Crude Oil Quality Association

Trading Subcommittee Notes

• October 3, 2002 meeting notes

  Oil Quality Group
  Subcommittee on Crude Oil Quality and Trading
  Houston, TX
  October 3, 2002
  
  At of the meeting attendees can be obtained from the COQA Director.
  
  The Facilitator distributed a compiled listing of all suggestions and comments made thus far on trading and crude oil quality.  The Facilitator also displayed a consolidated register of issues that the COQA might be able to influence and asked for discussion on which of those issues are most important to our members.  The following is the start of our plan of action.
  
  Trading Panel Discussion Notes
  
  Trading Panel Discussion Summary
  
  Contract Language
  
  Internet search for published contracts, may not be just oil industry
  
  COQA should come up with suggested wording
  
  Communications
  
  Definitely go forward with publishing a paper in one of the industry journals
  
  Anyone with contacts should please contact the Facilitator
  
  Complaints from a refiner do to get back to the producer
  
  Utilize an open discussion as a part of each meeting? Promote COQA forum page? Copy COQA Newsletter to producers and traders?
  
  There was not much interest in a mass mailing from the COQA to the trading community.
  
  Technical Issues
  

  Do not pursue group assays. They are not useful to everyone; the information each refinery needs varies so greatly that there is limited data available to share
  
  In addition to periodic assays, can we get a progressive producer to start utilizing routine HTSD’s? Assays from the producer are still absolutely necessary but the HTSD test might be easier to update frequently.
  
  For common streams, the HTSD or assay should be taken at a gathering location, like St. James, rather than at the well head
  
  Assay frequency should be determined by volume
  
  Some refineries already use real time data
  
  The Art of Trading
  
  Same issues as communication
  
  Educate the trader as to the importance of quality and what quality is
  

   

  Economics
  
  It was generally agreed that the cost of a monitoring program is minor compared to the cost of the crude and any possible problems a crude might cause to a refinery or the supply system
  
  Variability costs the producer too; non-consistent crude is generally valued per its worst case
  

   

  Other – Setting Quality Parameters
  
  Use "definition" of crude rather than "specification"
  
  Who comes up with the definition, should the producers designate what they have or the refiners enumerate what they want?
  
  Definition should contain limits on key parameters and be designed to encourage consistency and discourage outliers

  
  

   

• May 30, 2002 meeting notes

  Oil Quality Group
  Subcommittee on Crude Oil Quality and Trading
  Houston, TX
  May 30, 2002
   
  Each attendee was asked to voice their expectations for this subcommittee in particular and the trading industry in general. These comments are itemized below:

  • There needs to be an industry standard so everyone is even and consistent
  • The COQA could help by reaching a consensus among its members as to the necessity of contract language and communicating that consensus throughout the industry
  • Currently, there is a "brick wall" when discussing quality upstream of the refinery. The COQA needs to issue an open invitation to dialogue to surmount that wall.
  • Need to differentiate between refinery supply traders and "pure" trading
  • Some companies already have specifications in their contracts but primarily for niche or specialty crudes
  • New methodologies to analyze fuel and crudes are always cropping up. Easier identification of parameter results can make standards more acceptable by rendering them easier to enforce.
  • We need a "universal language" for quality
  • There is a disconnect between the physical pipeline for crude and its financial counterpart
  • Search for contract language already in existence, on the web for example
  • Maybe a quality amendment to existing contracts would be easier to implement than a new contract
  • Refiners need to set goals and communicate them
  • Don’t make the physical pipeline the universal "target" for quality problems
  • There is a cost to crude with unexpected characteristics, especially if it means a refinery unit is underutilized for a time. That underutilization can never be made up; a real dollar cost that should be able to serve as an incentive to meet crude specifications.
  • Crude oil, as with many things, is economy driven. Put some dollar value on quality
  • Many different players are now involved in the crude oil supply business. It is not just a major producer supplying its own refinery through a subsidiary pipeline.
  • An oversight program on common stream crude is necessary to ensure you get what you pay for
  • The differences in "pay for" versus "receive" should be compensated through, for example, a quality bank
  • Common stream crude is different than foreign batches of crude
  • Do traders support pipeline specifications and quality? Should we generate an informal poll among our own (COQA member) traders?
  • Need to quantify quality hits
  • In addition to underutilization costs, there are lost opportunity costs that cannot be made up
  • Stability for a refinery is invaluable
  • There were a few comments on personal experience with standardization of the raw materials leading to vastly improved efficiency throughout the plant (not just a refinery)
  • It should be obvious that refining losses more than offset any trading gains
  • The refining industry knows less about its feedstock than any other industry
  • Need to have a refining professional talk about those lost opportunities, instabilities, underutilization, etc. and what they can mean in dollars
  • There needs to be a balance between the refiner and the producer. The trader is caught in the middle
  • Too many refiners rely on assays that are old and not at refinery gate (for example – supplied by the producer). There should be a "variability" component built into any assay utilized for refinery modeling.
  • To make producers interested in supplying a quality crude, we need to be willing to pay a premium for "better than average"
  • LLS experience Indicates considerable tightening of the stream upon implementation of the specifications. Can we conclude specifications do work?

  Several common issues surfaced during the discussion. The facilitator will group the comments to highlight the commonalties and assist in formulating our path forward. Additional comments and ideas are always welcomed.
  
  Tish Marshall
  COQA Facilitator