With skyrocketing gasoline and diesel fuel prices, share prices of independent oil refiners, such as Frontier Oil, Valero Energy, Tesoro, Alon USA Energy, Western Refining, etc., all have a hefty advance. These share prices do not correlate well with the bottom line of these oil refiners though. While pipelines, oil producers and energy-service companies enrich their stockholders, oil refiners' shareholders suffer losses.
When their products are sold at 50% more than they did a year ago, it is difficult to believe the business of buying crude oil and turning it into different refined products e.g. gasoline, diesel fuel, jet fuel and heating oil, etc. is losing money.
Oil refiners bear heavy maintenance costs and big debt loads and invest billions to buy or build capacity. Unlike companies that both produce, refine and sell crude oil, such as ExxonMobil, Royal Dutch Shell or BP British Petroleum, oil refinery profit is tied to the "crack spread", which is the gap between the cost of crude and the price of refined products. As the crack spread narrows, oil refiners' profit vanishes as well. So, the oil refinery shares are sensitive to 1) the cost of crude oil and additives in comparison with the market price of the refined products and 2) the conditions that determine the widening and narrowing of the crack spread.
Today, oil refiners are squeezed as the price of crude is rising faster than the price of gasoline. For the three-year period starting from January 2004 through the end of 2007, the crack spread was wide and the oil refiners' profits soared. In May 2007, the spread between Brent crude and unleaded gasoline peaked at $28 a barrel, $8 above the normal historical spread of $20. The spread even reached $40 in some locations. However, the average crack spread vanished during last winter and was recovered to an average of $8.50 in the first quarter of 2008.
Slim crack spread has prompted some refiners to rush to buy oil on the spot market to get supplies under control before prices go even higher. That helps contribute to still-higher crude prices. If crack spreads were kept at 2007 levels, you'd be paying more than $4 a gallon in most of the U.S. and more than $5 in California.
Oil refiners' gross margins will remain to be slim and company earnings nonexistent until their biggest expenditure, crude oil, starts falling. Then, their bottom line will improve as crack spreads widen before prices of finished products retreat.
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Tuesday, May 13, 2008
Royal Dutch Shell's Alternative Fuel Investment: Algae-Based Biofuel Refinery
Algae is promising as a biofuel and therefore draws attention from major oil companies, such as Royal Dutch Shell, BP British Petroleum, etc. Besides being rich in vegetable oil, algae grows quickly and can be cultivated in sea water reducing the use of land and fresh water.
By collaborating with HR Biopetroleum, a small government-funded start-up on the Hawaiian island of Kona, Royal Dutch Shell has formed a new company Cellana to grow algae that can be converted into biodiesel fuel. Cellana will build a facility to demonstrate the technical and commercial viability of algae as a source of biodiesel. Scientists from universities will also participate in the joint venture.
A 2.5-hectare algae farm and laboratory that will produce vegetable oil that can be converted to biofuel. The new Shell-HR Biopetroleum joint venture will operate on about 6 acres of land and sea leased from the National Energy Laboratory of Hawaii Authority. The demonstration facility is capable of assessing different natural microalgae species and determining which produce the highest yields.
The Shell project will use bottled carbon dioxide to assess the potential for using algae farms to capture carbon dioxide from industrial facilities.
On a separate front, Royal Dutch Shell will begin the construction of another 1,000-hectare site to evaluate whether algae is economic when scaled up to a commercial level. If all goes well, the next step would be to build a 20,000-hectare site.
"Algae have great potential as a sustainable feedstock for production of diesel-type fuels with a very small CO2 footprint," said Graeme Sweeney, Shell executive vice president of future fuels and CO2. "This demonstration will be an important test of the technology and, critically, of commercial viability."
Shell claims algae have potential as a source of biofuel because algae can double their mass several times a day and produce at least 15 times more oil per hectare than other alternatives such as rape, palm soya or jatropha. Advocates also argue that algae-based biofuels avoid many of the environmental problems associated with conventional biofuels because the algae can be grown in sea water ponds and not use up agricultural land and fresh water.
Concerns about the use of algae for generating biofuels focus on the environmental impact commercially cultivated algae could have on marine ecosystems. But, Shell maintained protection of the marine ecosystem will be key to the facility design. Shell also revealed it will grow only non-modified, marine microalgae species that are indigenous to Hawaii or approved by the Hawaii Department of Agriculture.
Algae is seen as one of the least-proven technologies. “Algae is at the far end of biodiesel. It is one of the ‘out there’ concepts,” said Matthew Partridge, the head of global biofuels study at Wood Mackenzie, the research organisation. “But if biodiesel is going to become a reality in the long term, we are going to have to move up the technology curve. Someone has got to make the investment to do that.”
Shell has been working on renewable energy projects for some time and has invested $1 billion in such projects in the last five years alone. The goal is for Shell to create a profitable business from renewables by 2015.
Comments?
By collaborating with HR Biopetroleum, a small government-funded start-up on the Hawaiian island of Kona, Royal Dutch Shell has formed a new company Cellana to grow algae that can be converted into biodiesel fuel. Cellana will build a facility to demonstrate the technical and commercial viability of algae as a source of biodiesel. Scientists from universities will also participate in the joint venture.
A 2.5-hectare algae farm and laboratory that will produce vegetable oil that can be converted to biofuel. The new Shell-HR Biopetroleum joint venture will operate on about 6 acres of land and sea leased from the National Energy Laboratory of Hawaii Authority. The demonstration facility is capable of assessing different natural microalgae species and determining which produce the highest yields.
The Shell project will use bottled carbon dioxide to assess the potential for using algae farms to capture carbon dioxide from industrial facilities.
On a separate front, Royal Dutch Shell will begin the construction of another 1,000-hectare site to evaluate whether algae is economic when scaled up to a commercial level. If all goes well, the next step would be to build a 20,000-hectare site.
"Algae have great potential as a sustainable feedstock for production of diesel-type fuels with a very small CO2 footprint," said Graeme Sweeney, Shell executive vice president of future fuels and CO2. "This demonstration will be an important test of the technology and, critically, of commercial viability."
Shell claims algae have potential as a source of biofuel because algae can double their mass several times a day and produce at least 15 times more oil per hectare than other alternatives such as rape, palm soya or jatropha. Advocates also argue that algae-based biofuels avoid many of the environmental problems associated with conventional biofuels because the algae can be grown in sea water ponds and not use up agricultural land and fresh water.
Concerns about the use of algae for generating biofuels focus on the environmental impact commercially cultivated algae could have on marine ecosystems. But, Shell maintained protection of the marine ecosystem will be key to the facility design. Shell also revealed it will grow only non-modified, marine microalgae species that are indigenous to Hawaii or approved by the Hawaii Department of Agriculture.
Algae is seen as one of the least-proven technologies. “Algae is at the far end of biodiesel. It is one of the ‘out there’ concepts,” said Matthew Partridge, the head of global biofuels study at Wood Mackenzie, the research organisation. “But if biodiesel is going to become a reality in the long term, we are going to have to move up the technology curve. Someone has got to make the investment to do that.”
Shell has been working on renewable energy projects for some time and has invested $1 billion in such projects in the last five years alone. The goal is for Shell to create a profitable business from renewables by 2015.
Comments?
Use Biofuels as Alternative Fuel
On a morning in February 2008, Richard Branson, president of Virgin Atlantic, along with representatives from Boeing and GE Aviation, invited journalists to a hangar at London's Heathrow Airport to witness a historic aviation event: a Boeing 747 took off on the world’s first flight powered by biofuel, a mixture of coconut and Brazilian babassu plants. In this flight, only one of the Boeing 747's four engines used the bio-fuel blend.
The purpose of this flight was to demonstrate the feasibility of the environmental-friendly biofuel as an alternative aviation fuel. This fuel was produced by the largest supplier of biodesiel in the US, Imperium Renewables.
The flight is considered to be significant for two reasons: 1) jet fuel costs are getting expensive and 2) air transport becomes the fastest growing source of greenhouse gases. According to the UN's Intergovernmental Panel on Climate Change, the airline industry consumes 13% of the fossil fuels used by the transportation sector worldwide. As a result, there are mounting pressures for research and development groups to find alternative jet fuels.
The goal is to develop a compound that can slow down global warming without compromising the aviation industry's growth. The ideal solution is to have a fuel that can power today's airplanes, can blend in today's infrastructure and can pack the same energy punch that fossil fuels do. The fuel must stay in liquid form at the low temperatures that surround an aircraft in flight.
Scientists and politicians alike recognize the need to develop sustainable alternative fuels that would reduce green house gas emissions without contributing to further environmental destruction. Biodiesel is an ideal solution. It's environmental-friendly, renewable, biodegradable and relatively safe to handle and store. Biofuel can be derived domestically and, most importantly, can reduce greenhouse gas emissions.
Sustainability of biofuel is one of the key challenges in trying to use biofuels in the aviation industry. Recent claims that increased demand for ethanol has contributed to soaring food prices. With the world population increases at a rapid rate and there is a food shortage worldwide, using food crops and plants as the source for fuels does not seem to be such a good idea. In fact, growing crops for alternative fuels cuts into the land available for growing food.
In recent weeks, such arguments have gained credibility, threatening the very core of the biofuel movement. On April 11, in a Washington meeting of finance ministers to address rising food costs, ministers from poorer countries suggested the West to reconsider their alternative fuel policies in light of a growing food shortage. On the same day, a European environmental advisory panel asked the European Union to consider scrapping its plan to have at least 10% of transportation fuel come from biofuels by the year 2020.
In research, scientists have to overcome barriers pertaining to the use of biofuel in aircrafts. Unless it is heated, biofuel becomes frozen at high altitude. Jet fuel's strict performance standards and the extreme temperatures at which aircrafts operate have made it difficult to develop a workable jet fuel. In comparison to petroleum-based fuels, biodiesel has a lower density and it reduces the range an aircraft can fly without refueling.
While the test flight proved the biofuel's ability to power aircrafts, this biofuel can never be an alternative fuel as coconut and babassu don't represent a sustainable resource for the 87 billion gallons of fuel needed each year to fly the world’s airlines. Experts believe fuel made from algae is more appropriate and sustainable to be considered as the jet fuel of the future.
Comments?
The purpose of this flight was to demonstrate the feasibility of the environmental-friendly biofuel as an alternative aviation fuel. This fuel was produced by the largest supplier of biodesiel in the US, Imperium Renewables.
The flight is considered to be significant for two reasons: 1) jet fuel costs are getting expensive and 2) air transport becomes the fastest growing source of greenhouse gases. According to the UN's Intergovernmental Panel on Climate Change, the airline industry consumes 13% of the fossil fuels used by the transportation sector worldwide. As a result, there are mounting pressures for research and development groups to find alternative jet fuels.
The goal is to develop a compound that can slow down global warming without compromising the aviation industry's growth. The ideal solution is to have a fuel that can power today's airplanes, can blend in today's infrastructure and can pack the same energy punch that fossil fuels do. The fuel must stay in liquid form at the low temperatures that surround an aircraft in flight.
Scientists and politicians alike recognize the need to develop sustainable alternative fuels that would reduce green house gas emissions without contributing to further environmental destruction. Biodiesel is an ideal solution. It's environmental-friendly, renewable, biodegradable and relatively safe to handle and store. Biofuel can be derived domestically and, most importantly, can reduce greenhouse gas emissions.
Sustainability of biofuel is one of the key challenges in trying to use biofuels in the aviation industry. Recent claims that increased demand for ethanol has contributed to soaring food prices. With the world population increases at a rapid rate and there is a food shortage worldwide, using food crops and plants as the source for fuels does not seem to be such a good idea. In fact, growing crops for alternative fuels cuts into the land available for growing food.
In recent weeks, such arguments have gained credibility, threatening the very core of the biofuel movement. On April 11, in a Washington meeting of finance ministers to address rising food costs, ministers from poorer countries suggested the West to reconsider their alternative fuel policies in light of a growing food shortage. On the same day, a European environmental advisory panel asked the European Union to consider scrapping its plan to have at least 10% of transportation fuel come from biofuels by the year 2020.
In research, scientists have to overcome barriers pertaining to the use of biofuel in aircrafts. Unless it is heated, biofuel becomes frozen at high altitude. Jet fuel's strict performance standards and the extreme temperatures at which aircrafts operate have made it difficult to develop a workable jet fuel. In comparison to petroleum-based fuels, biodiesel has a lower density and it reduces the range an aircraft can fly without refueling.
While the test flight proved the biofuel's ability to power aircrafts, this biofuel can never be an alternative fuel as coconut and babassu don't represent a sustainable resource for the 87 billion gallons of fuel needed each year to fly the world’s airlines. Experts believe fuel made from algae is more appropriate and sustainable to be considered as the jet fuel of the future.
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