Canadian Oil Heat Association Annual Conference (June 2010)

• Other Speeches

• Canadian Building Trades Conference (May 2010)

  Speaker: Mark Sherman, General Manager, Irving Oil Refinery

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• Rothesay Netherwood School Presentation (May 2010)

  Speaker: Dale Cooper, Manager of Processing, Irving Oil Refinery

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Speaker: Gary Bischof, General Manager, Irving Oil Commercial

Irving Oil is a family owned, privately held business that has a history nearly 90 years old. In the region we are seen as a big company. However, when we compare ourselves to the true giants in the industry, such as Exxon and Shell, we realize we’re pretty small.

We started with a small service station that sold Esso gasoline and served as a Ford sub-dealership. Proprietor, K.C. Irving believed that "if you take care of the customer, the customer will take care of you".

Eventually, K.C. Irving put up his own sign. This was the beginning of what would become Irving Oil. K.C. acquired his own gasoline which was blended with a higher octane level. This made the common hand-cranked engines of the day easier to start.

Impressed by his drive and good salesmanship, K.C. was awarded a Ford dealership in Saint John, New Brunswick. In 1924, K.C. moved to Saint John and installed Irving fuel pumps in front of his dealership.

Throughout the 1930s he offered franchises to people, carefully chosen to represent him and Irving Oil in local towns. He sought out known athletes who shared his ambition, competitiveness, work ethic and vision of customer service.

By the mid '50s Irving Oil had terminals from Montreal to St. John's, Newfoundland. More and bigger tankers were bringing in their petroleum supply from South America and the U.S. Gulf coast refineries. K.C. saw an opportunity to build a refinery. The refinery officially opened in 1960 with an initial capacity of 40,000 barrels a day. The Refinery celebrates its 50^th anniversary this year.

In the 1980s, Irving Oil looked to the U.S. for expansion. Free trade opened the door for Irving Oil to enter the home heat and convenience store market in the U.S. Given that 80 percent of the homes in Maine were heated with oil, purchasing a marine terminal in Searsport, Maine gave Irving Oil access to the Maine market.

We continued to invest in the refinery through the 1990s, culminating in a $1 billion upgrade. This investment has continued over the last 10 years. The upgrade increased the refinery's capacity to 300,000 bbls/day.

Industry Conditions

The ‘Golden Age’ of refining, from 2004 to 2008, ended with the world wide financial crisis and recession. Our customers’ behavior has changed, and people are working hard to use less of our product.

This is part of a global shift that is happening:

o   The rise of Asia (strengthening economies in India and China)

·      Rural to urban migration in this region of the world

·      Rise of a new middle class

·      Increasing demand for fuel to power the economy

·      World still depends on fossil fuel

Energy sources must be Available, Acceptable and Affordable

In the face of increasing worldwide demand, we must address some important issues:

1.    Price of Oil and Security of supply

·      Oil is plentiful in politically unstable regions. Drilling for oil in deepwater such as the Gulf of Mexico was important for US supply security but brings its own problems as we face an environmental disaster in the gulf today.

·      High prices in 2008 created price sensitivity and an increased focus by our customers on conservation and alternatives to hydrocarbon based heating oil. 

·      Higher prices lead to higher working capital, credit risk and increased cost of doing business.

2.    Greenhouse gas emissions and global warming

·      The world must solve this problem and will. The question is when. Somehow, this will have a profound impact on our industry, but in the long term.

·      Competitive pressure from alternative fuels, natural gas, renewable wood based home heat fuel

3.    Environmental regulations such as sulphur reduction in the US Northeast and the addition of biodiesel.

·      Ultimately there will be increased regulatory, competitive and cost pressures.

Sulphur Content of Heating Oil

Irving Oil has demonstrated an ongoing commitment to producing cleaner burning fuels of all kinds. Irving Oil and the industry in general have made significant changes to sulphur content of gasoline and diesel. In order to make these changes, a period of 4-5 years was needed to plan for the necessary capital investments.

Industry groups in the US Northeast are lobbying state governments to adopt low sulphur heating oil and biofuel requirements as early as 2011. Canadian regulations are more focused on biofuel addition to home heating oil. 

A recent supply study by NORA (the National OilHeat Research Alliance) suggested that the US supply of low sulphur heating oil cannot meet winter demand. The US Northeast relies on imports from Europe and South America to meet heating oil demand. However, the refiners in those regions don’t have the ability to reduce the sulphur content of Heating Oil either. 

Regulators in the US are considering a 2014-2018 timeframe to implement reductions in sulphur content.  An emerging concern is that individual states will implement their own regulations in an uncoordinated manner. We believe this is likely to cause supply disruptions and price spikes. We want to ensure adequate supply to avoid adverse impacts on price and supply availability, particularly during the winter months. We believe that the regions should work together to adopt and target a compliance period that is consistent throughout the region.

Irving Oil has a history of making substantial investments, measured in the hundreds of millions of dollars, often in advance of the regulations, to meet clean fuels regulations. It is our goal to remain competitive and continue to be a secure, reliable supplier to our customers. However, the refining industry needs the time required to design and build the equipment required to meet these goals.

Renewable Fuels Legislation for Heating Oil

The Canadian federal government has committed to a 2 percent target for renewable fuel content in heating oil and referenced a compliance start date as early as 2011 and not later than 2012. This is a response to GHG concerns and also provides stimulus to the agricultural industry.

There are concerns regarding the cold weather properties of biodiesel that must be fully tested and addressed. In addition, given the significant lack of supply and infrastructure, a minimum of three years will be needed for the industry to prepare for a biodiesel requirement.

As we prepare to meet proposed regulations, our primary interest is to first understand the impact on our customers as these changes influence supply reliability, price and quality. We will help you prepare for these changes, as we have done in the past with other fuels regulations, such as the implementation of an ethanol mandate in the US.

At Irving Oil, we will help you meet these challenges by:

·      Continuing to produce cleaner burning fuels.

·      Do our part to ensure adequate supply of the fuels that the regulators demand and our customers want.

·      Positioning home heating oil as a safe, environmentally responsible and reliable fuel.

·      Helping all of our customers make the transition to cleaner burning fuels through technical assistance and advice.

We have done this in the past through the following projects:

·      The new processing units that were part of the refinery upgrade enabled Irving Oil to bring ultra-low sulphur gasoline to the market, and it did so five years ahead of governmental regulation.

·      Irving gasoline was the first and only gasoline recognized by Canada’s leading automobile manufacturers as Auto Makers’ Choice gasoline.

·      Irving Oil also met the state of California's higher environmental standards for clean gasoline, and it became a major exporter into that state.

·      In 2003, Irving Oil became the first oil company ever to be recognized with a Clean Air Excellence Award by the US Environmental Protection Agency (EPA) for producing low-sulphur fuels ahead of regulation.

·      In 2004, we became the first Canadian refiner to be named North American Refiner of the Year at the World Fuels Conference.

·      Irving Oil has partnered with Repsol YPF to build the first LNG terminal on the east coast of North America - Canaport LNG, which began operations in June of 2009.

We choose to be in the Maritimes. We’re committed to our region.

There are many things that we never want to let go -- the things that make us who we are:

-   Pride of place, maintaining our physical assets

-   Reliability

-   Customer service and supply chain

-   Making the customer successful

-   Investment in our values, people

-   Relationships

-   Family values, sense of ownership

-   Professionalism

-   Loyalty of team

-   Being a part of the communities where we live and work.

No matter what, you’re still going to be dealing with a company that is committed to the region, the people and the community. In other words, nothing has changed since 1924.