Why Alberta Will Win The War Over Trans Mountain

[Rodent + 1,424]

The BC/Alberta war over Kinder Morgan’s trans mountain pipeline wages on, with Alberta now ready to lay down the gauntlet to force BC’s hand. As Kinder Morgan’s self-proposed deadline of May 31 nears, Alberta is going to have to move, and fast. Unfortunately for BC, I don’t see any moves left for them. The BC government opposes the project. The federal government supports it, and both the fed government and Alberta say they will pony up some cash should Kinder Morgan walk away.

Alberta is operating from a position of desperation—without this expansion its province is in rough shape. It’s oil industry depends on the ability to ship oil out. With rail being a substandard and even riskier (and more expensive) option which BC is opposed to also, an expanded pipeline is Alberta’s oil industry’s only hope. It simply has nothing to lose, and it will likely fight to the death. BC, on the other hand, is not in such a position. It does not fight for its survival--it is fighting for an ideal.

And with enough public support behind the pipeline, or at least enough public support behind the notion that BC does not have the authority to stop it, I don’t see how BC can come out of this victorious.

At this point, it would behoove Alberta to hasten a quick end to this skirmish by allowing the powers that be in BC to save some face where possible, although I’m not convinced the BC posturing isn't merely a way of touting just how environmentally friendly the province is. If so, good on ya. Mission accomplished. Now move on.

The pipeline will go forward. Who will look like the winners and who will look like losers remains to be seen. I just can’t see Alberta losing here. 

[William Edwards + 708]

Alberta will lose this war. They may throw billions of dollars into building a pipeline, but having that line will not guarantee a customer. With the IMO sulfur reduction and the prospect of the global industry having to shut in two million barres a day of heavy, high sulfur resid, Canada has real disposition problems, and pipeline capacity is not among those.

[Julio + 1]

Agree with William Edwards

[Sofia + 35]

Alberta will definitely look like a loser. Desperate times justifies desperate moves, but in Alberta's case this move is just a waste of money. 

[Rodent + 1,424]

56 minutes ago, William Edwards said:

Alberta will lose this war. They may throw billions of dollars into building a pipeline, but having that line will not guarantee a customer. With the IMO sulfur reduction and the prospect of the global industry having to shut in two million barres a day of heavy, high sulfur resid, Canada has real disposition problems, and pipeline capacity is not among those.

can you elaborate on the IMO sulfur regs and the impact you see on demand? 

[William Edwards + 708]

3 hours ago, Rodent said:

can you elaborate on the IMO sulfur regs and the impact you see on demand? 

I will elaborate, possibly overdoing it. Here is an excerpt from another publication's interview of me on this subject.

When William mentioned to us last week that he has identified another shoe to drop in the oil markets, our ears perked up. Your garden variety bear cases these days are mostly predicated on rising US tight oil production or OPEC quota failure. When William said his warning was worth $10-$20/barrel and had nothing to do with either of these risk factors, we picked up the phone and called him. Here is what we learned.

 Bunker Fuel Specs At Sea Are Changing

 William’s new concern centers on a structural transformation in an end market for the heavier end of the barrel. He believes the change could weigh on the entire global crude pricing complex to the tune of $10-$20/barrel.

 It all starts with new International Maritime Organization (IMO) regulations. The UN gives the IMO jurisdiction over environmental issues in international waters, thus governing the global shipping industry. In October 2016, the IMO set January 1, 2020 as the implementation date for a significant reduction in the sulfur content of the fuel oil used by ships at sea (see announcement here).

 The IMO will cap sulfur content in global shipping fuel oil at 0.50% m/m (mass/mass). The current global limit is 3.5% m/m, and the average sulfur content of residual fuels on ships tested during 2015 was 2.45%.

 The current 3.5% rule was implemented in 2012 (the previous limit was 4.5%). Further restrictions have been discussed for several years now, but we finally have a firm go live date (the IMO has been debating going live in 2020 vs. 2025).

The global shipping industry has used high sulfur bunker fuel for decades. It has provided the BTUs ships need to steam across the ocean at the lowest possible cost. Sulfur regulation has been closing in on the oil consumers in mature markets for half a century, but only recently (relatively speaking) have regulators focused on sulfur emissions on the open seas.

 The sulfur being released from ships at sea is considerable. The change from 3.5% m/m to 0.5% m/m will take out 25 times more sulfur from the air than the change in gasoline requirements on land produced per William Edwards’ estimates.

 The maritime industry has two options for compliance:

1.                    ships can burn high sulfur bunker fuel if they equip vessels with scrubbers (exhaust gas cleaning systems which clean emissions before release into the atmosphere), or

2.                    ships will have to switch fuel sources to low sulfur fuels like gas, methanol, or LNG instead.

Scrubbers are costly and complicated, so most shippers will simply change the fuel they buy to lower sulfur grades. The primary replacement fuel of choice will most likely be diesel, and shippers have the next three years to figure out how to pay for the higher costs.

 To the ship owners’ benefit, current diesel fuel prices are actually lower today than the price of high sulfur bunker fuels was three years ago. So the ship owners can accommodate a switch to diesel without major cost ramifications by historical standards (another reason more will opt to switch rather than scrub).

 Scary Implications For Heavy Crude Producers

 This change creates the worst kind of problem for high sulfur bunker fuel producers and the heavy crude producers from whom they obtain their feedstock. These producers are already making a product with limited uses. Now a key end market is evaporating. So what happens when you deprive 2-3 mmbbls per day from its long-time end market?

 The analogy William Edwards uses to describe the impact is that of a broken garbage disposal. For years, the shipping industry was the garbage disposal for the oil industry. Ships burned the dirty, heavy stuff that no one else wanted.

 The IMO’s new regulations just broke the oil industry’s garbage disposal. So where does the garbage go starting in 2020? It starts to pool up. This will put heavy price pressure on high sulfur oil blends. Oil price is the mechanism that shuts in production, and until it falls severely, supply-side fundamentals will continue to deteriorate.

 Some may speculate that excess barrels could go to power plants, say for example in India. This would put a floor under bunker fuel at a parity price with coal, maybe something like $15/barrel on the water.

 If bunker fuel is selling for $15/barrel on the water, what is the price of crude at the source considering that some of the world’s crudes are 2/3rds bunker fuel by content when they come out of the ground?

 To answer that, location of production comes into play, and Canada will be ground zero for the garbage disposal problem. The Canadian bitumen industry is the ultimate balancing source for much of the bunker fuel supply consumed by the shipping industry today – the high sulfur stuff. Canadian exports are about 3-3.5 mm bpd, and about 2/3rds of that is bitumen. If Canadian bitumen has to be moved to a coal burning location to be sold at a price that backs out coal, then you probably add $10-$15/barrel in transportation costs plus another $10-15/barrel for the cost of diluent to meet viscosity requirements. If your end price is $15/barrel (parity with coal), then the price as it comes out of the ground in Canada is a negative number. Canadian Oil Sands producers would have to pay for their garbage removal instead of getting paid for production.

 With current production costs trending around $30-$40/barrel, the IMO regs have the potential to shut down most Canadian bitumen production other than what is going to a local upgrader or a local facility that’s already invested in the capacity to utilize the oil.

 The remaining barrels will flow out and down, maybe to the Midwest, but even in the Midwest, where there is pipeline to the Gulf Coast, they’ll face competition from international sources.

 What price do you have to get down to in order to cut down 1 mmbbls/d from current Canadian production? It’s hard to say precisely, but it is significantly lower than where the price is today. So IMO regs will drag Canadian bitumen prices down significantly, maybe more than $25/bbl, into negative netback territory.

 More Than A Canadian Problem, This Has Global Implications

 The drag into negative netback territory for Canadian bitumen gets William Edwards concerned about global oil prices. If you have Canadian oil competing in the market considerably lower (say half of its current price), then the rest of the world must lower their prices to stay competitive – at least to the extent that they have the heavy component in their blends. So what happens in Canada as high sulfur fuels are phased out will impact oil prices around the world. This is another shoe to drop in new oil price paradigm.

 The significance of the logic we’ve just described cannot be overstated. The thesis put forth by William Edwards means Canada won’t have oil to supply competitively on the global market after 2020. It means they will dump excess barrels on the global market, forcing everyone else’s price lower too. The rest of the world can get along just fine without Canadian oil, but Canada needs the rest of the world to purchase their oil if they want to maintain a healthy oil industry.

To this point, we’ve seen several analyses of the pending IMO regs by various analysts, including guesses on how many vessels will add scrubbers vs. move to diesel and some assessments of demand. But critically, the oil market is not yet thinking about the global price impact here, perhaps because the go-live date is still three years away or perhaps because the perception is it just impacts the heavy end of the barrel.

 Shipper behavior will start to change well before the January 1, 2020 deadline, and as it does, we’ll see much earlier if William Edward’s global concerns are warranted.

 

[Guest]

3 hours ago, William Edwards said:

I will elaborate, possibly overdoing it. Here is an excerpt from another publication's interview of me on this subject.

 

When William mentioned to us last week that he has identified another shoe to drop in the oil markets, our ears perked up. Your garden variety bear cases these days are mostly predicated on rising US tight oil production or OPEC quota failure. When William said his warning was worth $10-$20/barrel and had nothing to do with either of these risk factors, we picked up the phone and called him. Here is what we learned.

 Bunker Fuel Specs At Sea Are Changing

 William’s new concern centers on a structural transformation in an end market for the heavier end of the barrel. He believes the change could weigh on the entire global crude pricing complex to the tune of $10-$20/barrel.

 It all starts with new International Maritime Organization (IMO) regulations. The UN gives the IMO jurisdiction over environmental issues in international waters, thus governing the global shipping industry. In October 2016, the IMO set January 1, 2020 as the implementation date for a significant reduction in the sulfur content of the fuel oil used by ships at sea (see announcement here).

 The IMO will cap sulfur content in global shipping fuel oil at 0.50% m/m (mass/mass). The current global limit is 3.5% m/m, and the average sulfur content of residual fuels on ships tested during 2015 was 2.45%.

 The current 3.5% rule was implemented in 2012 (the previous limit was 4.5%). Further restrictions have been discussed for several years now, but we finally have a firm go live date (the IMO has been debating going live in 2020 vs. 2025).

The global shipping industry has used high sulfur bunker fuel for decades. It has provided the BTUs ships need to steam across the ocean at the lowest possible cost. Sulfur regulation has been closing in on the oil consumers in mature markets for half a century, but only recently (relatively speaking) have regulators focused on sulfur emissions on the open seas.

 The sulfur being released from ships at sea is considerable. The change from 3.5% m/m to 0.5% m/m will take out 25 times more sulfur from the air than the change in gasoline requirements on land produced per William Edwards’ estimates.

 The maritime industry has two options for compliance:

1.                    ships can burn high sulfur bunker fuel if they equip vessels with scrubbers (exhaust gas cleaning systems which clean emissions before release into the atmosphere), or

2.                    ships will have to switch fuel sources to low sulfur fuels like gas, methanol, or LNG instead.

Scrubbers are costly and complicated, so most shippers will simply change the fuel they buy to lower sulfur grades. The primary replacement fuel of choice will most likely be diesel, and shippers have the next three years to figure out how to pay for the higher costs.

 To the ship owners’ benefit, current diesel fuel prices are actually lower today than the price of high sulfur bunker fuels was three years ago. So the ship owners can accommodate a switch to diesel without major cost ramifications by historical standards (another reason more will opt to switch rather than scrub).

 Scary Implications For Heavy Crude Producers

 This change creates the worst kind of problem for high sulfur bunker fuel producers and the heavy crude producers from whom they obtain their feedstock. These producers are already making a product with limited uses. Now a key end market is evaporating. So what happens when you deprive 2-3 mmbbls per day from its long-time end market?

 The analogy William Edwards uses to describe the impact is that of a broken garbage disposal. For years, the shipping industry was the garbage disposal for the oil industry. Ships burned the dirty, heavy stuff that no one else wanted.

 The IMO’s new regulations just broke the oil industry’s garbage disposal. So where does the garbage go starting in 2020? It starts to pool up. This will put heavy price pressure on high sulfur oil blends. Oil price is the mechanism that shuts in production, and until it falls severely, supply-side fundamentals will continue to deteriorate.

 Some may speculate that excess barrels could go to power plants, say for example in India. This would put a floor under bunker fuel at a parity price with coal, maybe something like $15/barrel on the water.

 If bunker fuel is selling for $15/barrel on the water, what is the price of crude at the source considering that some of the world’s crudes are 2/3rds bunker fuel by content when they come out of the ground?

 To answer that, location of production comes into play, and Canada will be ground zero for the garbage disposal problem. The Canadian bitumen industry is the ultimate balancing source for much of the bunker fuel supply consumed by the shipping industry today – the high sulfur stuff. Canadian exports are about 3-3.5 mm bpd, and about 2/3rds of that is bitumen. If Canadian bitumen has to be moved to a coal burning location to be sold at a price that backs out coal, then you probably add $10-$15/barrel in transportation costs plus another $10-15/barrel for the cost of diluent to meet viscosity requirements. If your end price is $15/barrel (parity with coal), then the price as it comes out of the ground in Canada is a negative number. Canadian Oil Sands producers would have to pay for their garbage removal instead of getting paid for production.

 With current production costs trending around $30-$40/barrel, the IMO regs have the potential to shut down most Canadian bitumen production other than what is going to a local upgrader or a local facility that’s already invested in the capacity to utilize the oil.

 The remaining barrels will flow out and down, maybe to the Midwest, but even in the Midwest, where there is pipeline to the Gulf Coast, they’ll face competition from international sources.

 What price do you have to get down to in order to cut down 1 mmbbls/d from current Canadian production? It’s hard to say precisely, but it is significantly lower than where the price is today. So IMO regs will drag Canadian bitumen prices down significantly, maybe more than $25/bbl, into negative netback territory.

 More Than A Canadian Problem, This Has Global Implications

 The drag into negative netback territory for Canadian bitumen gets William Edwards concerned about global oil prices. If you have Canadian oil competing in the market considerably lower (say half of its current price), then the rest of the world must lower their prices to stay competitive – at least to the extent that they have the heavy component in their blends. So what happens in Canada as high sulfur fuels are phased out will impact oil prices around the world. This is another shoe to drop in new oil price paradigm.

 The significance of the logic we’ve just described cannot be overstated. The thesis put forth by William Edwards means Canada won’t have oil to supply competitively on the global market after 2020. It means they will dump excess barrels on the global market, forcing everyone else’s price lower too. The rest of the world can get along just fine without Canadian oil, but Canada needs the rest of the world to purchase their oil if they want to maintain a healthy oil industry.

To this point, we’ve seen several analyses of the pending IMO regs by various analysts, including guesses on how many vessels will add scrubbers vs. move to diesel and some assessments of demand. But critically, the oil market is not yet thinking about the global price impact here, perhaps because the go-live date is still three years away or perhaps because the perception is it just impacts the heavy end of the barrel.

 Shipper behavior will start to change well before the January 1, 2020 deadline, and as it does, we’ll see much earlier if William Edward’s global concerns are warranted.

 

This is a bold prediction, to say the least.

What I'm not totally comprehending is how a product that comprises roughly 5% of global demand will have this much of an impact on prices. Furthermore, I was under the impression that WCS can be upgraded and/or refined to lower the sulphur content? Is this not currently happening both in the United States and Canada? Or is it simply condemned to be a low grade, high sulphur product who's only market is going to evaporate in 2020 with the implementation of the new IMO regulations?

It also appears that this prediction relies on the shipping industry deciding on moving to a fuel with a lower sulphur content, rather than using scrubbers. Has it been established that this in fact is the consensus decision of the shipping industry? Because from what I've seen the jury still seems to be out on that one. The scrubbers have a very high cost upfront, but many people feel that may be cheaper to run over the long term than the alternative, which is using a lower sulphur fuel source which will cost substantially more than the previous Bunker C.

The other part of this that I'm not completely understanding is that the oil industry has invested hundreds of billions into the Alberta oil sands, and many of the projects they invested in have 40-50 year life spans. In fact, they're continuing to expand on existing projects and begin new ones that have life spans of many decades. Have the oil companies such as Exxon, Suncor and CNRL wasted hundreds of billions on developing a resource that will become completely useless in less than 2 years? 

Edited May 17, 2018 by Guest

[Bhimsen Pachawry + 72]

The tar sands are degraded crude oil with the characteristics of Asphalt and density higher than water. These will need to be diluted with a new technology liquid or thorough mixing with light crude oil in heated conditions. This is the big problem that faces tar sand industry and also the reason why Venezuela or Canada can not export several millions of barrels of oil a day and bring global oil supply to a reasonable level.

The requirement of light crude to mix and the requirement of a new technology liquid makes the process very difficult to the extent of becoming similar to coal liquefaction.

[William Edwards + 708]

6 hours ago, Fulcaneli said:

This is a bold prediction, to say the least.

What I'm not totally comprehending is how a product that comprises roughly 5% of global demand will have this much of an impact on prices. Furthermore, I was under the impression that WCS can be upgraded and/or refined to lower the sulphur content? Is this not currently happening both in the United States and Canada? Or is it simply condemned to be a low grade, high sulphur product who's only market is going to evaporate in 2020 with the implementation of the new IMO regulations?

It also appears that this prediction relies on the shipping industry deciding on moving to a fuel with a lower sulphur content, rather than using scrubbers. Has it been established that this in fact is the consensus decision of the shipping industry? Because from what I've seen the jury still seems to be out on that one. The scrubbers have a very high cost upfront, but many people feel that may be cheaper to run over the long term than the alternative, which is using a lower sulphur fuel source which will cost substantially more than the previous Bunker C.

The other part of this that I'm not completely understanding is that the oil industry has invested hundreds of billions into the Alberta oil sands, and many of the projects they invested in have 40-50 year life spans. In fact, they're continuing to expand on existing projects and begin new ones that have life spans of many decades. Have the oil companies such as Exxon, Suncor and CNRL wasted hundreds of billions on developing a resource that will become completely useless in less than 2 years? 

Your questions are appropriate, but answerable. Thinking through timing for both oil processing and scrubber installation will answer most of them, after first recognizing that the sulfur in oil sands is tied quite tightly within the asphaltene molecules. Specialized, high cost  processing is needed for effective processing. Construction of new facilities to handle 2 million barrels a day of surplus high sulfur resid takes 5-10 years. In the meantime the world price of oil will be impacted by the desperation of the 5% overhang. Pricing by the most desperate seller has been common and is still in vogue. Thus the global impact of unsalable oil sands on the industry will be pronounced.

Regarding the "foolish" investments by oil sands developers, that is a harsh way to put it, but true. Any long term investment will be judged by comparing the long term price forecast with the actual price performance. Most of the large oil sands investments expected $100+ prices forever, and if the price is half that, then the investments were unsound.

[David R(Canada) + 5]

I believe Alberta will win, but it won't happen until we rid ourselves of our useless NDP government.  A few years ago, a group run by a Haida native (G7G), came up with the idea of a rail-link to the Alaskan panhandle. all native communities and the Alaskans have signed onto it.   The route would have passed through the NE corner of BC, with the allowance of taking a slightly longer route going directly from Alberta to the Yukon if BC blocks it.  

 This was originally supposed to be a rail-link so that the communities could ship and receive goods by rail, making those goods MUCH less expensive, even in Alaska.              

This original idea could be changed to a pipeline, thus improving environmental protection.

We have another year to wait until the next Alberta election, which will be during the Spring of 2019.  If we get a conservative government they'll be building something; it could be a rail-link or a pipeline.  So, all those who think that BC will win this little skirmish are sorely mistaken.

  http://www.marketwired.com/press-release/g-seven-generations-ltd-new-railway-promises-market-access-avoids-bc-super-tanker-conflict-1532365.htm                           

Edited May 17, 2018 by David R(Canada)

[William Edwards + 708]

10 minutes ago, David R(Canada) said:

I believe Alberta will win, but it won't happen until we rid ourselves of our useless NDP government.  A few years ago, a group run by a Haida native (G7G), came up with the idea of a rail-link to the Alaskan panhandle. all native communities and the Alaskans have signed onto it.   The route would have passed through the NE corner of BC, with the allowance of taking a slightly longer route going directly from Alberta to the Yukon if BC blocks it.  

 This was originally supposed to be a rail-link so that the communities could ship and receive goods by rail, making those goods MUCH less expensive, even in Alaska.              

This original idea could be changed to a pipeline, thus improving environmental protection.

We have another year to wait until the next Alberta election, which will be during the Spring of 2019.  If we get a conservative government they'll be building something; it could be a rail-link or a pipeline.  So, all those who think that BC will win this little skirmish are sorely mistaken.

  http://www.marketwired.com/press-release/g-seven-generations-ltd-new-railway-promises-market-access-avoids-bc-super-tanker-conflict-1532365.htm                           

Sorry to throw cold water on the idea, but the problem is not transportation of Canadian oil, it is the quality of Canadian oil. No one will buy it at the price required to produce it..

[Guest]

14 hours ago, William Edwards said:

Your questions are appropriate, but answerable. Thinking through timing for both oil processing and scrubber installation will answer most of them, after first recognizing that the sulfur in oil sands is tied quite tightly within the asphaltene molecules. Specialized, high cost  processing is needed for effective processing. Construction of new facilities to handle 2 million barrels a day of surplus high sulfur resid takes 5-10 years. In the meantime the world price of oil will be impacted by the desperation of the 5% overhang. Pricing by the most desperate seller has been common and is still in vogue. Thus the global impact of unsalable oil sands on the industry will be pronounced.

Regarding the "foolish" investments by oil sands developers, that is a harsh way to put it, but true. Any long term investment will be judged by comparing the long term price forecast with the actual price performance. Most of the large oil sands investments expected $100+ prices forever, and if the price is half that, then the investments were unsound.

I have read that Canada currently exports a very sizeable amount of heavy oil to the United States. Are the refineries in the United States not able to process this oil? 

My basic understanding of it is that bitumen can be and is refined into numerous products, not just heavy Bunker C oil. In fact I think I've even read articles regarding how it's blended with the lighter oil that is produced from shale fracking in the United States. 

I guess what I'm getting at is the crux of your theory appears to be that Canadian heavy oil is only utilized in the production of Bunker C oil, that the refining capacity to derive anything else from it doesn't exist, and that this will result in hundreds of billions worth of investments in the Canadian oil sands becoming worthless? Is that correct? 

[Guest]

18 hours ago, Bhimsen Pachawry said:

The tar sands are degraded crude oil with the characteristics of Asphalt and density higher than water. These will need to be diluted with a new technology liquid or thorough mixing with light crude oil in heated conditions. This is the big problem that faces tar sand industry and also the reason why Venezuela or Canada can not export several millions of barrels of oil a day and bring global oil supply to a reasonable level.

The requirement of light crude to mix and the requirement of a new technology liquid makes the process very difficult to the extent of becoming similar to coal liquefaction.

Is this not already happening? 

[William Edwards + 708]

9 minutes ago, Fulcaneli said:

I have read that Canada currently exports a very sizeable amount of heavy oil to the United States. Are the refineries in the United States not able to process this oil? 

My basic understanding of it is that bitumen can be and is refined into numerous products, not just heavy Bunker C oil. In fact I think I've even read articles regarding how it's blended with the lighter oil that is produced from shale fracking in the United States. 

I guess what I'm getting at is the crux of your theory appears to be that Canadian heavy oil is only utilized in the production of Bunker C oil, that the refining capacity to derive anything else from it doesn't exist, and that this will result in hundreds of billions worth of investments in the Canadian oil sands becoming worthless? Is that correct? 

I will help to get your thinking on track. Part of the Canadian heavy production goes to US refineries. They are now running all that they can and building no more capacity. Some of the Canadian bitumen goes to upgraders in Canada. They are running full as well and say that they cannot justify building more processing capacity. Canada expects to increase oil sands production. Where will the additional production go if Canadians and the US are full of that quality of crude, and the rest of the world finds it uneconomical to run? Add to that question the additional concern of what happens to the approximately one million barrels a day of bitumen that will be displaced from existing refinery processing when the bunker fuel spec drops to 0.5% S starting January 2020?

[William Edwards + 708]

13 minutes ago, Fulcaneli said:

Is this not already happening? 

Yes, but there is no room for more and Canadian production is growing. Ten, on January 2020 the IMO slams the door on Canadian bitumen.

[Guest]

14 hours ago, William Edwards said:

Yes, but there is no room for more and Canadian production is growing. Ten, on January 2020 the IMO slams the door on Canadian bitumen.

William, does this depend on bitumen being utilized for the production of Bunker C exclusively? Because my understating is that much of the bitumen is refined into WCS, which is then further refined into various products.

WCS is not bitumen, correct? 

[Guest]

14 hours ago, William Edwards said:

I will help to get your thinking on track. Part of the Canadian heavy production goes to US refineries. They are now running all that they can and building no more capacity. Some of the Canadian bitumen goes to upgraders in Canada. They are running full as well and say that they cannot justify building more processing capacity. Canada expects to increase oil sands production. Where will the additional production go if Canadians and the US are full of that quality of crude, and the rest of the world finds it uneconomical to run? Add to that question the additional concern of what happens to the approximately one million barrels a day of bitumen that will be displaced from existing refinery processing when the bunker fuel spec drops to 0.5% S starting January 2020?

Will the reduction in heavy oil imports from Venezuela not free up refining capacity? Production in Venezuela is down substantially, their production capacity and infrastructure is crumbling, and it appears that the situation is going to get much worse before it gets any better. 

As far as the economic aspects, I was under the impression that WCS trades at a large discount to offset the challenges you outlined. 

I guess what I'm getting at is that the scenario your theorizing is brand new to me, and its seemingly contradictory to the conventional wisdom and multi billion dollar investments that are being made in the Canadian heavy oil industry. I see it mentioned frequently that a lack of pipeline capacity, high production costs and an unstable oil market are the biggest challenges facing Alberta oil. But to be completely honest, I've never once seen anyone take the position that finding customers for heavy oil is going to not just be a problem, but be a problem that will be the end of the oil sands and result in the loss of hundreds of billions worth of investments made by oil companies over the previous 30 years. I guess time will tell, but I do have a bit of a hard time believing that these oil companies don't understand the markets enough to know if they're going to have customers for their products, especially when that product is the result of multi billion dollar investments. Why would Kinder Morgan build a 16 billion dollar pipeline to the pacific coast, if there were no customers for the product it will be transporting after 2020? Why would Suncor sanction new multi billion dollar projects if there will be no market after 2020? 

[Refman + 207]

US refiners want Canadian crude to replace falling supplies of Venezuelan crude

[William Edwards + 708]

5 hours ago, Refman said:

US refiners want Canadian crude to replace falling supplies of Venezuelan crude

If you check the data, Greg, conveniently provided by the EIA, you will discover, to your surprise, that, so far, the drop in Venezuelan imports has been made up by Iraqi, not Canadian, imports. The Canadians still have a price/quality problem in spite of the kindness of the Venezuelan leaders.

[EXXMobil + 6]

The Pipeline will be approved within the next few weeks. Also, the oil industry and for that case the World has a big problem. Further stock draws over the remainder of 2018 will bring stocks down by, on average, 0.5 [million barrels a day]. We have an oil shortage right around the corner and nobody sees it. We are possibly looking at $150 oil within 6 to 12 months. 

[William Edwards + 708]

5 hours ago, Refman said:

US refiners want Canadian crude to replace falling supplies of Venezuelan crude

Not according to US refinery purchasers of import data. Possibly only Canadian wishful thinking believes as you do.

[William Edwards + 708]

6 minutes ago, EXXMobil said:

The Pipeline will be approved within the next few weeks. Also, the oil industry and for that case the World has a big problem. Further stock draws over the remainder of 2018 will bring stocks down by, on average, 0.5 [million barrels a day]. We have an oil shortage right around the corner and nobody sees it. We are possibly looking at $150 oil within 6 to 12 months. 

I would be interested in seeing your global crude balance from which you draw this conclusion. I would be particularly interested in your expectations for production declines in the Middle East. Alternatively, you may force a surge in global demand, rather than the possible decline resulting from the expected recession. I would be interested in those numbers, as well.

[Guest]

41 minutes ago, William Edwards said:

If you check the data, Greg, conveniently provided by the EIA, you will discover, to your surprise, that, so far, the drop in Venezuelan imports has been made up by Iraqi, not Canadian, imports. The Canadians still have a price/quality problem in spite of the kindness of the Venezuelan leaders.

Is that due to not wanting Canadian oil, or Canada not having the spare capacity to make up the difference? I'm still trying to figure out your logic here William, because your theories are so far from the prevailing opinions of the day. 

You appear to have a very low regard for Canadian oil, and it appears as though it might be effecting your opinions? I mean you're basically making a lot of claims here that are not really supported by much factual evidence.

You're claiming that the new IMO regulations are going to kill off the oil sands, but that's assuming that Bunker C oil is the only derivative of bitumen is it not? You're claiming that despite hundreds of billions in oil sands investments, a 16 billion dollar pipeline expansion currently being constructed to the Pacific Coast by Kinder Morgan to transport Alberta heavy oil, and you're seemingly assuming that all of these investments are being undertaken without regard to ensuring that there will be a customer for that oil. I find that really hard to comprehend. 

I have never, ever, viewed anyone else make the claim that WCS will become unsellable in 2020, nor have I viewed anyone else suggest that a reduction in Bunker C oil demand would disproportionately effect Canadian heavy oil to the point that it would end the industry in the oil sands. 

So I really don't know what to tell you. Either they have it all wrong, or you do. But seeing as they're currently breaking even at around $40/barrel, are continuing to make new investments, and are continuing to turn a profit, I don't think I'll sell my Suncor stock yet. 

[William Edwards + 708]

14 minutes ago, Fulcaneli said:

Is that due to not wanting Canadian oil, or Canada not having the spare capacity to make up the difference? I'm still trying to figure out your logic here William, because your theories are so far from the prevailing opinions of the day. 

You appear to have a very low regard for Canadian oil, and it appears as though it might be effecting your opinions? I mean you're basically making a lot of claims here that are not really supported by much factual evidence.

You're claiming that the new IMO regulations are going to kill off the oil sands, but that's assuming that Bunker C oil is the only derivative of bitumen is it not? You're claiming that despite hundreds of billions in oil sands investments, a 16 billion dollar pipeline expansion currently being constructed to the Pacific Coast by Kinder Morgan to transport Alberta heavy oil, and you're seemingly assuming that all of these investments are being undertaken without regard to ensuring that there will be a customer for that oil. I find that really hard to comprehend. 

I have never, ever, viewed anyone else make the claim that WCS will become unsellable in 2020, nor have I viewed anyone else suggest that a reduction in Bunker C oil demand would disproportionately effect Canadian heavy oil to the point that it would end the industry in the oil sands. 

So I really don't know what to tell you. Either they have it all wrong, or you do. But seeing as they're currently breaking even at around $40/barrel, are continuing to make new investments, and are continuing to turn a profit, I don't think I'll sell my Suncor stock yet. 

Please advise me, specifically, of any claims that I have made that are not supported by factual evidence.

You might also examine whether your opinions are being influenced by the bias resulting from your own vested interest.

In case you do not wish to go to the trouble of validating your criticisms of my assessment, please check back with me in a couple of years and let me know how it all turned out.

[Guest]

3 minutes ago, William Edwards said:

Please advise me, specifically, of any claims that I have made that are not supported by factual evidence.

You might also examine whether your opinions are being influenced by the bias resulting from your own vested interest.

In case you do not wish to go to the trouble of validating your criticisms of my assessment, please check back with me in a couple of years and let me know how it all turned out.

Your claim that Canadian oil is going to be hit so hard by the new IMO regulations as to end the oil sands, specifically. That's not factually supported by anything, and in fact the evidence points to the contrary. 

I have validated my criticisms, repeatedly, in this thread. First you claimed that Bunker C fuel demand would end the industry, then it was the lack of refining capacity, and then it was the lack of demand. All of those theories have more holes than a piece of swiss cheese, respectfully. 

Canadian oil has a lot of issues, but demand for it isn't one of those issues. So I guess in 18 months we'll see if the Canadian oil industry craters, but to be honest William your theories are directly contradicted by corporations who employ people much more intelligent than you or I.