Why Alberta Will Win The War Over Trans Mountain

[William Edwards + 708]

6 hours ago, jimrdon said:

 

 

US oil production from Shale will not be the savior everyone thinks it will be. The wells have steep decline rates, and GOR's start increasing, and more water production as well. Shale oil is a tread mill, the only way to keep production steady is to continue to drill, companies spend more than they bring in and we all know how that ends. The increase in the price of oil helps, but then we get higher costs for drilling, completion etc. which leaves the companies no better off. As far as Exxon announcing a 600,000 BBl refining project, the only one they have talked about is Beaumont which they say will double the already 365,000 BBl capacity, far from an increase of 600,000 BBls!!  There was a company in Canada by the name of Rennaisance Energy back in the early 2000's that learned about high decline rate wells, they were bought out by Husky for about $15/share, their stock price was $50, 2.5 years earlier. The treadmill got to them, at some point you cant drill enough to keep up with the decline rates, especially once the sweet spots have been drilled up.

Thanks

 

6 hours ago, jimrdon said:

 

 

US oil production from Shale will not be the savior everyone thinks it will be. The wells have steep decline rates, and GOR's start increasing, and more water production as well. Shale oil is a tread mill, the only way to keep production steady is to continue to drill, companies spend more than they bring in and we all know how that ends. The increase in the price of oil helps, but then we get higher costs for drilling, completion etc. which leaves the companies no better off. As far as Exxon announcing a 600,000 BBl refining project, the only one they have talked about is Beaumont which they say will double the already 365,000 BBl capacity, far from an increase of 600,000 BBls!!  There was a company in Canada by the name of Rennaisance Energy back in the early 2000's that learned about high decline rate wells, they were bought out by Husky for about $15/share, their stock price was $50, 2.5 years earlier. The treadmill got to them, at some point you cant drill enough to keep up with the decline rates, especially once the sweet spots have been drilled up.

Thanks

I agree that shale oil is not the savior, but it is capable of creating a large ripple in the system. Insufficient reserves, however, as well as the steep decline rates, will limit its participation. When you add to that the likelihood of a bursting of the speculative price bubble, the headwind of the economy accompanying the resurrection of interest rates and the crude switch resulting from the IMO regulation change, I see a lot of turmoil in the industry in the next few years.

[Ian Austin + 131]

On 2018-05-18 at 3:22 PM, Refman said:

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

No - they are businesses. They want a stable supply of the cheapest crude they can get, that fits their refinery specs. 

If our (Canadian) crude fits that bill it will be the “in demand” blend 

Edited May 27, 2018 by Ian Austin

[Ian Austin + 131]

On 2018-05-21 at 1:29 AM, Fulcaneli said:

William thinks there's a shortage of refining capacity for heavy crude. 

 

The people at Turner Mason and Co believe this. They follow this sort of thing for a living. 

In their 2015 IMO Effects presentation, they cited a potential 2MM BPD shortfall in coking capacity to deal with high asphaltene/Sulphur crudes. They also surmised that nowhere near enough additional capacity to deal with this sort of crude would be built in near-medium term. So conditions are aligning for some kind of shock, we just don’t have crystal balls to tell us what the shock will exactly be  

It doesn’t mean the absolute end of anything. However, I wouldn’t be hedging my bets on the CAPP production growth curves (FYI: I’ve worked inside of some of these companies and can safely say they are as capable as any of us of making dumb decisions. In fact, the entire oil industry has a long and proud history of doing so)

[Ian Austin + 131]

On 2018-05-21 at 3:03 PM, Fulcaneli said:

William, I gave you respect until the condescending attitude started coming out. Age is no excuse for making rude comments. This is a discussion forum, and I think you should anticipate having your theories and views challenged. I know I do, and I think most other people do as well. Anyone that makes an assertion on a discussion forum should be prepared to back it up.

Your theories don't add up. I'm sorry, but that's just the reality of the situation. There's no lack of refining capacity, and if you can provide a link that demonstrates otherwise I'd gladly look at it. 

The potential change from Bunker C fuel to an alternative fuel, most likely diesel, won't effect the market for heavy oil. Again, if you can provide a link to a credible source that supports this theory I'd gladly take it into consideration. Heavy oil is refined into diesel every day. 

 

Yes, heavy blends, even asphaltenic blends are refined into Diesel everyday. 

However, there may not be a more expensive way to make middle distillates than using WCS as feedstock. The NW Upgrader (subtract the costs of all the Carbon Capture expenditure) is a good example of this 

[Ian Austin + 131]

On 2018-05-24 at 12:38 AM, Jan van Eck said:

Large corporations tend to be run by, and controlled by, like-minded men.  The interests of the corporation, its shareholders, and the public are made subordinate to the interests of the Managers, especially the colossal ego of the CEO.  This is an endemic problem with the Corporation form of economic activity.  As "Exhibit A," I present to you Mr. Jamie Dimon, the head of J.P.Morgan Chase & Co., in New York. Mr. Dimon was paid $29.5 million last year.  During a stock analyst presentation meeting, Mike Mayo, a Managing Director at Credit Agricole Securities,  asked Mr. Dimon how he came to the conclusion he could get away unscathed doing what he did with that bank. [The actual question regarded whether or not capital ratios were a factor for depositors selecting a specific bank, which ratios Chase had let slip in the pursuit of Mr. Dimon's ego projects.]  Mr. Dimon, dismissing Mr. Mayo as the house imbecile,  replied, "That's why I'm richer than you."

These corporations run on gigantic egos.  Now the problem with this is that, when the Boss says [pick your example]:  "I want to go drill for oil off the coast of Brasil in 22,000 feet of water," then the entire workforce understands that their Reports,  Reserves Estimates, and costings better uphold the wisdom of the Master, or they will find themselves transferred to being a security guard on a tool-shed at Point Barrow [Alaska].   If by "at the highest levels" you are referencing the Board of Directors, then remember that Boards are groupthink at the most extreme level. 

To illustrate, recall that Maurice Greenberg, the CEO of American International Group  [AIG], thought it would be a bright idea to go issue single-premium insurance policies on mortgage-backed securities ["MBS"] known as "derivatives."  He even issued them without subrogation rights, so that when the Security went South and AIG paid the value of principal and interest to the insured (typically, some outfit like Deutsche Bank), AIG would not receive title to the underlying securities.  That stunt led to the "financial crisis" with all these brilliant Wall Street bankers (led by the guys at Goldman Sachs) descending on George W. Bush asking for many hundreds of billions in bail-out cash.  Greenberg's AIG picked up $88 Billion and had it all spent in 24 hours.  So much for the brilliance of huge corporations, their CEO's,and their Boards of Directors.

I know somebody said it earlier, in reference to another comment, but that was beautifully (and very accurately) explained

[Refman + 207]

On 5/26/2018 at 9:59 PM, Ian Austin said:

No - they are businesses. They want a stable supply of the cheapest crude they can get, that fits their refinery specs. 

If our (Canadian) crude fits that bill it will be the “in demand” blend 

As an employee of a major refiner, I can assure you that the industry is looking for replacements for Ven crude, and they would take more Canadian Heavy if they could get it. That's why many refiners committed to space on the Keystone XL pipeline and are hoping it dos get built.

[William Edwards + 708]

1 hour ago, Refman said:

As an employee of a major refiner, I can assure you that the industry is looking for replacements for Ven crude, and they would take more Canadian Heavy if they could get it. That's why many refiners committed to space on the Keystone XL pipeline and are hoping it dos get built.

As an employee of a major refiner if you did not buy the lowest cost oil that would fit your needs, you should have changed jobs. Country of origin is generally not a deciding factor.

[Ian Austin + 131]

Understood. Would they want the oil all that badly if the differential was smaller? 

Price is one hell of a motivator

[Tom Kirkman + 8,860]

On 5/25/2018 at 9:44 PM, William Edwards said:

I agree that shale oil is not the savior, but it is capable of creating a large ripple in the system. Insufficient reserves, however, as well as the steep decline rates, will limit its participation. When you add to that the likelihood of a bursting of the speculative price bubble, the headwind of the economy accompanying the resurrection of interest rates and the crude switch resulting from the IMO regulation change, I see a lot of turmoil in the industry in the next few years.

William, here is a related, relevant article from @Mike Shellman

'Swinging' For the Fences 

[Mike Shellman + 548]

It is not low prices, nor high prices that represents the boogie man for oil and natural gas producers in the world, it is price volatility. It is the inability to make a plan for the future, a budget, that makes sense and that one can act on. The US shale oil phenomena, of course, does not worry about price stability; it only worries about available capital and interest rates.

Supply and demand fundamentals have nothing to do with prices anymore; its the ability of a few, that have the hammer, to dictate what prices will be. We saw a good example of that just last week, as my post suggests, and we will see more and more of that as we get closer to November. Turmoil in the industry in the future is an understatement. I have never in my 50 years seen such upheaval and uncertainty as we are seeing now.

America, the new world's swing oil producer?

Nah.

Mike Shellman

 

 

[William Edwards + 708]

1 hour ago, Mike Shellman said:

It is not low prices, nor high prices that represents the boogie man for oil and natural gas producers in the world, it is price volatility. It is the inability to make a plan for the future, a budget, that makes sense and that one can act on. The US shale oil phenomena, of course, does not worry about price stability; it only worries about available capital and interest rates.

Supply and demand fundamentals have nothing to do with prices anymore; its the ability of a few, that have the hammer, to dictate what prices will be. We saw a good example of that just last week, as my post suggests, and we will see more and more of that as we get closer to November. Turmoil in the industry in the future is an understatement. I have never in my 50 years seen such upheaval and uncertainty as we are seeing now.

America, the new world's swing oil producer?

Nah.

Mike Shellman

 

 

Thanks for your comments, Mike. May I take the liberty of extending and expanding upon your theme?

The slogan for Edwards Energy Consultants is "Effective planning BEGINS with a competent price forecast." As you accurately state, the current industry actions create a one-word price forecast - volatility. One can probably successfully plan using an average over one's time horizon, but that is not a preferred strategy. Being able to accurately forecast a price, with that price being stable, is a much preferred method. But for that option to be available, the industry needs some method of effective price management. In today's industry such does not exist.

Very few industry participants and analysts actually understand the mechanism of oil pricing. I fact, it is amazing how many participants have a completely incorrect view of whether price controls demand or demand controls price. Without understanding the real mechanism it is impossible to effectively manage prices. In fact, in the absence of a valid understanding of the pricing mechanism, it is challenging to even interpret, after the fact, the interrelation of the various factors impacting prices.

Management of prices to create a stable price environment is possible, but it requires the manager to properly understand how prices are formed and maintained. The global swing producer possesses the inherent ability to manage prices, but to do so effectively that swing producer needs to understand the mechanism, so that his actions are appropriate and effective. So far that state has not yet been achieved. Until it is, we will continue to live in the roller-coaster price world. Sad but true!

If you bother to read the pronouncements from the top executives of the world's swing producer for the past forty years, Saudi Arabia, you will note that the statements, hence the misunderstanding of the pricing mechanism, for Saudi Arabia have not changed in the past forty years. Change is theoretically possible, but the probability appears low. As long as the industry believes that a change in price is, by some magic, the same as a change in supply, mistakes will persist.

[William Edwards + 708]

3 hours ago, Tom Kirkman said:

William, here is a related, relevant article from @Mike Shellman

'Swinging' For the Fences 

See my response to Mike Shellman. Turmoil is in the cards. Higher highs and lower lows. Something for everyone.

[Refman + 207]

12 hours ago, William Edwards said:

As an employee of a major refiner if you did not buy the lowest cost oil that would fit your needs, you should have changed jobs. Country of origin is generally not a deciding factor.

Of course cost is always a major factor, but ease of access and stability of supply also count for a lot. With extreme weather events becoming more common and tensions flaring in the Middle East, it would be nice to have a stable supply from a friendly country, and not too many weather related events that could disrupt delivery.

[Janet Alderton + 124]

  On 5/21/2018 at 12:29 AM, Fulcaneli said:

William thinks there's a shortage of refining capacity for heavy crude. 

 

Ian Austin posted this reply on May 26:

"The people at Turner Mason and Co believe this. They follow this sort of thing for a living. 

In their 2015 IMO Effects presentation, they cited a potential 2MM BPD shortfall in coking capacity to deal with high asphaltene/Sulphur crudes. They also surmised that nowhere near enough additional capacity to deal with this sort of crude would be built in near-medium term. So conditions are aligning for some kind of shock, we just don’t have crystal balls to tell us what the shock will exactly be  

It doesn’t mean the absolute end of anything. However, I wouldn’t be hedging my bets on the CAPP production growth curves (FYI: I’ve worked inside of some of these companies and can safely say they are as capable as any of us of making dumb decisions. In fact, the entire oil industry has a long and proud history of doing so)"

 

As a newbie, I have enjoyed reading this discussion. I am a biologist who is also interested in economics, pipelines, hydrocarbon engineering, and the International Maritime Organization. William Edwards' insights ring true for me as do Ian Austin's, in the post quoted above. Re-engineering refineries or building new refineries takes time and is very, very expensive. Diluted bitumen is also known as "dumb bell crude" because it lacks the middle weight hydrocarbons that are most easily refined into valuable diesel. One can design chemical engineering processes to refine ultra-heavy, high sulphur crude, such as is mined in Alberta, but the question still leads to economics. Globally, each refinery will choose the least expensive options for the purchase of crude oil that fits its refinery capabilities to produce what the market demands. These factors (along with transport costs) will place the Canadian Oil Sands at a competitive disadvantage. New Oil Sands projects were started when the price of oil was near $100 a barrel. The increased production capacity is arriving at a poor time. 

Also, waterway restrictions limit the maximum size of oil tanker that can serve the pipeline terminal at Burnaby, B.C. to the Aframax. It can only be filled to 80% capacity. Trying to ship diluted bitumen to Asia in Aframax tankers that are 1/3 to 1/4 the size of the largest oil tankers adds another economic penalty to the TMPE business model. 

I agree with William Edwards that global supply vs demand will be a problem for Alberta's oil sands when the reality of the IMO 2020 regulations hits. Even if there is massive cheating by shippers, there will be decreased demand for a product that has 4 to 5% sulphur content. The penalties for cheating will be high at European ports. Cheating ships can be declared unseaworthy and be quarantined.   

Conclusion: Justin Trudeau's decision to buy the Canadian assets of Kinder Morgan and finance the Trans Mountain Pipeline Expansion has saved Kinder Morgan from a failing business model and pushed the risks onto Canadian taxpayers and pension funds.

Edited June 3, 2018 by Janet Alderton
grammar changes

[William Edwards + 708]

2 hours ago, Janet Alderton said:

  On 5/21/2018 at 12:29 AM, Fulcaneli said:

William thinks there's a shortage of refining capacity for heavy crude. 

 

Ian Austin posted this reply on May 26:

"The people at Turner Mason and Co believe this. They follow this sort of thing for a living. 

In their 2015 IMO Effects presentation, they cited a potential 2MM BPD shortfall in coking capacity to deal with high asphaltene/Sulphur crudes. They also surmised that nowhere near enough additional capacity to deal with this sort of crude would be built in near-medium term. So conditions are aligning for some kind of shock, we just don’t have crystal balls to tell us what the shock will exactly be  

It doesn’t mean the absolute end of anything. However, I wouldn’t be hedging my bets on the CAPP production growth curves (FYI: I’ve worked inside of some of these companies and can safely say they are as capable as any of us of making dumb decisions. In fact, the entire oil industry has a long and proud history of doing so)"

 

As a newbie, I have enjoyed reading this discussion. I am a biologist who is also interested in economics, pipelines, hydrocarbon engineering, and the International Maritime Organization. William Edwards' insights ring true for me as do Ian Austin's, in the post quoted above. Re-engineering refineries or building new refineries takes time and is very, very expensive. Diluted bitumen is also known as "dumb bell crude" because it lacks the middle weight hydrocarbons that are most easily refined into valuable diesel. One can design chemical engineering processes to refine ultra-heavy, high sulphur crude, such as is mined in Alberta, but the question still leads to economics. Globally, each refinery will choose the least expensive options for the purchase of crude oil that fits its refinery capabilities to produce what the market demands. These factors (along with transport costs) will place the Canadian Oil Sands at a competitive disadvantage. New Oil Sands projects were started when the price of oil was near $100 a barrel. The increased production capacity is arriving at a poor time. 

Also, waterway restrictions limit the maximum size of oil tanker that can serve the pipeline terminal at Burnaby, B.C. to the Aframax. It can only be filled to 80% capacity. Trying to ship diluted bitumen to Asia in Aframax tankers that are 1/3 to 1/4 the size of the largest oil tankers adds another economic penalty to the TMPE business model. 

I agree with William Edwards that global supply vs demand will be a problem for Alberta's oil sands when the reality of the IMO 2020 regulations hits. Even if there is massive cheating by shippers, there will be decreased demand for a product that has 4 to 5% sulphur content. The penalties for cheating will be high at European ports. Cheating ships can be declared unseaworthy and be quarantined.   

Conclusion: Justin Trudeau's decision to buy the Canadian assets of Kinder Morgan and finance the Trans Mountain Pipeline Expansion has saved Kinder Morgan from a failing business model and pushed the risks onto Canadian taxpayers and pension funds.

Well said, Janet. Thanks for adding your insight to the picture.

Edited June 3, 2018 by William Edwards

[Guest]

On June 3, 2018 at 12:45 AM, William Edwards said:

Well said, Janet. Thanks for adding your insight to the picture.

 

On June 2, 2018 at 10:46 PM, Janet Alderton said:

  On 5/21/2018 at 12:29 AM, Fulcaneli said:

William thinks there's a shortage of refining capacity for heavy crude. 

 

Ian Austin posted this reply on May 26:

"The people at Turner Mason and Co believe this. They follow this sort of thing for a living. 

In their 2015 IMO Effects presentation, they cited a potential 2MM BPD shortfall in coking capacity to deal with high asphaltene/Sulphur crudes. They also surmised that nowhere near enough additional capacity to deal with this sort of crude would be built in near-medium term. So conditions are aligning for some kind of shock, we just don’t have crystal balls to tell us what the shock will exactly be  

It doesn’t mean the absolute end of anything. However, I wouldn’t be hedging my bets on the CAPP production growth curves (FYI: I’ve worked inside of some of these companies and can safely say they are as capable as any of us of making dumb decisions. In fact, the entire oil industry has a long and proud history of doing so)"

 

As a newbie, I have enjoyed reading this discussion. I am a biologist who is also interested in economics, pipelines, hydrocarbon engineering, and the International Maritime Organization. William Edwards' insights ring true for me as do Ian Austin's, in the post quoted above. Re-engineering refineries or building new refineries takes time and is very, very expensive. Diluted bitumen is also known as "dumb bell crude" because it lacks the middle weight hydrocarbons that are most easily refined into valuable diesel. One can design chemical engineering processes to refine ultra-heavy, high sulphur crude, such as is mined in Alberta, but the question still leads to economics. Globally, each refinery will choose the least expensive options for the purchase of crude oil that fits its refinery capabilities to produce what the market demands. These factors (along with transport costs) will place the Canadian Oil Sands at a competitive disadvantage. New Oil Sands projects were started when the price of oil was near $100 a barrel. The increased production capacity is arriving at a poor time. 

Also, waterway restrictions limit the maximum size of oil tanker that can serve the pipeline terminal at Burnaby, B.C. to the Aframax. It can only be filled to 80% capacity. Trying to ship diluted bitumen to Asia in Aframax tankers that are 1/3 to 1/4 the size of the largest oil tankers adds another economic penalty to the TMPE business model. 

I agree with William Edwards that global supply vs demand will be a problem for Alberta's oil sands when the reality of the IMO 2020 regulations hits. Even if there is massive cheating by shippers, there will be decreased demand for a product that has 4 to 5% sulphur content. The penalties for cheating will be high at European ports. Cheating ships can be declared unseaworthy and be quarantined.   

Conclusion: Justin Trudeau's decision to buy the Canadian assets of Kinder Morgan and finance the Trans Mountain Pipeline Expansion has saved Kinder Morgan from a failing business model and pushed the risks onto Canadian taxpayers and pension funds.

Well, you should send a resume off to Imperial Exxon quickly, before they tender any more contracts on the Aspen project.