May 1, 2006
By Thomas B Haines
AOPA Pilot Editor in Chief Thomas B. Haines flies an A36 Bonanza.
A recent spring Sunday afternoon had my wife, oldest daughter, and me at the hangar puttering around the airplane. They vacuumed the interior and swept the hangar while I tweaked a couple of items on the airplane. Around us, a healthy general aviation community hummed. Dozens of airplanes took off and landed during the 90 minutes or so that we were there. The sunny skies and gentle breezes beckoned me too, but unfortunately I didn't have time for even a quick flight around the county. It was refreshing nonetheless to see pilots brushing off winter's rust.
Seeing a vibrant flying community, hearing industry reports about recent record-high aircraft deliveries, and wondering at the electronic marvels available to us now in the cockpit seem in such contrast to the gathering clouds on the horizon that threaten to spoil the party. Among the most pressing issues are user fees, as noted in Phil Boyer's " President's Position: The Airlines Come Out of the Closet," on page 4 and reiterated in the 2005 AOPA Annual Report on page 67. At least as threatening is the tedious future of leaded avgas. As Steve Ells notes in " Lead is Still King — Part II" on page 111, future availability is more certain than the price.
Officials at ConocoPhillips, one of the largest producers of avgas, don't believe that we'll see a shortage of avgas anytime soon, but they also don't expect prices to come down anytime soon either. Unlike previous periods of oil shortages and high prices, this one does not appear to be part of a cycle, according to Steven G. McCullough, general aviation manager for ConocoPhillips. Several factors suggest we're in a new energy paradigm. Most importantly, there has been a permanent shift in demand. Demand in the United States is increasing and even with greater emphasis on energy conservation, the demand is unlikely to decrease. Meanwhile, China's economy is booming, causing a significant increase in the worldwide demand for oil.
This increase in demand is occurring during a time when there is little excess capacity in the world's refinery systems. And, in case you've been asleep for the last few years, areas that traditionally supply the most oil are under increased geopolitical risk. Such risk, among other factors, increases the revenue needs of the Organization of Petroleum Exporting Countries (OPEC), the cartel that controls much of the world's oil production. In addition, it is becoming ever more expensive to replace oil that is being utilized. Easy-to-reach oil supplies are being depleted, meaning that future sources will be more expensive to tap. McCullough noted that industry sources show that OPEC producers need on average $30 a barrel these days to break even on oil production. At this writing, a barrel of crude is selling for more than $66.
Further complicating the issue is the damage caused to major U.S. refineries by hurricanes Rita and Katrina last fall. These two storms damaged refinery complexes in Lake Charles, Louisiana, and multiple areas of Texas including Port Arthur, Houston, Texas City, and Galveston. As of late February, about 10 percent of the refinery capacity along the Gulf of Mexico coast was still offline — which accounts for about 5 percent of the U.S. total capacity. The storms initially impacted about 30 percent of capacity. Nearly all of the Gulf of Mexico crude oil production stopped as the storms approached. Even by the end of February, 35 percent of the Gulf region's crude oil production was offline, accounting for 11 percent of U.S. production.
We all remember well the gasoline price spikes that occurred right after the storms. Avgas went up too, but not as quickly and the price swings were not as great. However, while gasoline prices have declined to near pre-storm levels, the price of avgas has remained high, with many locations still charging more than $4 a gallon.
Fortunately, you can still find FBOs charging less. On a recent Sunday, I landed at Avon Park Executive Airport in Florida. At least on this March Sunday, they had a weekend special — pump your own fuel and save 50 cents a gallon, bringing the price at the time to under $3 a gallon. It seemed like a good deal, unless you're like me and can remember when avgas was less than a $1 a gallon.
ConocoPhillips, which emerged from the merger of Conoco and Phillips Petroleum in 2002, plans to continue its role as a major player in the aviation market. Phillips, of course, has a long and storied history in aviation. The company was formed in Bartelsville, Oklahoma, after brothers Frank and L.E. Phillips in 1905 drilled some 81 oil wells in a row without once hitting a dry hole. Phillips Petroleum as a company came about in 1917. The company's aviation roots date back to at least 1927 when it supplied the aviation fuel for the first flight from the United States to Hawaii. The following year it rolled out its first aviation fueling truck, and the rest is history.
Today, the company provides services to 560 FBOs that still carry the Phillips 66 name. Other smaller FBOs carry Phillips 66 products, but without the complete branding package.
As is common when two large companies merge, it takes a while for things to start happening again. We've not heard much from ConocoPhillips since the 2002 merger, but earlier this year, the company announced a plan to begin revitalizing the Phillips 66 Aviation brand. All in all, the company plans to invest some $4 billion over the next five years in refineries. It won't be building any new refineries — that's an environmental nightmare. Instead, it will be modernizing and expanding its 12 existing refineries. The investment will create additional capacity equal to about one new refinery, according to McCullough.
Four of its refineries have the ability to produce avgas. ConocoPhillips has the capacity to produce one-third of all the avgas needed in the United States. In addition, it is the only avgas producer that owns pipelines. Unlike other producers, ConocoPhillips does ship some of its avgas by pipeline, which, as McCullough noted, is the cheapest, most reliable way to move avgas. However, the lead component in avgas can contaminate the pipe-line if it's not managed carefully. As you'll recall, avgas is about the only fuel that still contains lead. Besides pipelines, ConocoPhillips also uses trucks, railroads, and ships to move avgas. The refinery at Sweeney, Texas, for example sends avgas to the East Coast on ships, dropping it off at terminals along the coast. The Borger, Texas, refinery is on a pipeline and ships avgas throughout the Midwest.
In recent years, ConocoPhillips has become a major exporter of avgas, sending it in containers on ocean-going tankers carrying other products.
Avgas costs more than gasoline for a number of reasons. For one, it is produced in such small quantities relative to gasoline that it is inefficient to refine and ship. As Ells notes, just a few days of refinery time a year is all it would take to produce all the avgas we burn in a year. Most of our aircraft engines need the additive tetraethyl lead (TEL) to help control detonation. This is the lead component that complicates distribution. McCullough said that the company has looked into blending TEL at the terminal into a lead-free avgas product. Under this scenario, the lead-free product could be easily shipped alongside other gasoline products to the distribution terminals around the country. At the terminal, TEL could be added just before the fuel goes into the tanker truck that takes it to your local airport. However, that process was found to be too complex and expensive, costing $500,000 to $600,000 to equip a terminal and then opening the door to safety and quality assurance issues. As it is, TEL in its raw form, which is toxic, must be handled at only a few points in the manufacturing process. Adding it at the terminal would require it to be handled at many locations, creating safety and environmental concerns.
Despite the issues surrounding avgas, ConocoPhillips sees aviation — both avgas and jet fuel — as a prime part of its business. For one thing, James J. Mulva, chairman and chief executive officer, is a pilot — so that certainly helps. In addition, company officials see aviation expanding. All significant indicators for the last decade have been rising — everything from aircraft deliveries to fuel consumption. ConocoPhillips estimates that avgas usage will grow at about one percent per year over the next decade while jet fuel sales will grow at about four to six percent per year.
While the future of avgas remains a bit cloudy, those clouds are well off into the distance. For now, we can continue to enjoy our Sundays at the airport with little fear that the avgas truck will run dry.
E-mail the author at email@example.com.
AOPA Editor in Chief Tom Haines joined AOPA in 1988. He owns and flies a Beechcraft A36 Bonanza. Since soloing at 16 and earning a private pilot certificate at 17, he has flown more than 100 models of general aviation airplanes.
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