In addition to the quality of its assets, a company’s ability to successfully link those assets to the marketplace will increasingly influence its downstream performance. Phillips 66 has strengthened that linkage through the development of its commercial organization and has positioned that organization as a critical enabler of value creation throughout the company’s integrated downstream portfolio.
Commercial capability as a strategic leverage
Phillips 66 has stated that its business operations are now a strategic tool to generate the maximum value from all of its refining, midstream, and marketing assets. Commercial is the way Phillips 66 connects with customers in over 80 countries through integrating all of its functions into one global commercial platform.
Functions such as:
- Trading
- Origination
- Logistics
- Market Analysis
- Risk Management
Since 2023, Phillips 66 has added approximately 30% to the size of its commercial workforce, which represents a strategic decision to increase capability as opposed to simply increasing the number of employees. The company has stated that the expansion was necessary to navigate the increasingly volatile energy markets driven by changing supply-demand dynamics, shifting regulatory environments, and rising geopolitical risks.
Enhancing global reach and market access
Beginning with the commercial strategy of Phillips 66 being a global expansion of the value chain of Phillips 66, it is through this commercial expansion that Phillips 66 has established a commercial presence in each of the six international locations
- Houston
- Calgary
- London
- Singapore
- Beijing
- Hamburg
In addition to establishing a commercial presence in each of these cities, Phillips 66 employs over 100 traders and 20 originators in the commercial group.
As the commercial organization has expanded, Phillips 66 has also made significant investments in physical infrastructure to support it. For example, the company has expanded or renovated the trading floor in four of its six commercial locations. The investments demonstrate Phillips 66′ s belief that the execution of sophisticated market strategies is a key element of competitive advantage in downstream operations.
The interconnection of downstream segments
Phillips 66′ s commercial organization serves as a key point of interconnection among the company’s downstream business units. By coordinating market access for refined products, renewable fuels, and specialty products, the commercial organization ensures that operational decisions across the various downstream segments are informed by real-time market conditions.
Managing volatility and transition during this time
Phillips 66′ s management has indicated that the coordination provided by the commercial organization has supported the company’s recent acquisition and system expansion efforts to expand its reach into new markets. Specifically, commercial teams are charged with ensuring that the full value potential of the newly acquired and/or expanded assets is realized through the application of the commercial organization’s capabilities to the broader value chain.
Phillips 66’s senior management team stated that volatility in the market is now the rule rather than the exception. Therefore, Phillips 66 considers the development of its commercial capabilities as “the minimum threshold” to capture value while minimizing risk. Phillips 66 further believes that it is the company’s ability to evaluate markets, construct transactions, and implement logistics on a large-scale basis that is directly responsible for providing stability in the downstream segment of the company’s earnings.
The company will be able to adapt to the portfolio changes that Phillips 66 will implement in response to the energy transition.
Thus, Phillips 66’s commercial team will have an opportunity to develop the knowledge and skills required to sell new emerging renewable fuels and low-carbon products, along with their current traditional refined fuel sales. The expanded capabilities of Phillips 66’s commercial strategy represent a broader shift in how value is created in the downstream. Through investments in people, location (global), and market execution (integrated), Phillips 66 is enabling itself to create value by linking a large, diverse asset base to dynamic and fluid end markets.
