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Determining output for a petroleum refinery

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mrhaynes

Hello!

I am working with a petroleum refining company to estimate the economic impacts of a new plant, which is set to begin operations next year. I am using an industry impact analysis (detailed) activity to conduct the analysis, and modifying the company's spending pattern based on the intermediate inputs they provided. But I'm a bit confused on what value to use for the company's total output. They reported revenues of roughly $1.3 billion, but referred to that as "wholesale revenue." And the intermediate inputs (plus employee compensation) they provided equal less than 14% of that amount, which is way off from the U.S. average or state of Minnesota average. So I think I need to request more information from our client.

I reviewed your article on Output and I intend to go back to the company to ask for a true measure of output, but I want to make sure I'm asking for the correct information. I would have thought that a petroleum refinery would be considered "all other industries" (the fourth bullet in your article), meaning I should ask for their value of production, or revenue less net inventory change. But the fact that they referred to their revenues as "wholesale revenue" makes me second guess that. Would a petroleum refinery be considered a wholesale industry? If so, should I request the value of their wholesale margins?

One more question: the company is a subsidiary of a parent company based in Canada. Given this, would the proprietor income for my study area (three counties in Minnesota and Wisconsin) be $0?

Thank you for your assistance, and let me know if you have any follow up questions.

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    Michael Nealy

    Hello!

     

    If this company is indeed refining the petroleum to be sold at a wholesaler/retailer, then their operations should be modeled using Industry 154 - Petroleum refineries. As you have noted, the Output value for this Industry should be value of the product leaving the refinery net of inventory changes, i.e. the producer price. This would not include any wholesale or transportation margins, which would be attributable to the wholesale or transportation Industries (not the producing Industry). It sounds like they have defined Output as the purchaser price of the products leaving the petroleum wholesaler, which would include the producer margins, transportation margins, and wholesale margins. You would never want to model this value as Output for the producer of the product. I would definitely reach back out and see if you can gather more information on the Output value for the refinery specifically. If you are able to derive this information but still want to model the impacts of any transportation or wholesale operations associated with this refined petroleum, those can be modeled as separate Industry Events. Additionally, you can read more in our support article Margins & Deflators.

     

    On the Proprietor Income and Proprietor Employment; Proprietor Income is place-of-residence based. This means that all Proprietor Income is accounted for in the Region where the Proprietor Lives. If you know that all of the Proprietors for this company do not live in the Region, they should not be included in the IIA Event for the operations, meaning that Proprietor Employment/Income could be set = 0.

     

    Please let me know if you have any additional questions!

     

    Best,

    Michael Nealy

     

     

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    mrhaynes

    Hi Michael,

    Thank you for the helpful reply. I went back to my point of contact for the company and requested some more information, specifically asking for the company's value of product less inventory changes. He responded with quite a bit of information, none of which seems to be exactly what I was asking for. Among the information he sent is their sales volume in terms of thousands of barrels per day (I can estimate the total volume produced in a given year using that information). He also provided their gross margin and operating cost (in terms of $/barrel). And lastly, I have total revenue, net revenue, cost of sales, and gross margin in terms of millions of USD per year. The client also indicated that the company's "average inventory balances from month to month do not change dramatically as based on the Cost of Sales presented below will average around $110 million to $120 million at month end."

    Unfortunately, I am not certain if any of those values give me the information I requested. This is my first time doing an EIA for a petroleum refinery, and I'm not familiar enough with their operating jargon to know if one of these (or some combination) is equal to output. Hoping for a bit more guidance, if you have any. Thank you!

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  • Avatar
    Michael Nealy

    Hello!

     

    I would think that the total revenue would be the most appropriate value to use as Output for the petroleum refinery operations specifically. Is this the same as the "wholesale revenue" that you referred to in the original post? The original issue with Intermediate Inputs + Employee Compensation making up a low percentage of the revenue could still be worrisome if so. At the US level in 2022, Intermediate Inputs alone made up on average 79% of the Output for Industry 154 - Petroleum refineries. I can see that the purchase of Commodity 3020 - Natural gas and crude petroleum make up a sizable portion of the Total Gross Absorption for this Industry of about 55% on average at the national level (Region Details>Social Accounts>Balance Sheets>Industry Balance Sheets>Commodity Demand, filtered on Industry 154). Is this being included in the list of Commodity purchases in the Spending Pattern for your IIA Event?   

     

    Best,

    Michael Nealy

     

     

     

     

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