Sunoco 2008 Annual Report Download - page 57

Download and view the complete annual report

Please find page 57 of the 2008 Sunoco annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 120

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120

non-attainment for ozone, including Philadelphia and Houston, would be required to meet the ozone
requirements by 2010, before currently mandated federal control programs take effect. In January 2009, the EPA
issued a finding that the Philadelphia and Houston State Implementation Plans (“SIPs”) failed to demonstrate
attainment by the 2010 deadline. This finding is expected to result in more stringent offset requirements and
could result in other negative consequences. In December 2006, the District of Columbia Circuit Court of
Appeals overturned the EPA’s ozone attainment plan, including revocation of Clean Air Act Section 185(a) fee
provisions. Sunoco will likely be subject to non-attainment fees in Houston, but any additional costs are not
expected to be material. In 2005, the EPA also identified 21 counties which, based on 2003-2004 data, now are in
attainment of the fine particles standard. Sunoco’s Toledo refinery is within one of these attainment areas. In
September 2006, the EPA issued a final rule tightening the standard for fine particles. This standard is currently
being challenged in federal court by various states and environmental groups. In March 2007, the EPA issued
final rules to implement the 1997 fine particle matter (PM 2.5) standards. States had until April 2008 to submit
plans to the EPA demonstrating attainment by 2010 or, at the latest, 2015. However, the March 2007 rule does
not address attainment of the September 2006 standard. In March 2008, the EPA promulgated a new, more
stringent ozone standard, which was challenged in a lawsuit in May 2008 by environmental organizations.
Regulatory programs, when established to implement the EPA’s air quality standards, could have an impact on
Sunoco and its operations. However, the potential financial impact cannot be reasonably estimated until the
lawsuit is resolved, the EPA promulgates regulatory programs to attain the standards, and the states, as necessary,
develop and implement revised SIPs to respond to the new regulations.
Through the operation of its refineries, chemical plants, marketing facilities and coke plants, Sunoco’s
operations emit greenhouse gases (“GHG”), including carbon dioxide. There are various legislative and
regulatory measures to address GHG emissions which are in various stages of review, discussion or
implementation. These include federal and state actions to develop programs for the reduction of GHG
emissions. While it is currently not possible to predict the impact, if any, that these issues will have on the
Company or the industry in general, they could result in increases in costs to operate and maintain the
Company’s facilities, as well as capital outlays for new emission control equipment at these facilities. In
addition, regulations limiting GHG emissions or carbon content of products, which target specific industries such
as petroleum refining or chemical or coke manufacturing could adversely affect the Company’s ability to conduct
its business and also may reduce demand for its products.
MTBE Litigation
Information regarding certain MTBE litigation in which Sunoco is a defendant is included in the discussion
under “MTBE Litigation” in Note 14 to the Consolidated Financial Statements (Item 8) and is incorporated
herein by reference.
Conclusion
Management believes that the environmental matters discussed above are potentially significant with respect
to results of operations or cash flows for any one year. However, management does not believe that such matters
will have a material impact on Sunoco’s consolidated financial position or, over an extended period of time, on
Sunoco’s cash flows or liquidity.
Quantitative and Qualitative Disclosures about Market Risk
Commodity Price Risk
Sunoco uses swaps, options, futures, forwards and other derivative instruments to hedge a variety of
commodity price risks. Derivative instruments are used from time to time to achieve ratable pricing of crude oil
purchases, to convert certain expected refined product sales to fixed or floating prices, to lock in what Sunoco
considers to be acceptable margins for various refined products and to lock in the price of a portion of the
Company’s electricity and natural gas purchases or sales. Sunoco does not hold or issue derivative instruments
for trading purposes.
49