A Buffett-type Solution and Canada's Problem

[William Edwards + 708]

Much has been written regarding the impact on the industry of the IMO-mandated bunker fuel regulation change. Many workable solutions have been presented that assure the tanker industry that it will have enough on-spec fuel, but the primary unanswered question is what to do with the unwanted high sulfur heavy bunker fuel made surplus by the new 0.5% S regulation. Possibly it is time to apply the Buffett treatment to the situation.

Warren Buffett, otherwise known as the Sage of Omaha, is well known for his strategy of developing a fundamental understanding of a situation in its simplest form, then addressing the  problem or opportunity based upon those simple, fundamental aspects. It might be instructive to ask ourselves the question, "How would  the Sage of Omaha work the IMO dilemma?" My understanding of his approach would be to determine the fundamental elements of the problem, then look for the lowest cost solution. Let us perform that exercise.

At its most fundamental level, the IMO decree requires that 100,000 barrels a day of sulfur must be removed from the petroleum supply system. An intelligently operated system will accomplish this step in the most economically efficient manner. The sulfur must be removed. Therefore, if the cost of separating sulfur from the hydrocarbon to which it is attached is too great for removal of sulfur alone, then both the sulfur and the firmly attached hydrocarbon must be removed from the system. Economics will dictate which activity occurs.

If both the cost of producing one of the sources of high sulfur oil and the cost of desulfurizing that oil are high, then even a cursory examination would suggest that removing the highest cost high sulfur components together, sulfur plus oil, would be the most economical solution for sulfur removal. Thus the Sage of Omaha would conclude that the preferred answer to the IMO dilemma would be to remove from the system two million barrels a day of high-cost crude containing the highest concentration of tightly-bound sulfur. Canadian Oil Sands production meets this specification. By eliminating this quantity of Oil Sands production, the 100,000 barrels a day of unwanted sulfur would remain in the ground, still firmly attached to its oil carrier.  The Canadian oil would be replaced in the system with crude containing less than 0.5% S.

Problem solved!

But will the Canadians willingly fall on their sword for the benefit of the industry? That choice is very unlikely. However the Buffett-type solution remains the most economical one for the industry. In fact, that solution is what will occur, by default, if nothing supersedes it before January 2020. Therefore Canadian production shut-in may well occur. Canadian denial and incorrectly pointing to transportation limitations as the cause of their problem have prevented the industry from attacking the real problem, remote, high cost and high sulfur reserves. Little progress has been made in addressing the real problem since the IMO announcement almost two years ago. With less than two years remaining before the curtain drops, Canadian urgency should be prominent.

If there is a way that the Canadian industry can overcome their naturally occurring disadvantage of high cost and high sulfur, then that way should be identified and pursued immediately. Prolonged denial and further study will not be productive. If there is available a practical, low cost de-sulfurization scheme that can be implemented quickly, that scheme should be adopted and installed. Canada no longer can afford the luxury of further study, optimization and wishful thinking. Either Canada acts or the Buffett-type solution will occur.

[Rodent + 1,424]

1 hour ago, William Edwards said:

Much has been written regarding the impact on the industry of the IMO-mandated bunker fuel regulation change. Many workable solutions have been presented that assure the tanker industry that it will have enough on-spec fuel, but the primary unanswered question is what to do with the unwanted high sulfur heavy bunker fuel made surplus by the new 0.5% S regulation. Possibly it is time to apply the Buffett treatment to the situation.

Warren Buffett, otherwise known as the Sage of Omaha, is well known for his strategy of developing a fundamental understanding of a situation in its simplest form, then addressing the  problem or opportunity based upon those simple, fundamental aspects. It might be instructive to ask ourselves the question, "How would  the Sage of Omaha work the IMO dilemma?" My understanding of his approach would be to determine the fundamental elements of the problem, then look for the lowest cost solution. Let us perform that exercise.

At its most fundamental level, the IMO decree requires that 100,000 barrels a day of sulfur must be removed from the petroleum supply system. An intelligently operated system will accomplish this step in the most economically efficient manner. The sulfur must be removed. Therefore, if the cost of separating sulfur from the hydrocarbon to which it is attached is too great for removal of sulfur alone, then both the sulfur and the firmly attached hydrocarbon must be removed from the system. Economics will dictate which activity occurs.

If both the cost of producing one of the sources of high sulfur oil and the cost of desulfurizing that oil are high, then even a cursory examination would suggest that removing the highest cost high sulfur components together, sulfur plus oil, would be the most economical solution for sulfur removal. Thus the Sage of Omaha would conclude that the preferred answer to the IMO dilemma would be to remove from the system two million barrels a day of high-cost crude containing the highest concentration of tightly-bound sulfur. Canadian Oil Sands production meets this specification. By eliminating this quantity of Oil Sands production, the 100,000 barrels a day of unwanted sulfur would remain in the ground, still firmly attached to its oil carrier.  The Canadian oil would be replaced in the system with crude containing less than 0.5% S.

Problem solved!

But will the Canadians willingly fall on their sword for the benefit of the industry? That choice is very unlikely. However the Buffett-type solution remains the most economical one for the industry. In fact, that solution is what will occur, by default, if nothing supersedes it before January 2020. Therefore Canadian production shut-in may well occur. Canadian denial and incorrectly pointing to transportation limitations as the cause of their problem have prevented the industry from attacking the real problem, remote, high cost and high sulfur reserves. Little progress has been made in addressing the real problem since the IMO announcement almost two years ago. With less than two years remaining before the curtain drops, Canadian urgency should be prominent.

If there is a way that the Canadian industry can overcome their naturally occurring disadvantage of high cost and high sulfur, then that way should be identified and pursued immediately. Prolonged denial and further study will not be productive. If there is available a practical, low cost de-sulfurization scheme that can be implemented quickly, that scheme should be adopted and installed. Canada no longer can afford the luxury of further study, optimization and wishful thinking. Either Canada acts or the Buffett-type solution will occur.

I don't know much about the specifics of the IMO regs. But I do know about root cause analyses. Canada will never look at the problem as a whole as far as the industry is concerned, nor should they. There will likely be no on-sword falling. Canada must identify their (and only their) problem, and act accordingly, whether it is in the best interest of the entire oil industry or not. Responding to fires as they happen rarely has good results.

[William Edwards + 708]

4 minutes ago, Rodent said:

I don't know much about the specifics of the IMO regs. But I do know about root cause analyses. Canada will never look at the problem as a whole as far as the industry is concerned, nor should they. There will likely be no on-sword falling. Canada must identify their (and only their) problem, and act accordingly, whether it is in the best interest of the entire oil industry or not. Responding to fires as they happen rarely has good results.

Failure to even notice the approaching fires has even poorer results.

[Jan van Eck + 7,558]

I remain less pessimistic than Mr. Edwards.  Let's remember that there are other, external, factors at play, either currently or potential factors in the future.  First up, it seems to be entirely possible to do the physical extraction of sulfur from heavy crude.   Marquard and Bahls  is a supplier of marine fuels, including HFO and IFO (180/380) grades of bunker.  On May 24th they issued a press release indicating the ability to supply ultra-low, 0.1% fuel oil.  I would have to conclude that the ability to go to this ultra-low material is out there, even if you accomplish 0.5% by blending 0.1% with the readily available 1% IFO product. 

To quote from the Release:

The Bomin Group, a leading global physical supplier and trader of marine fuels, today announced that it is now delivering Ultra-Low Sulphur Fuel Oil (ULSFO) to vessels calling in the Amsterdam-Rotterdam-Antwerp region (ARA).

The ULSFO product is 0.1% maximum sulphur; it complies with MARPOL Annex VI regulations in current designated Emissions Control Areas (ECAs), as well as the impending global 0.5% sulphur limit, which will come into force in 2020. Deliveries will be carried out by the certified barges which Bomin employs in the region. The five state-of-the-art barges, all of which have fast pumping rates to maximise speed throughout the delivery process, are operated out of Antwerp, but also support customers who require bunkers in Rotterdam, Ghent, Flushing, and other ports across the ARA. Bomin also provides a range of other quality products in the region, including IFO 380 and DMA 0.1%. 

https://www.bomin.com/en/news-info/press-releases/details/article/bomin-launches-2020-compliant-ulsfo-in-ara.html

 The further issue, unexplored, is the extraction tax on that heavy oil.  I don't know but have to assume that either or both Ottawa and Edmonton levy an extraction tax on crude.  If those taxes are waived  (on the theory that the extraction and sale of the oil is an economic benefit to the Province and country), then Oil Sands Heavy Oil has a cost advantage.  Now if the Alberta refineries are re-tooled to remove the sulfur on-site  (or close by), using the oil itself as a power source, then the pieces of the puzzle start to come together. 

The idea that the Canadians are simply going to walk away from a major employer and wealth generator together with their sunk costs of tens of billions strikes me a not part of the Canadian mentality.  I would suggest that the extraction will continue, if necessary even with subsidies.  But that oil will continue to find its way to market. 

Edited June 4, 2018 by Jan van Eck
scrivener error

[Jan van Eck + 7,558]

3 hours ago, William Edwards said:

Failure to even notice the approaching fires has even poorer results.

That is classically Canadian.

That said, once the crisis hits, they will go crazy to come up with a patch to fix, even if it involves huge govt subsidies. 

[William Edwards + 708]

3 minutes ago, Jan van Eck said:

I remain less pessimistic than Mr. Edwards.  Let's remember that there are other, external, factors at play, either currently or potential factors in the future.  First up, it seems to be entirely possible to do the physical extraction of sulfur from heavy crude.   Marquard and Bahls  is a supplier of marine fuels, including HFO and IFO (180/380) grades of bunker.  On May 24th they issued a press release indicating the ability to supply ultra-low, 0.1% fuel oil.  I would have to conclude that the ability to go to this ultra-low material is out there, even if you accomplish 0.5% by blending 0.1% with the readily available 1% IFO product. 

To quote from the Release:

The Bomin Group, a leading global physical supplier and trader of marine fuels, today announced that it is now delivering Ultra-Low Sulphur Fuel Oil (ULSFO) to vessels calling in the Amsterdam-Rotterdam-Antwerp region (ARA).

The ULSFO product is 0.1% maximum sulphur; it complies with MARPOL Annex VI regulations in current designated Emissions Control Areas (ECAs), as well as the impending global 0.5% sulphur limit, which will come into force in 2020. Deliveries will be carried out by the certified barges which Bomin employs in the region. The five state-of-the-art barges, all of which have fast pumping rates to maximise speed throughout the delivery process, are operated out of Antwerp, but also support customers who require bunkers in Rotterdam, Ghent, Flushing, and other ports across the ARA. Bomin also provides a range of other quality products in the region, including IFO 380 and DMA 0.1%. 

https://www.bomin.com/en/news-info/press-releases/details/article/bomin-launches-2020-compliant-ulsfo-in-ara.html

 The further issue, unexplored, is the extraction tax on that heavy oil.  I don't know but have to assume that either or both Ottawa and Edmonton levy an extraction tax on crude.  If those taxes are waived  (on the theory that the extraction and sale of the oil is an economic benefit to the Province and country), then Oil Sands Heavy Oil has a cost advantage.  Now if the Alberta refineries are re-tooled to remove the sulfur on-site  (or close by), using the oil itself as a power source, then the pieces of the puzzle start to come together. 

The idea that the Canadians are simply going to walk away from a major employer and wealth generator together with their sunk costs of tens of billions strikes me a not part of the Canadian mentality.  I would suggest that the extraction will continue, if necessary even with subsidies.  But that oil will continue to find its way to market. 

I understand the tendency to think this way, Jan, But my problem is getting over the simple arithmetic of the situation. Forgetting the already sunk cost of oil sands extraction, the cost of production is still $20/B. Moving that oil to the water using the current diluent method adds $10-15 more to the cost, without paying any capital costs for the pipe. The resulting oil will then be worth only $15/B as a fuel replacement for coal. How long will the producer be able to afford to lose $20-30/B for his production? Taxes are not a problem. No profit-no tax. The low value of the oil is the problem.

Regarding your desulfurization suggestion: Suppose that it has a zero cost. When can you have a large facility in operation, remembering that you are burning $20-30/B while you build the plant?

And please do not forget, the industry has to remove an additional 100,000 B/D of sulfur if Canadian oil is to continue to pump. 

Please show me how to get around the problems I see from doing the simple arithmetic.

[William Edwards + 708]

11 minutes ago, Jan van Eck said:

That is classically Canadian.

That said, once the crisis hits, they will go crazy to come up with a patch to fix, even if it involves huge govt subsidies. 

There is also an old saying "You cannot get blood out of a turnip". The government is already underwater by $4.5 Billion to bail out Kinder Morgan. I suppose the printing press can still run though.

[Jan van Eck + 7,558]

3 hours ago, William Edwards said:

I understand the tendency to think this way, Jan, But my problem is getting over the simple arithmetic of the situation. Forgetting the already sunk cost of oil sands extraction, the cost of production is still $20/B. Moving that oil to the water using the current diluent method adds $10-15 more to the cost, without paying any capital costs for the pipe. The resulting oil will then be worth only $15/B as a fuel replacement for coal. How long will the producer be able to afford to lose $20-30/B for his production? Taxes are not a problem. No profit-no tax. The low value of the oil is the problem.

Regarding your desulfurization suggestion: Suppose that it has a zero cost. When can you have a large facility in operation, remembering that you are burning $20-30/B while you build the plant?

And please do not forget, the industry has to remove an additional 100,000 B/D of sulfur if Canadian oil is to continue to pump. 

Please show me how to get around the problems I see from doing the simple arithmetic.

Will, you are overlooking the ability of the Canadians to tax themselves out from underneath the problems of large employers.  You can take a look at how the Government(s) have consistently supported Bombardier notwithstanding their disastrous business decisions.  Bombardier is a huge employer in Quebec, including the big railcar plant located at La Pocatiere, in rural Quebec, and the other big railcar/streetcar/subway plant in Thunder Bay, in far rural Ontario.  Then you get the billions tossed at the new Bombardier aircraft plant outside Montreal, to build the C-100, That ended up being given away to Airbus, but the Montreal plant will continue and will build for the domestic(and non-US) markets. As a practical matter that just cost the taxpayers six billion. 

Here is one scenario - and I agree that it will likely take two years or so to get the refineries modified to remove the sulfur, a big problem.  The oil gets excused from some or all of the various excise taxes levied on the downstream products - gasoline and diesel. Those prices are also increased, presumably as part of some wacky "carbon-tax" scheme, which is another darling of the illiterati in the Western world. In effect, the domestic Canadians pay more, to cover the cost of domestically-produced oil.  The manipulation of the excise taxes becomes a disguised form of import duty or barrier. 

In the interim, while the plant is being built, the oil is not being transhipped to Louisiana or Burnaby, so there is no need to pay for diluent. What they do instead is blend the heavy stuff just enough to ship it to oil-burning industrial boilers, both for factories and generators.  Changing over to be able to burn higher-sulfur material is not that difficult, as long as it is "external combustion."  Heavy oil furnaces are available as package installments, and you can blend and bleed the HSFO to some intermediate grade, such as IFO 180 or #4 fuel oil, although it remains with a higher sulfur content.  Since the stuff is being burned internal to Canada, there is no IMO-type body to go report to and be subservient to.  And that gets you past the time delay to get your on-site desulfurization plants up and running. 

Can that be done?  Sure.  Will it cost beaucoup bucks?  Sure.  Will the Canadian Government do that  (admittedly being callous towards the taxpayers)?  Of course it will.  Canadian government bureaucrats have historically been appallingly callous towards the citizenry.  It is part of their political culture. 

 

Edited June 4, 2018 by Jan van Eck
scrivener error

[William Edwards + 708]

3 minutes ago, Jan van Eck said:

Will, you are overlooking the ability of the Canadians to tax themselves out from underneath the problems of large employers.  You can take a look at how the Government(s) have consistently supported Bombardier notwithstanding their disastrous business decisions.  Bombardier is a huge employer in Quebec, including the big railcar plant located at La Pocatiere, in rural Quebec, and the other big railcar/streetcar/subway plant in Thunder Bay, in far rural Ontario.  Then you get the billions tossed at the new Bombardier aircraft plant outside Montreal, to build the C-100, That ended up being given away to Airbus, but the Montreal plant will continue and will build for the domestic(and non-US) markets. As a practical matter that just cost the taxpayers six billion. 

Here is one scenario - and I agree that it will likely take two years or so to get the refineries modified to remove the sulfur, a big problem.  The oil gets excused from some or all of the various excise taxes levied on the downstream products - gasoline and diesel. Those prices are also increased, presumably as part of some wacky "carbon-tax" scheme, which is another darling of the illiterati in the Western world. In effect, the domestic Canadians pay more, to cover the cost of domestically-produced oil.  The manipulation of the excise taxes becomes a disguised form of import duty or barrier. 

In the interim, while the plant is being built, the oil is not being transhipped to Louisiana or Burnaby, so there is no need to pay for diluent. What they do instead is blend the heavy stuff just enough to ship it to oil-burning industrial boilers, both for factories and generators.  Changing over to be able to burn higher-sulfur material is not that difficult, as long as it is "external combustion."  Heavy oil furnaces are available as package installments, and you can blend and bleed the HSFO to some intermediate grade, such as IFO 180 or #4 fuel oil, although it remains with a higher sulfur content.  Since the stuff is being burned internal to Canada, there is no IMO-type body to go report to and be subservient to.  And that gets you past the time delay to get your on-site desulfurization plants up and running. 

Can that be done?  Sure.  Will is cost beaucoup bucks?  Sure.  Will the Canadian Government do that  (admittedly being callous towards the taxpayers)?  Of course it will.  Canadian government bureaucrats have historically been appallingly callous towards the citizenry.  It is part of their political culture. 

 

I will grant you all of the ridiculous financial manipulations that a creative government can devise. However I cannot grant you the ability to absorb 2,000,000 barrels of high sulfur oil in Canada, every day, which will need to be burned in addition to what is already being burned. That is a lot of oil! Even handling one day's output would be a challenge. Forget handling two years of such.

[Jan van Eck + 7,558]

4 minutes ago, William Edwards said:

I will grant you all of the ridiculous financial manipulations that a creative government can devise. However I cannot grant you the ability to absorb 2,000,000 barrels of high sulfur oil in Canada, every day, which will need to be burned in addition to what is already being burned. That is a lot of oil! Even handling one day's output would be a challenge. Forget handling two years of such.

Yup, and that is going to be a big problem. 

Whether or not it can be used to manufacture monomers, such as ethylene to manufacture polyethylene plastics, will be interesting to watch. If it can, then the production of ethylenes and styrenes just might absorb enough to keep the whole thing afloat.  And I grant that I do not know of the technical aspects, it may well be insurmountable.  Sure is a huge mess in the making  (again, very Canadian).  Canadians are big on messes.  Just look at the current election in Ontario, being uniquely fought on a single issue - the outrageous prices and supply of electricity.  When was the last time there was a big election fought over just one issue?  Amazing what goes on up there. 

[William Edwards + 708]

35 minutes ago, Jan van Eck said:

Yup, and that is going to be a big problem. 

Whether or not it can be used to manufacture monomers, such as ethylene to manufacture polyethylene plastics, will be interesting to watch. If it can, then the production of ethylenes and styrenes just might absorb enough to keep the whole thing afloat.  And I grant that I do not know of the technical aspects, it may well be insurmountable.  Sure is a huge mess in the making  (again, very Canadian).  Canadians are big on messes.  Just look at the current election in Ontario, being uniquely fought on a single issue - the outrageous prices and supply of electricity.  When was the last time there was a big election fought over just one issue?  Amazing what goes on up there. 

All I can say is "Good luck!"

[Jan van Eck + 7,558]

2 minutes ago, William Edwards said:

All I can say is "Good luck!"

Well, I have not lived there for three decades, so "not my problem"!  

I view their stumbling from one fiasco to the next purely out of curiosity. It continues to remind me that the decision to move my plants to the US was a prescient one.  You can argue that we may be developing some big headaches with The Donald, but America is a very big country, and it will absorb his mismanagement.  On balance, Canada's problems are far worse. Cheers.

[William Edwards + 708]

Just now, Jan van Eck said:

Well, I have not lived there for three decades, so "not my problem"!  

I view their stumbling from one fiasco to the next purely out of curiosity. It continues to remind me that the decision to move my plants to the US was a prescient one.  You can argue that we may be developing some big headaches with The Donald, but America is a very big country, and it will absorb his mismanagement.  On balance, Canada's problems are far worse. Cheers.

I think that I agree.

[RogerBryenton + 2]

Canada's governments have a history of disastrous financial blunders, 3 hydro dams bankrupting provinces, including Site C in BC, and now buying KM's 50 year old pipeline.  It is so embarrassing to be Canadian, with big oil running things.  And these projects deny the First Nations' Treaty rights.

[Jan van Eck + 7,558]

4 minutes ago, William Edwards said:

I think that I agree.

Just as a footnote, I see no market that can absorb the removed sulfur, which you assess as 100,000 barrels per day.  Where those guys are planning to put that stuff is beyond me.  Another big Canadian mess.

 

1 minute ago, RogerBryenton said:

Canada's governments have a history of disastrous financial blunders, 3 hydro dams bankrupting provinces, including Site C in BC, and now buying KM's 50 year old pipeline.  It is so embarrassing to be Canadian, with big oil running things.  And these projects deny the First Nations' Treaty rights.

Yup, all true. Manitoba is now the latest in a string of provinces taking a big hit on failed hydro projects. Amazing the inestimable damage that Canadians inflict upon themselves.  It defies all logic. 

[Rodent + 1,424]

I feel like this thread is a repeated kick to Canada's groin. 

So are the hydro issues with Canada specific to Canada, or specific with hydro?

[William Edwards + 708]

32 minutes ago, Rodent said:

I feel like this thread is a repeated kick to Canada's groin. 

So are the hydro issues with Canada specific to Canada, or specific with hydro?

You misconstrue my contribution to this thread. I have no interest, nor any motivation to kick Canada. I am trying to help the Canadian industry focus on the irrefutable facts that their reserves are in a difficult competitive position and the country needs to do more than deny the facts.

I am actually Canada's best friend. However, instead of accepting any guidance from me, the usual response that I encounter is to deny the message and to criticize the messenger.

Edited June 4, 2018 by William Edwards

[Solitario 0]

New user here...surprised by the poor quality of postings and comments.

- very little of the Canadian Heavy Sour Crude makes its way as bunker fuel, most of it is processed in sophisticated North American refineries and oil-sands upgraders; others are at risk, Venezuela on top.

- plenty of room to store the sulfur, no worries...sulfur is not soluble in water...you can see Alberta's sulfur pyramids from space:  http://cosmobiologist.blogspot.com/2016/03/the-yellow-sulfur-pyramids-of-canada.html

- the reason the sulfur pyramids are there ?...again, it costs to much to transport to the nearest harbor...sulfur is produced very cheaply in countries where human life has a near-zero price: http://www.dailymail.co.uk/news/article-2716514/Breathing-toxic-fumes-carrying-70kg-loads-left-short-life-expectancies-The-horrific-conditions-faced-Indonesian-sulphur-miners-use-matches.html... can't compete with zero, but things may change...on both sides of the equation...how about a lithium-sulfur battery  ?

- sulfur is solid at room temperature. Not measured in barrels !

Other than that, you're right to bash the Canadian governments at all levels. They do suck. 

[Tom Kirkman + 8,860]

8 hours ago, William Edwards said:

Much has been written regarding the impact on the industry of the IMO-mandated bunker fuel regulation change. Many workable solutions have been presented that assure the tanker industry that it will have enough on-spec fuel, but the primary unanswered question is what to do with the unwanted high sulfur heavy bunker fuel made surplus by the new 0.5% S regulation. Possibly it is time to apply the Buffett treatment to the situation.

William, interesting thread.  I've read it all the way through so far.

Regarding the bit I bolded in your comment above, could scrubbers retrofitted onto ships be a possible medium term solution to the problem?  

Please see the bit below which I bolded from an article.  Included is a fairly large chunk of the article, for context:

Shipping industry is gearing to adopt cleaner fuels by 2020

Great changes in energy markets do not always have to flow from great causes. In the case of marine fuel, what seems to outsiders like an apparently modest change to an arcane regulation is going to make waves not just for shipping, but the wider oil business. Other consumers and industries are set for a big New Year’s surprise on 1st January 2020.

This is the date when the International Maritime Organisation’s new ruling, advanced in October 2016, on the sulphur content of marine fuel comes into force, limiting it to no more than 0.5 percent – today the maximum is 3.5 percent. Large vessels burn 5 million barrels per day of the 8 million barrels of fuel oil that refineries churn out, the heavy, dirty, low-value residue. Now they will have to look elsewhere.

This move is intended to protect the environment in shipping lanes, since burning this fuel creates sulphur oxides, responsible for acid rain. Pollution from ships has been estimated to cause 130,000 premature deaths from respiratory illnesses worldwide each year, and is particularly bad along the Arabian Gulf, Red Sea, India, Java and East Asia. By contrast, the North Sea and the coasts of North America already apply stricter rules.

Cowboy shippers may not follow the regulations immediately – enforcement and penalties are unclear. But leading shipping and cruise lines and major ports will comply. They have four choices. They can use fuel oil processed to reduce its sulphur content, but this will be expensive and in scarce supply. They can burn marine diesel, which also has lower sulphur but is costly.

They can fit scrubbers, essentially devices which wash the exhaust with seawater to turn the sulphur oxides into harmless calcium sulphate. But scrubbers are expensive, some $3-$5 million each, and shipyards cannot fit enough of them for the 2020 deadline.

[William Edwards + 708]

4 minutes ago, Solitario said:

New user here...surprised by the poor quality of postings and comments.

- very little of the Canadian Heavy Sour Crude makes its way as bunker fuel, most of it is processed in sophisticated North American refineries and oil-sands upgraders; others are at risk, Venezuela on top.

- plenty of room to store the sulfur, no worries...sulfur is not soluble in water...you can see Alberta's sulfur pyramids from space:  http://cosmobiologist.blogspot.com/2016/03/the-yellow-sulfur-pyramids-of-canada.html

- the reason the sulfur pyramids are there ?...again, it costs to much to transport to the nearest harbor...sulfur is produced very cheaply in countries where human life has a near-zero price: http://www.dailymail.co.uk/news/article-2716514/Breathing-toxic-fumes-carrying-70kg-loads-left-short-life-expectancies-The-horrific-conditions-faced-Indonesian-sulphur-miners-use-matches.html... can't compete with zero, but things may change...on both sides of the equation...how about a lithium-sulfur battery  ?

- sulfur is solid at room temperature. Not measured in barrels !

Other than that, you're right to bash the Canadian governments at all levels. They do suck. 

I chuckle a bit when the self-appointed judge on quality of commentary does not recognize that volume measurements can be expressed in a variety of ways. All one needs to go from one unit to another is a conversion formula. But maybe that knowledge exceeds some peoples limited abilities.

[Jan van Eck + 7,558]

1 hour ago, Rodent said:

 

So are the hydro issues with Canada specific to Canada, or specific with hydro?

The hydro issues are specific to Canada.

The only possible comparison might be to the construction of the Aswan High Dam, on the Nile.  Other than that, what the Canadians do in wrecking their country with their power dams is totally unique. 

[William Edwards + 708]

10 minutes ago, Tom Kirkman said:

William, interesting thread.  I've read it all the way through so far.

Regarding the bit I bolded in your comment above, could scrubbers retrofitted onto ships be a possible medium term solution to the problem?  

Please see the bit below which I bolded from an article.  Included is a fairly large chunk of the article, for context:

Shipping industry is gearing to adopt cleaner fuels by 2020

Great changes in energy markets do not always have to flow from great causes. In the case of marine fuel, what seems to outsiders like an apparently modest change to an arcane regulation is going to make waves not just for shipping, but the wider oil business. Other consumers and industries are set for a big New Year’s surprise on 1st January 2020.

This is the date when the International Maritime Organisation’s new ruling, advanced in October 2016, on the sulphur content of marine fuel comes into force, limiting it to no more than 0.5 percent – today the maximum is 3.5 percent. Large vessels burn 5 million barrels per day of the 8 million barrels of fuel oil that refineries churn out, the heavy, dirty, low-value residue. Now they will have to look elsewhere.

This move is intended to protect the environment in shipping lanes, since burning this fuel creates sulphur oxides, responsible for acid rain. Pollution from ships has been estimated to cause 130,000 premature deaths from respiratory illnesses worldwide each year, and is particularly bad along the Arabian Gulf, Red Sea, India, Java and East Asia. By contrast, the North Sea and the coasts of North America already apply stricter rules.

Cowboy shippers may not follow the regulations immediately – enforcement and penalties are unclear. But leading shipping and cruise lines and major ports will comply. They have four choices. They can use fuel oil processed to reduce its sulphur content, but this will be expensive and in scarce supply. They can burn marine diesel, which also has lower sulphur but is costly.

They can fit scrubbers, essentially devices which wash the exhaust with seawater to turn the sulphur oxides into harmless calcium sulphate. But scrubbers are expensive, some $3-$5 million each, and shipyards cannot fit enough of them for the 2020 deadline.

Would you give us your estimate, Tom, as to how long it will take a signficant percentage of the vessel owners to 1) decide on investing in scrubbers, 2) getting their hands on the money for the scrubbers, 3) actually pulling the ships out of service and installing the equipment. January 1, 2020 is only 19 months away. Other supposed experts estimate 2-5% of the vessels will be scrubber-equipped by that date. How rapidly do you think that percentage can grow to 50-75%?

[Solitario 0]

2 minutes ago, William Edwards said:

I chuckle a bit when the self-appointed judge on quality of commentary does not recognize that volume measurements can be expressed in a variety of ways. All one needs to go from one unit to another is a conversion formula. But maybe that knowledge exceeds some peoples limited abilities.

Keep chuckling if that makes you feel better...Canada also produces iron and nickel ore...How many barrels of each, would you happen to know ?...since the volume measurements could be expressed in a variety of ways...

I think there are only two ways to express the quantities and volumes...the correct way...and the ignorant way...

[Jan van Eck + 7,558]

14 minutes ago, Solitario said:

New user here...surprised by the poor quality of postings and comments.

- very little of the Canadian Heavy Sour Crude makes its way as bunker fuel, most of it is processed in sophisticated North American refineries and oil-sands upgraders; others are at risk, Venezuela on top.

 

Whether or not Heavy Sour makes it to the port is not the point; the stuff is pumped and sold in competition with other producers.  The point that Mr. Edwards makes is that if the IMO regulations effectively take 2 million barrels per day out of the consumption cycle, then whose 2 million will that be?  His logic, which is difficult to argue with, is that it will be shaved off the highest-cost producer - which turns out to be Canada.  As that market collapses, somebody else's Heavy Sour will be bought, and Canada's stuff will have no home. 

If you have two refineries, both capable of refining Heavy Sour, and the Suncor one sitting in Alberta can process that product into diesel and asphalt but has to pay (pick a number)  $30/bbl more for the feedstock than the Valero one sitting in the USA, then what happens to the price that the Suncor one can fetch for that end product?  Somewere, that $30  has to be eaten.  You will end up with the Canadian stuff getting crowded out of the marketplace.  My suggestion is that Ottawa might well craft a disguised tariff (or quota) to discriminate against imported oils, either crude or refined. But either way, the surplus Heavy Sour being pumped has to be accounted for, and it will likely end up as shut-in stock. 

I must say I am at a loss to grasp why you feel that this discussion is "poor quality."

[Tom Kirkman + 8,860]

4 minutes ago, William Edwards said:

Would you give us your estimate, Tom, as to how long it will take a signficant percentage of the vessel owners to 1) decide on investing in scrubbers, 2) getting their hands on the money for the scrubbers, 3) actually pulling the ships out of service and installing the equipment. January 1, 2020 is only 19 months away. Other supposed experts estimate 2-5% of the vessels will be scrubber-equipped by that date. How rapidly do you think that percentage can grow to 50-75%?

Ouch.  Point taken.  Not really a viable, cost effective option.