Sunoco 2010 Annual Report Download - page 26

•Changes in energy and raw material costs: We purchase large amounts of energy and raw materials for
our businesses. The aggregate cost of these purchases represents a substantial portion of our cost of
doing business. The prices of energy and raw materials generally follow price trends for crude oil and
natural gas, which may be highly volatile and cyclical. Furthermore, across our businesses, there are a
limited number of suppliers for some of our raw materials and utilities and, in some cases, the number
of sources for and availability of raw materials are specific to the particular geographic region in which
a facility is located. Accordingly, if one of these suppliers were unable to meet its obligations under
present supply arrangements or were unwilling to sell to us, we could suffer reduced supplies or be
forced to incur increased costs for our raw materials.
•Geopolitical instability: Instability in the global economic and political environment can lead to
volatility in the costs and availability of energy and raw materials, and in the prices for refined products
and chemicals. This may place downward pressure on our results of operations. This is particularly true
of developments in and relating to oil-producing countries, including terrorist activities, military
conflicts, embargoes, internal instability or actions or reactions of governments in anticipation of, or in
response to, such developments.
•Changes in transportation costs: We utilize the services of third parties to transport crude oil and
refined products to and from our refineries. The cost of these services is significant and prevailing rates
can be very volatile depending on market conditions. Increases in crude oil or refined product
transportation rates could result in increased raw material costs or product distribution costs. Our
operating results also may be affected by refined product and crude oil pipeline throughput capacities,
and accidents or interruptions in transportation.
•Impact of environmental and other regulations affecting the composition of gasoline and other refined
products: Governmental regulations and policies, particularly in the areas of taxation, energy and the
environment, also have a significant impact on our activities. Federally mandated standards for use of
renewable biofuels, such as ethanol and biodiesel in the production of refined products, are
transforming traditional gasoline and diesel markets in North America. These regulatory mandates
present production and logistical challenges for both the petroleum refining and ethanol industries, and
may require additional capital expenditures or expenses by us. We may have to enter into arrangements
with other parties to meet our obligations to use advanced biofuels, with potentially uncertain supplies
of these new fuels. If we are unable to obtain or maintain sufficient quantities of ethanol to support our
blending needs, our sale of ethanol blended gasoline could be interrupted or suspended which could
result in lower profits. There also will be compliance costs related to these regulations. We may
experience a decrease in demand for refined petroleum products due to new federal requirements for
increased fleet mileage per gallon or due to replacement of refined petroleum products by renewable
fuels. In addition, tax incentives and other subsidies making renewable fuels more competitive with
refined petroleum products may reduce refined petroleum product margins and the ability of refined
petroleum products to compete with renewable fuels. A structural expansion of production capacity for
such renewable biofuels could lead to significant increases in the overall production, and available
supply, of gasoline and diesel in markets that we supply. This potential increase in supply of gasoline
and diesel could result in lower refining margins for us, particularly in the event of a contemporaneous
reduction in demand, or during periods of sustained low demand for such refined products. In addition,
a significant shift by consumers to more fuel-efficient vehicles or alternative fuel vehicles (such as
ethanol or wider adoption of gas/electric hybrid vehicles), or an increase in vehicle fuel economy,
whether as a result of technological advances by manufacturers, legislation mandating or encouraging
higher fuel economy or the use of alternative fuel, or otherwise, also could lead to a decrease in
demand, and reduced margins, for the refined petroleum products that we market and sell.
It is possible that any, or a combination, of these occurrences could have a material adverse effect on our
business or results of operations.
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