Sunoco Focused on Building Retail Business

WILMINGTON, Del. -- Sunoco Inc. is focusing on building its retail and logistics businesses, as oil refining margins remain under pressure and more biofuels are blended into the fuel supply, according to a report by Dow Jones Newswires.

The goal is to turn Sunoco into a "premier fuel supplier and use marketing as a way to pull volume through," Sunoco Chief Executive Lynn Elsenhans said at the Sanford C. Bernstein Strategic Decisions Conference, held last week.

As biofuels expand the sources of transportation fuels, "the strategy point has moved from refining to the terminal," and Elsenhans said that creates an attractive opportunity for the company to expand its logistics operations and retail presence.

The retail business is a mix of selling fuel, operating the convenience stores and managing the underlying real estate. Sunoco is examining the best ways to unlock value, and the focus is on increasing its retail presence, according to Elsenhans.

"We have opportunity in the convenience business to up our game and generate more value out of the real estate business," she said.

This is a deliberate move by Sunoco to reduce its exposure to the volatile and troubled refining industry, and to focus on what have been widely perceived as its secondary businesses, the report stated.

U.S. refiners continue to be plagued by high crude oil prices and weak demand for gasoline and diesel, which have caused them to post losses over the past year. Swollen inventories, excess global refining capacity and increased biofuel blending continue to pressure margins. Sunoco has been targeted as a weak player in the refining industry because it strictly refines light, sweet crude blends that cost more than the heavy, sour crudes processed by competitors such as Valero Energy Corp.

Sunoco is looking at ways to produce more biofuels. The company will be starting up a corn-based ethanol plant in upstate New York next month. Sunoco could add a second-generation ethanol facility to the site, and also add a biodiesel plant or produce another type of biofuel at its shuttered Eagle Point refinery in Westville, N.J., Elsenhans said.

Although she isn't against blending more than 10 percent of ethanol into gasoline, the chief executive said the issue of whether such blending would void vehicle warranties is a major concern. Sunoco has already reached the 10 percent blend wall, while the U.S. fuel supply is at 8 percent, Elsenhans said.

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