Plains All American Pipeline’s (PAA) Supply and Logistics segment contributes ~20% to the company’s total profits. The segment purchases crude oil, NGLs (natural gas liquids), and natural gas. It stores, transports, and resells these products.
The segment makes money from the difference in the purchase and sale prices of the products it resells, less the transportation, logistics, and other administrative costs incurred in the process. The segment’s revenue is impacted by regional supply and demand for its commodities.
The segment makes most of its crude oil and NGLs purchases when it believes that it has the opportunity for higher margins in downstream distribution. Such margins tend to fluctuate with market conditions.
As the segment’s activities involve the sale of crude oil and NGLs, it’s exposed to credit risk. The majority of activities carried out within the segment are designed to produce stable baseline results in a variety of market conditions.
Supply and Logistics assets
In addition to hedging related inventories, this segment owns a significant amount of crude oil and NGLs as long-term assets. Its fleet includes 990 trucks, 110 trailers, and 10,000 crude oil and NGLs railcars.
The above graph shows the segment’s average daily volumes and profit over the last five years. Its volumes include crude oil lease-gathering purchases and NGLs sales.
The segment’s fall in profit in 2015 was mainly due to derivatives and inventory adjustments and lower trading volumes compared to 2014. In 2015, the Supply and Logistics segment’s profit was $0.89 per barrel.