Interview: Liberty Petroleum Eyes Rack-to-Retail Supply Expansion in MW, WC

Multi-state fuel marketer Liberty Petroleum is aiming to connect the dots across the country in 2014, eyeing rack-to-retail fuel distribution expansions in the upper Midwest and West Coast.

Liberty is a privately held limited liability company that was founded in 2000 by three Mid-Atlantic petroleum distributors. Currently, there are more than 400 Liberty retail locations in 18 states from the Gulf Coast to New York Harbor as well as the Midcontinent and the Pacific Northwest.

"While the lion's shares of our locations are on the East Coast we also have locations in Kansas and Idaho," John Patrick, Liberty's chief operating officer, told OPIS in an interview. "This year we'll be making a push in the upper Midwest and have been in discussions for supply arrangements with new and existing suppliers on the West Coast. In February we will be exhibiting at the WPMA National convention in Las Vegas," he said.

To help the company's fast-growing aspirations, Liberty hired Bill Wilkerson in early 2013 as its vice president of marketing. Prior to Liberty, Wilkerson worked for 29 years at Murphy Oil USA in various marketing roles in Charlotte, Atlanta, Tampa, Nashville and New Orleans. He also managed all of Murphy's domestic wholesale marketing along with Meraux refinery's residual sales from 2000 to 2011. Liberty added five new distributors last year. At the end of 2013, the total active distributors count stood at 52. The expanding market coverage supports a growing collective purchasing power for the benefit of both large and small distributors operating under the Liberty flag.

Since 2007 through the end of 2013, the company has averaged a 17% year-on-year volume growth per year, Patrick said. The company's current monthly demand is approximately 1 million barrels a month or 500 million gallons a year. To enhance its competitiveness at Liberty retail locations, the jobber-owned company reduced its credit card fees to interchange pass through plus 4.75cts per transaction in June 2013. The Liberty interchange pass through for Visa and MasterCard last year averaged 1.38%. One carrot for prospective Liberty sign-ups is that distributors with just one Liberty station can utilize the Liberty credit card program at other sites that do not fly the Liberty flag. Another reason for the growth has been competitive pricing and secure ratable supply. Liberty distributors are sold on various programs depending on their location as well as market structure.

In the past few years, Liberty has seen challenges in the U.S. wholesale markets, including the introduction of ethanol, refinery closures, pipeline allocations, pipeline freight premiums, volatile Renewable Identification Number (RIN) values, backwardation, waterborne east coast economics competing with inland pipeline terminals, and the dynamic Gulf Coast-New York Harbor arbitrage economics.

For 2014, Patrick said he expects lower RIN volatility than 2013 and expects longer-lasting price inversions from time to time with the volatile Gulf Coast- New York Harbor basis spread. He also sees periods where non obligated parties will have to give away RIN value to sell open rack product at prices well below replacement cost from spot markets and times where obligated parties will give it away in order not to buy a RIN.

"You have to adapt and stay ahead of all these challenges and put hedges in place for protection. Without government intervention, the market will correct itself of any inefficiency. One thing for sure is that when the pendulum swings it never stops at the bottom," John Patrick, Liberty COO

Patrick said that ratability will play an important role in ensuring a stable and uninterrupted supply during an acute price inversion environment and tightness at the racks as seen at times in the Southeast. Inland terminals in the Southeast, which rely on Colonial and Plantation pipeline barrels can be prone to price inversions and tightness when shippers cannot pump enough product to cover demand. Over the last year, many new suppliers have applied for and received shipper's status on the pipelines to take advantage of the Gulf Coast to New York Harbor arbitrage, exacerbating the problem. In addition, demand from coastal cities, tied to higher priced New York Harbor economics since late 2012, has shifted inland.

"We see our suppliers as partners and the Liberty distributors understand the importance of ratable wholesale-to-retail demand. We lift barrels on contracts everyday across the country and the ratable demand helps suppliers manage their inventory, hedging portfolios and demand forecasts. It also helps suppliers meet their RFS mandate and allows them to lock in a margin," Patrick said. To kick off 2014, Wilkerson said that Liberty had just signed a new distributor last week in the New Orleans, La., market, expanding beyond its current local distribution point in Convent.

(OPIS January 16, 2014 Interview)