliver the right system to fit your needs. Semler Industries www.semlerindustries.com

built to suit your needs. With a nationwide network of trained service and installation technicians available 24/7, and a presence in every market including retail truck stops, commercial and private fleets, agriculture and construction. All parts are in stock to ensure that your fleet stays up and running, day in and day out, making us a reliable and trusted solutions provider. Southern Pump & Tank Company www.southernpump.com

Rovanco Piping Systems www.rovanco.com

Semler Industries brings over 100 years of innovation in a variety of industries with concentrated efforts in the petroleum and chemical markets. With the growth of DEF

SPATCO DEF Solutions is a leading manufacturer of Diesel Exhaust Fluid dispensing and storage systems. We are the industry experts in reliable, scalable solutions that will optimize your operations and investment. Our product line consists of high quality, durable products ranging from small pumps to 6,500-gallon tanks, custom

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TMS is a design/build and software and automation service company specializing in the storage and handling of liquids. TMS has the facilities and resources in house to design, fabricate, assemble and install DEF systems for loading racks, transport/dispensing vehicles and custody transfer dispensing for all applications from locomotives to


DEF Solutions Roundup individual vehicles. Our low cost TMS6000 suite of software products provides enhanced security, control, and data management for fluid custody transfer systems. We can combine our software product with PLC and SCADA controls for complete systems integration with online monitoring and support. TMS has designed, built, automated or installed its custom systems at over 150 locations across North America (Canada, USA, Mexico), Chile, France and the UK. TMS has over 30 years’ experience in the petroleum and propane industries. Total Meter Services Inc. www.totalmeter.com

Victory Blue produces, markets, and distributes API Certified DEF under the brands Victory Blue, Valvoline Premium Blue, Cummins Fleetguard, FleetPride OTR and other private labels. With an unmatched diversity of supply, you can count on Victory for all your DEF needs coast to coast. Remember to ask about the Victory at the Pump promotion. VicNRG is a leading national marketer of ASTM quality biodiesel. By focusing on the logistics and distribution of biodiesel, coupled with an extensive terminal and transportation network, VicNRG brings value to its customers. The Victory family of companies is dedicated to being your first class provider of DEF and Biofuels. Victory Blue www.govictoryblue.com/ www.vicfuel.com

H

IN HISTORY:

Rudolf Diesel Source: wikipedia.org

Wayne Fueling Systems provides solutions for bulk DEF dispensing directly at the fueling island for retail and private fleet facilities. Standalone models are available for cold climate and warm climate applications. A series of combination diesel and DEF models offer the convenience of diesel and DEF from the same dispenser. All cold-climate models have automatic self-closing doors to protect the DEF from freezing. The first six feet of hose is tension free for easy hose handling, with an additional five feet of retractable hose for extended reach. Retail models offer the same secure payment terminal options and POS interfaces as Wayne petroleum dispensers. Fleet models can be easily interfaced to popular fleet control systems. All models are weights and measures sealable and are safety listed by Met Laboratories. Wayne Fueling Systems www.wayne.com

The modern Diesel engine

incorporates the features of direct (airless) injection and compression-ignition. Akroyd Stuart and Charles Richard Binney patented both ideas in May 1890. In 1892, Akroyd Stuart patented a waterjacketed vaporiser to allow compression ratios to be increased. In the same year, Thomas Henry Barton at Hornsbys built a working high-compression version for experimental purposes—the first time automatic ignition was produced by compression alone.

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Yara is a world leader in production of diesel exhaust fluid (DEF). In 1993, Yara helped pioneer the ISO standards for DEF quality and production to help meet the nitrogen oxides (NOx) abatement requirements across the world. Yara is able to provide the industry with knowledge and expertise to safely, economically and reliably market and distribute DEF. Yara offers reliable supply through our unique network of domestic production combined with product from Yara’s global plants. This platform allows Yara to support North America’s high growth demand. Yara will continue to invest in infrastructure globally and domestically to improve the economics associated with supplying DEF to the market.

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Yara North America, Inc. www.yara.us

“Gas prices do a lot not only for customers’ wallets, but for their psyche in general. It’s a really big boost. Gas is an emotional purchase, as you know. People drive all the way across town for 2 or 3 cents a gallon. And now with gas at about half of what it was a year ago, I think consumer confidence is really starting to pick up.” Wal-Mart CEO Bill Simon, appearing on CNBC’s “Squawk Box” on January 12, 2015

Rudolf Diesel, however, was subsequently credited with the innovation, and he was able to improve the engine further, whereas Akroyd Stuart stopped development on his engine in 1893. At Augsburg, on August 10, 1893, Rudolf Diesel’s prime model, a single 10-foot (3.0 m) iron cylinder with a flywheel at its base, ran on its own power for the first time. Diesel spent two more years making improvements and in 1896 demonstrated another model with a theoretical efficiency of 75%, in contrast to the 10% efficiency of the steam engine. By 1898, Diesel had become a millionaire.

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FLEET OPERATIONS

Making “Return-To-Work” Work for Transportation by Dr. Charlie Cartwright

R

educing the recovery time for employees injured in a workplace accident remains front and center among employers who continue to face increased workers’ compensation costs, lost productivity and spiraling litigation. According to a recent National Academy of Social Insurance study, total workers’ compensation costs to employers rose by 7.1% to $77.1 billion in 2011, while workers’ compensation benefits rose by 3.5% to $60.2 billion. The benefits include a 4.5% increase in medical care spending to $29.9 billion and a 2.6% increase in wage replacement benefits to $30.3 billion.1

For trucking, which ranks among the top 10 most dangerous work environments, the comorbidity of intense physical labor and an overweight/obesity rate of 89%4 greatly increase the likelihood of injury. Add to that growing demand stemming from travel distances that are forecasted to reach as much as 662 million miles per day by 20405 along with a resulting shortage of available high-quality labor, and the message is clear: Having a practical RTW program that helps return injured workers to full health and productivity is becoming an industry imperative.

With these numbers climbing, a clearly defined return-to-work (RTW) program that helps injured employees manage their care and gets them reengaged in a meaningful capacity as early as possible has become an essential business strategy for companies seeking to mitigate their exposure.2

Most companies are familiar with the basic elements of an RTW plan: short-term modification of work schedule and/or duties that align with physician restrictions; modifications that are fluid, based on injury type, physical ability (or limitations), skills, and pre-injury responsibilities; and a progressive return to full duty. While RTW may have some unique challenges for transportation, and a given program will take on a unique profile depending on the particular features and needs of the company, the principles that make an RTW program successful are the same— regardless of the industry.

For high-wage earners, including truck drivers, there is often a misconception that returning an injured employee to work early costs more than simply paying the 66.66% weekly disability. Conversely, studies show that costs are greater to keep workers at home, and those costs actually compound over time—the longer an employee is away, the greater the perceived severity of the claim or injury and, therefore, the potential to waste money. In fact, by some estimates, average medical and indemnity costs may be more than double for an employer without an RTW program.2 In addition, research shows that employees who are supported by an RTW program are back at work approximately 1.4 times sooner than those injured at a firm without a program.2 And, delaying a claim beyond three days increases the chances of attorney involvement by 50%.3 FMNMagazine

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FLEET OPERATIONS

Communication: Both the messenger and the message are critical

Culture: A supportive environment is essential

Tips for return-to-work success

To gain support and remain effective, organizations need an enthusiastic champion to introduce and provide ongoing communication about their RTW program. Even if the CFO or risk manager buys into its importance at the top, cascading the program successfully to the terminal level and then out to employees can be challenging. Depending on the organization, typically the person will be from human resources or risk management, or it may be a supervisor or frontline manager. However, even if a manager with the best intentions simply recites an RTW policy, it will surely fall on deaf ears. The message must come from someone who is well informed about the program’s content, policies and procedures, can relate its value to employees, and will actively oversee the program.

A company can have an expertly designed program that looks impressive on paper, but without a culture that values support for injured workers and embraces their return to the workplace, it cannot be successful. Employees believe what they have seen. How have other injured employees been treated? Do the employer’s actions match the content of its policies? The two primary drivers of litigation by an injured worker are fear and anger: fear about the ability to pay the mortgage or buy food, and anger over feeling mistreated or not having been dealt with fairly as a result of the injury. Injured workers need to feel good about their future and know they’re going to make it. The right supportive culture can help ease fear, diffuse anger and ultimately minimize litigation.

An RTW plan can be as simple or sophisticated as a company wants or needs, but it must go beyond written policy and procedure to include committed resources for executing and managing it on an ongoing basis.

Creativity: Be open to the possibilities RTW solutions must be developed on a case-by-case basis—there isn’t a one-sizefits-all plan or strategy for a single industry or company. However, transportation offers great opportunities for creativity. For example, because trucking assets are concentrated on the road, dispatch terminals may be minimally equipped, with few RTW resources and opportunities. However, off-site options, such as work arrangements with charitable organizations or nonprofits can prove very effective. In addition, despite conventional stereotypes, a full spectrum of education levels exists among truck drivers, and many have college degrees and/or advanced skill sets. The key is recognizing the value an injured worker can add to the organization, finding the right fit within an employee’s specific work restrictions and getting that person reengaged as soon as possible. When injured and away from work, employees lose the sense of identity that is tied to their job. Providing a way for them to participate and continue to make a contribution often translates into a swifter recovery. FMNMagazine

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1 Have a plan, not just a “policy.”

2 Post-injury management starts at the date of hire.

Beginning “day one,” companies need to provide an orientation to their RTW plan. This plan should set expectations, educate employees about the importance of early return, identify available support, and clearly outline the steps to follow in the event of injury, including the timetable for reporting.

3 Assign a dedicated injury counselor. This “go-to” manager provides a single, consistent point of contact who communicates with injured employees on a weekly basis and


FLEET OPERATIONS

coordinates all aspects of post-injury management among physicians, claims adjustors, supervisors and managers. Depending on the size of the company and claims volume, there may be one counselor or many, and the role may be full-time or part-time. In transportation, where drivers sometimes work a significant distance from where they are domiciled, the logistics of managing an RTW program becomes more challenging and the role of the injury counselor more critical. An employer may be doing all of the right things behind the scenes, but if they aren’t regularly communicating and working with injured workers, someone else will be, and that person often will be an attorney.

4 Fairness is key Fairness in RTW policies and procedures is essential for promoting positive relationships between management and employees, strengthening overall program participation, and paving the way for a successful and early return to work. Employees need to feel that they are treated with respect, receive accurate, consistent information and have a voice in the process—particularly in a union environment.

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Making “Return-To-Work” Work for Transportation

5 Don’t overlook the importance of social networks.

Most people spend more hours around coworkers than with family. When injured and away from work, employees not only lose the sense of identity from their jobs, they also lose contact with important social networks and, as a result, may become increasingly depressed or unmotivated. Reuniting workers as soon as possible with familiar social contacts provides valuable interaction and support, which can contribute to a more speedy return to full duty.

6 Include mechanisms for review and evaluation.

RTW programs should be reviewed regularly as part of the business planning process and adjusted as needed. It’s a good idea to evaluate factors such as average length of time to return to work following an injury, average claim duration and costs, and number of instances and costs of litigation. Don’t forget to include a survey tool to gain valuable feedback from employees who participate in the program.

Did You Know? The Case for RTW

Injured workers who fail to return to work within 90 days of an injury have less than a 50% chance of ever coming back. After 120 days, there is less than a 10% chance that the employee will return to work for any company. Yet, a worker who is back by week three has a 97% chance of successfully returning to a full-function work capacity.6 Forty-six% of injured workers who hired attorneys said they did so because they felt their claim had been denied.7

In the initial 30 days following an injury, claim costs go up an average of 8% for each week of delay in reporting, increasing about 2% during the first week and climbing to 32% by the end of one month.8

Employees with work-related illnesses/injuries who were satisfied with employer treatment returned to work in 63.5 days, compared to 125.8 days for dissatisfied employees.9, 6

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With costs surrounding workplace injuries continuing to rise, transportation employers, large and small, should consider putting in place a well-defined and practical RTW plan. Remember, the plan does not need to be complicated in order to be effective. Focusing on the fundamental drivers of success— including communication, creativity and culture—is the key to an RTW program that works well for both employers and employees. Beyond the positive financial impact, RTW can improve employee morale, strengthen employer/employee relationships, encourage a more supportive company culture, and help reinforce a commitment to greater worker health and wellness, all of which contribute to a more favorable transportation work environment and continued strength of the industry. n Dr. Charlie Cartwright is a Claims Cost Control Consultant in Risk Control Services with Lockton. He can be reached at 816.960.9857 or at ccartwright@lockton.com. References 1. Sengupta, I., Baldwin, M., Reno, V. (2013). Workers’ Compensation: Benefits, Coverage and Costs, 2011, National Academy of Social Insurance, Washington, D.C. 2. McLaren, C., Reville, R., Seabury, S. (2010). How Effective Are Employer Return to Work Programs? Rand Center for Health and Safety in the Workplace, Santa Monica, CA 3. Fireman’s Fund Loss Control Insights (September 2005). Fireman’s Fund Insurance Co., Novato, CA. 4. Vanata, D.F., Bumbalough, H.L. (September 2013). Health Beliefs and Dietary Behaviors Among Truck Drivers. The Journal of the Academy of Nutrition and Dietetics Health Sciences, Ashland University, Ashland, OH 5. Freight Facts and Figures (November 2010). U.S. Department of Transportation, Federal Highway Administration, Office of Freight Management and Operations, Washington, D.C. 6. A Little Care and Concern Goes A Long Way, (2003). HR.com, CA 7. Victor, R., Savych, B. (2010). Avoiding Litigation: What Can Employers, Insurers, and State Workers’ Compensation Agencies Do? The Workers Compensation Research Institute (WCRI), Cambridge, MA 8. Reporting Workers’ Compensation Claims, Workers’ Compensation Educational Series, Article 1 (2011). America First Insurance, Liberty Mutual Insurance Co., Richardson, TX 9. The Disability Experience. What Helps and Hinders Return to Work (2001). Intracorp and Cigna Group Insurance, Philadelphia, PA


BUSINESS OPERATIONS

by Chris Santy Gutenberg Printing Press

Just What Is Big Data and How Will It Transform Your Business? Recently I read about the invention by

Gutenberg of the printing press. The article made me stop and consider the impact that the invention of the printing press had on enabling democracy as the result of enabling the dissemination of knowledge. Prior to Gutenberg’s invention, information transfer relied on text being hand copied from one book to the next. This prevented access to materials, including the Bible, to all but the most affluent. After the printing press’ invention, multiple copies of a document could be efficiently created, accelerating the spread of information and lowering the cost barriers to obtaining it. The result was more information at lower cost. Few other inventions have had as great of an impact on society or on business. “Big Data” has the potential to be another of these monumental shifts in how we operate. Three significant trends are driving this: the exponential growth of information being generated, the ease of accessing information and the rapidly contracting cost of processing information. These trends are driven by the continued increases in computing power and portability combined with the dropping cost of storage. More information—lower cost.

Some recent statistics highlight the rapid growth in electronic information: • 90 trillion emails are sent a year. • Wal-Mart serves 200 million customers a week, and on Black Friday processes 5000 items per second.1 • 645 million local business pages are viewed on Facebook each week. • 2012’s mobile data traffic was greater than 11 times the size of the entire Internet in 2000.2 With the growth of both input devices and sensors, the amount of information is rapidly exploding. Much like the printing press accelerated the storage of thought in multiple locations, the shift in data from paper records to digitally accessible is transformational. Information that was not searchable or source-able is now easily accessible. Information becomes truly valuable when it can be processed cost effectively. Techniques for analyzing data that 10 years ago were affordable only by the CIA or multinational firms are now affordable for small businesses. FMNMagazine

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Consider: • The amount of data storage is more than doubling every two years. (Forrester) • 90% of the data in the world today has been created in the last two years.3 • Algorithms for processing data are getting exponentially smarter. • Software as a Service (SaaS) based Customer Relationship Management (CRM) will grow at a 16.3% Compound Annual Growth Rate (CAGR) through 2016. (Gartner) • Spending on big data will increase from $5 Billion in 2012 to $50 Billion by 2017 (Wikibon) In Big Data: A Revolution That Will Transform How We Live, Work and Think by Viktor Mayer-Schönberger and Kenneth Cukier, the authors argue that our traditional thinking based upon causality will transform to a reliance on correlation in determining likely outcomes. This insight, they argue and the data supports, is going to transform how analysis, discovery and business are done.


BUSINESS OPERATIONS

Just What Is Big Data—And How Will It Transform Your Business?

With this transformation underway, here are three considerations for your business: 1. Change your organizations’ thinking from what data do we need to store—a compliance thought pattern, to what could we do with more data—a customer-facing solutions focused thought pattern. 2. Use big data to create information to solve your problems. What business problems can you solve more effectively with more data? Don’t limit your thinking to what data you currently capture, rather, reframe your thinking to what data you need. 3. Use big data to solve your customers’ problems. How can you use information to gain a competitive advantage? G.E. is reshaping their business, spending millions of dollars to gain value from the data available from their industrial equipment, such as jet engines and oil drilling equipment.4 They will translate this into increased value via greater uptime, lower energy consumption and better predictive analytics. What information about your equipment or customers would be truly disruptive, and how can you be the first to capture it? You can move your organization to gain competitive advantage and eliminate the distractions created by an overwhelming volume of incoming data. Information thought-leadership needs to move from the CFO to the CEO, sales and marketing leaders and operations. How will you challenge your management team to improve your processes and results? n References 1.WalMart.com 2.Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update, 2013 – 2018. February 5, 2014. http://www.cisco.com/c/en/us/solutions/collateral/service-provider/visual-networking-indexvni/white_paper_c11-520862.html 3.What is Big Data? http://www.ibm.com/big-data/us/en/ 4.John Paczkowski. Wall Street Journal. May 29, 2013. GE CEO Jeff Immelts Big Data Bet. http://allthingsd.com/20130529/ge-ceo-jeffimmelts-big-data-bet/

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Chris Santy Chris is the founder and President of Patriot Capital. Patriot’s financing solutions are designed for the needs of marketers, jobbers and other members of the retail and commercial fueling business. Financing is often an advantaged method of funding equipment acquisition, including gas pumps, POS and LED lighting upgrades. Benefits include speed of approval, fixed rates and off balance sheet financing options. For more information please contact Chris Santy at 404.255.1799 or csanty@patriotcapitalcorp.com. For industry insights, follow us @PatriotCapital.


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Fuel Marketer News Magazine Winter 2015  

Fuel Marketer News is the downstream petroleum industry’s established and growing information source for news and education. Encompassing a...

Fuel Marketer News Magazine Winter 2015  

Fuel Marketer News is the downstream petroleum industry’s established and growing information source for news and education. Encompassing a...