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Saturday, November 14, 2015
How energy prices are elevated by the Jones Act
By Michael Hansen @ 4:21 PM :: 3960 Views :: Energy, Jones Act

by Michael Hansen, Hawaii Shippers Council, November 13, 2015

The private petroleum news service Oil Express / Oil Price Information Service (OPIS) reported on November 12, 2015, in an article entitled “Hawaiian refiner taking advantage of crude flexibility, California outlets” that the Par Pacific Holdings Inc. (NYE: PARR) is benefiting from low crude oil prices allowing its Hawaii refinery become profitable in the first quarter of 2015.

Par Pacific Holdings, formerly known as Par Petroleum Corporation, was restructured and renamed as of October 20, 2015 including the creation of Par Petroleum LLC to operate Parr’s petroleum refining, marketing and logistics businesses. That includes Parr’s wholly owned subsidiary, Hawaiian Independent Refinery Inc. (HIE) , which operates the former Tesoro Corporation refinery in Kapolei, terminals and 60 gas stations around the State.

Oil Express / OPIS interviewed Joseph Israel, President and CEO Par Petroleum LLC and HIE. Was interviewed for the article and stated that their sales of refined petroleum products into the California market are hindered by “costly Jones Act tankers.”

This is an indication of how energy prices in Hawaii are elevated by the Jones Act. In the case of the sale of petroleum products in California, the higher the freight cost, the more Par / HIE must charge for their products in the Hawaii market.

LINK:  Full article.

Key excerpt:

The two key secret ingredients of starting a refining, logistics and retail company in Hawaii from scratch and turning it into a profitable company in less than three years are crude flexibility and a leg up in the lucrative California fuel supply market, some analysts told OPIS.

In addition, Par Pacific is operating with a tailwind on its back, thanks to the collapse of crude oil prices.

Par had endured several quarters of net losses since it started business in 2012 with only one employee. But fast-forward a few years, and the company turned the corner in the first quarter of 2015 by posting its first quarterly net income gain and it has continued to build aggressively on that success.

This week, the company's share price soared to close to a record high on the back of its third consecutive positive quarterly financial results. Par Pacific's share price was at $24.47, jumping to a high of $24.81 earlier this week from the $23 level last week. The 52-week range is $12.53-$25.67.

The future appears bright for the Hawaiian refiner as it plans to raise refinery throughput in the fourth quarter amid strong margins.

Par has been selling products to California, taking advantage of the high prices on the West Coast amid refinery issues, analysts said. However, it is noted that the Hawaii-West Coast products deliveries have to be done by costly Jones Act tankers.

Joseph Israel, CEO of refining, marketing and logistics at Par, said during the company's third-quarter earnings call last week that crude flexibility is critical to Par's success.

In 2015, the Hawaiian refiner ran 13 different types of crude versus eight in 2014, he said.

Par had looked at purchasing the neighboring Chevron Hawaii refinery, but an acquisition does not appear to be imminent, analysts said. This assessment is supported by a statement from Chevron on its refinery sale.

"There has been no decision on whether to sell our Hawaii assets, or any part of them," a Chevron spokesman told OPIS on Tuesday.

In Hawaii, Par has doubled its fuel supply volume contract with the Defense Logistics Agency, with the 2016 military contract worth $220 million. Par declined to reveal the actual fuel supply volume.

It also expects on-island sales in Hawaii to rise by 8%-10% on average in 2016, and "this is probably a $5 to $8 a barrel benefit to us versus the export alternative," Israel said.

Nov 4, 2015: Par Pacific News Release

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