NPC sees no product inventory problems

The National Petroleum Council predicts stock levels of major light petroleum products are likely to continue the slow downward trend of the past few years.

NPC, the U.S. Energy Secretary's oil industry advisory panel, said the trend has resulted from continued storage management efficiency gains despite an increasing number of product formulations needed to meet environmental regulations.

Former Energy Sec. Federico Pe?a had asked NPC to study product supplies following tight supply conditions in late 1996 and early 1997.

The draft report said, "The individual product inventory trends indicate that the overall major light product downward trend is the result of a downward trend in gasoline, partially offset by a small upward trend in distillate inventories. Kerosine jet fuel inventory shows no significant trend over the period.

"While the distillate trend results from a combination of small trends in various reporting segments and is not significant, the gasoline trend is dominated by the reduction of finished gasoline inventory in terminals."

The findings

NPC Chairman Joe Foster-also chairman, president and CEO of Newfield Exploration Co.-told Energy Sec. Bill Richardson that market-driven efficiency gains in the product supply system over the past several years have not increased the public's exposure to larger and more frequent retail price swings.

NPC found that the declines in product inventories are essentially limited to finished gasoline in terminals and are largely the result of consolidations and accounting changes. Foster said, "In general, consolidations have reduced unavailable inventories and have not affected supply flexibility."

He said U.S. refineries are maximizing the use of their downstream conversion facilities, the critical units for manufacturing gasoline.

"While typically operated at or above nameplate capacity, the mix of gasoline and distillate yields from these facilities is adjusted in response to market needs." Foster said incremental supplies from Caribbean and other Atlantic basin refineries will remain available to the U.S., and will be available to respond to market imbalances.

"From some locations, in fact, these supplies can arrive in U.S. East Coast ports faster than supplies (via pipeline) from U.S. Gulf Coast refineries."

He said world crude oil prices will continue to cause significant price changes for major light petroleum products in the U.S. Foster said two caveats must be remembered: The NPC study examined normal market conditions, not emergency conditions driven by a significant market intervention. And it examined only the 1998-2002 time frame, which would exclude the impact of future environmentally driven changes in product specification.

Separately, Richardson asked NPC to update its 1992 study on the potential for natural gas. NPC will examine factors that will affect the U.S. gas market to 2020 and beyond.