Sunoco 2011 Annual Report Download - page 20

with this agreement, AK Steel has agreed to purchase, over a 20-year period, all of the coke and available
electrical power from these facilities. SunCoke Energy commenced operations at the Middletown facility in
October 2011. The plant is expected to produce 550 thousand tons of coke per year and provide, on average, 44
megawatts of power. Construction on these facilities was completed during the fourth quarter of 2011 at an
aggregate cost of $432 million.
Competition
Sunoco is subject to competition in its logistics, marketing, and refining operations, both from companies in
these industries and from companies in other industries that produce similar products.
Logistics operations are very competitive. Generally, pipelines are the lowest cost method for long-haul,
overland movement of refined products. Therefore, the most significant competitors for large volume shipments
in the areas served by the Partnership’s pipelines are other pipelines. However, high capital requirements,
environmental considerations and the difficulty in acquiring rights-of-way and related permits make it difficult
for other companies to build competing pipelines in areas served by the Partnership’s pipelines. As a result,
competing pipelines are likely to be built only in those cases in which strong market demand and attractive tariff
rates support additional capacity in an area. In addition, pipeline operations face competition from trucks that
deliver product in a number of areas that the Partnership’s pipeline operations serve. While their costs may not be
competitive for longer hauls or large volume shipments, trucks compete effectively for incremental and marginal
volume in many areas served by the Partnership’s pipelines. The Partnership’s refined product terminals compete
with other independent terminals with respect to price, versatility and services provided. The competition
primarily comes from integrated petroleum companies, refining and marketing companies, independent terminal
companies and distribution companies with marketing and trading operations. Sunoco is not aware of any direct
competition in the Partnership’s butane blending business. The Partnership also faces competition among
common carrier pipelines carrying crude oil. This competition is based primarily on transportation charges,
access to crude oil supply and market demand. Similar to pipelines carrying refined products, the high capital
costs deter competitors for the crude oil pipeline systems from building new pipelines. Crude oil purchasing and
marketing activities’ competitive factors are price and contract flexibility, quantity and quality of services, and
accessibility to end markets.
The refining and marketing business is very competitive. Sunoco currently competes with a number of other
domestic refiners and marketers in the eastern half of the United States, with integrated oil companies, with
foreign refiners that import products into the United States and with producers and marketers in other industries
supplying alternative forms of energy and fuels to satisfy the requirements of the Company’s industrial,
commercial and individual consumers. Some of Sunoco’s competitors have expanded capacity of their refineries
and new refineries continue to come on line internationally. These factors continue to affect the Company’s
competitive position and have contributed to its decision to exit the refining business no later than July 2012.
Profitability in the refining and marketing industry depends largely on refined product margins, which can
fluctuate significantly, as well as operating efficiency, product mix, and costs of product distribution and
transportation. Certain of Sunoco’s competitors that have larger and more complex refineries may be able to
realize lower per-barrel costs or higher margins per barrel of throughput. Several of Sunoco’s current principal
competitors are integrated national or international oil companies that are larger and have substantially greater
resources than Sunoco. Because of their integrated operations and larger capitalization, these companies may be
more flexible in responding to volatile industry or market conditions, such as shortages of feedstocks or intense
price fluctuations. Unlike certain of its competitors that have access to proprietary sources of controlled crude oil
production available for use at their own refineries, Sunoco obtains substantially all of its crude oil and other
feedstocks from unaffiliated sources. The availability and cost of crude oil is affected by global supply and
demand. Most of the crude oils processed in Sunoco’s refining system are light-sweet crude oils. Refining
margins are frequently impacted by sharp changes in crude oil costs, which may not be immediately reflected in
product prices.
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