Editor’s note: This article is the third in a three-part series about disruptions to base oil traffic on rivers in the Midwestern, Southern and Eastern United States. The first article, which appeared in the March 18 issue, reported about the impacts of fog, while the second appeared in the March 25 issue and was about flooding.
Fog and floods are regular if varying disruptors to river-borne transportation of base oils in the Midwestern, Southern and Eastern United States. Suppliers and buyers can take steps to minimize impacts, though not to escape them completely.
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One way to hedge against disruptions to river transportation is to have the ability in place to turn to fall back on other modes of transport, specifically rail and/or trucking. Barges can offer big economies of scale when they are getting through, but when they aren’t, these other modes can provide an alternative – if they are not also impacted.
Having resources in place can make it easier to fall back on those modes, especially during a disruption. Ergon refining operates two refineries and base oil plants – one along the banks of the Mississippi River in Vicksburg, Mississippi, the other near the Ohio River in Newell, West Virginia. To bolster its reliability, the company has a range of transportation assets, including:
- Magnolia Marine Transport Company, one of the largest inland waterways petroleum transportation fleets in the U.S., with 24 boats and 86 barges;
- Ergon Trucking, which logs more than 25 million miles each year picking up and delivering crude oil and finished products;
- a fleet of more than 1,200 rail cars that the company uses to deliver to customers throughout North America.
Some base oil suppliers and customers also hedge against transportation disruptions by establishing storage facilities that can be accessed when river traffic is impeded. Ergon has another unit, Ergon Terminaling, with more than 3.4 million barrels of bulk liquid storage capacity at strategic locations.
Ergon Refining President Lance Puckett explained the company’s fleets of trucks, boats, barges and rail cars are all separate businesses that serve both Ergon and other customers. “They were not established to decrease the threat of disruptors, but the synergy of all these companies working together is what allows Ergon to weather any potential disruption,” he said.
Having resources to insulate against disruptions requires planning and devotion of some resources. The base oil industry in the United States has extra motivation to make those investments because of another threat that receives more headlines – hurricanes, which are an annual worry especially to the U.S. Gulf Coast, home to a large concentration of oil refineries and base oil plants. There is overlap between preparations that can be made for impacts of hurricanes and fog or flooding, such as establishing storage in strategic locations.
Individuals interviewed for this article said that dedication to prepare against disruptions goes through ebbs and flows. Motiva Enterprises Base Oil Manager Jason Hoff said companies rethought their approaches to disruptors after Hurricane Harvey, which caused billions of dollars of losses to the industry in 2017. In the aftermath, he said during a December presentation at the ICIS Pan American Base Oils & Lubricants Conference in New Jersey, companies increased investments in technology, people and inventory.
Given Mother Nature’s wild will, “very few plans work the way they’re designed,” Hoff said, but company executives “wanted to sleep better at night, so they put money into the issue.”
Since Harvey blew through the U.S. Gulf Coast and Texas, the past few hurricane seasons were quiet, and the region hasn’t seen major natural disasters. And that can present a problem, some sources said, because base oil companies have started to retreat from spending money on disruptor preparation.
“What we are seeing are budgets being scaled back,” said one base oil executive, who asked not to be identified. Another said, “That has always been the thinking: We haven’t had any major disasters in a few years, so let’s invest the money elsewhere.”
That puts companies in vulnerable positions, because disruptions are difficult to predict.
“Unfortunately, there are only so many levers you can pull with the largest one being timing, but that’s not a perfect science,” said Erica Snedegar of Vertex Energy.
Scaling back on preparations against disruptions is not just a matter of laziness, sources said. Fiscal pressures can hinder the capital outlay of preparations, especially during times like the past few years, when demand is flat and profits mixed. Those circumstances can lead companies to put off preparing for the next disruption, even if history suggests it may not be far away.