The term “logistics” has become more and more popular to define the process whereby goods move from the point of manufacturing and production to the point of sale and consumption. UPS® and FedEx® are no longer just in the package shipping business. They now provide a full range of services, from receiving parcels to transporting them via truck, rail and plane, to storing them in warehouses and ultimately, distributing them to their final destinations. All the while, they are tracking packages throughout the entire process, which can also be done by their customers.
The delivery system for energy commodities is no different, as products—either from the wellhead, plant, or refinery—are transported using various methods, stored, and ultimately distributed to places of final consumption. As we explore the ways and methods in which energy commodities are delivered to market, you will see this same basic theme consistently applied.
Additionally, we will learn the “value chain” for energy commodities. That is, what are the costs and revenues along this delivery path?
Figure 1: Overall Energy Commodity Logistics Chart - Crude Oil
Source: Dutton e-Education Institute [1]
This graphic illustrates the various steps in the "wellhead-to-burnertip" logistical path for oil and natural gas: aggregation (gathering), the "cleaning" of the raw stream and production of valuable natural gas liquids (NGLs) and, the steps for getting crude oil and natural gas from the wells all the way to market. As you can see, there is processing of natural gas or refining of crude, the transportation and storage and, finally, the distribution and retail delivery to the various end-users. As you will see, each step along this "path" will have some costs associated with it and most will represent an opportunity for generating revenue. These will add to the total profit that can be derived from the initial wellhead production.
At the successful completion of this lesson, students should be able to:
This lesson will take us one week to complete. There are a number of required activities in this module. The chart below provides an overview of the activities for Lesson 3. For assignment details, refer to the location noted.
All assignments will be due Sunday, 11:59 p.m. Eastern Time.
REQUIREMENT | LOCATION | SUBMITTING YOUR WORK |
---|---|---|
Reading Assignment: Crude Oil Refining Process | Lesson 3 Reading Assignment page | No submission |
Mini-lecture: Crude Oil | Mini-Lecture: Crude Oil page | No submission |
Mini-lecture: Crude Oil Refining | Mini-Lecture: Crude Oil Refining page | No submission |
Lesson 3 Activity | Lesson 3 Activity page | Submitted through the course blog |
Lesson 3 Quiz | Summary and Final tasks page | Submitted through ANGEL |
Discussion forum participation | Course Blog | Submitted through the course blog |
If you have any questions, please post them to our Questions? discussion forum (not e-mail), located under the Communicate tab in ANGEL. The TA and I will check that discussion forum daily to respond. While you are there, feel free to post your own responses if you, too, are able to help out a classmate.
The refining of crude oil is a complex process. In preparation for this topic, please complete the reading assignment below. My lecture will closely follow the steps in refining as outlined here.
The following mini-lecture traces the flow of crude oil from the wellhead to the refinery using various forms of transportation. We also discuss the two global standards for crude oil, West Texas Intermediate, and Brent North Sea. The major supply/demand districts in the US are presented, as well as supply and demand statistics.
While watching the Mini-Lecture, keep in mind the following key points and questions:
The following mini-lecture presents each phase of the crude oil refining process and the various products that are extracted from each barrel of oil.
While watching the Mini-Lecture, keep in mind the following key points and questions:
1) Think about the various products derived from crude oil that you encounter on a daily basis. Other than gasoline and lubricating oil, what other distillates impact your existence?
2) We know that the amount of crude oil the US imports continues to decline due to increased domestic production, but, do you see demand increasing or, decreasing, over the next decade? What are your reasons for this stance?
Post your answers on the course Blog. Also be sure to read and comment on other students' blog entries.
You will be graded on the quality of your participation. See the grading rubric for specifics on how this assignment will be graded.
Part of the overall objective of this course is to have you understand how the market functions in terms of determining price and how it trades in general. To truly appreciation this, you have to begin to think like an energy commodities Trader. To do so, you must consider the market factors that they research before making any Buy/Sell decisions.
In Lesson 2, you were presented with a number of “fundamental” factors that can influence the price of crude oil and/or natural gas.
Beginning with Lesson 3 of this semester and, continuing until further notice, you will submit examples of these factors on the Course Blog each week by 11:59 p.m., Eastern US Time, on Sundays.
You are to submit fundamental factors for both crude and natural gas and give your opinion on how each could impact prices, i.e., will prices increase or decrease as a result of what you have reported?
An example of a complete answer would be:
Natural Gas
You have reached the end of Lesson 3. Double-check the list of requirements on the first page of this lesson to make sure you have completed all of the activities listed there before beginning the next lesson. (To access the next lesson, use the link in the "Course Outline" menu at left.