A Buffett-type Solution and Canada's Problem

[Eric Smith + 11]

Very late to the thread, but I would point out that down here in Louisiana, we are trying to get more heavy sour Canadian crude delivered, not less. One example is a proposal to reverse Cap line in order to ship sour crude to St. James terminal from Patoka, Ill. and thence to our complex refineries along the Mississippi.

As certain astronauts on Apollo 13 pointed out "Houston, we have a problem!". Our problem is that our existing refineries require heavy crude in order to operate and traditional suppliers like Venezuela and Mexico have not been cooperating. I would also point out that Gulf Coast refineries account for over 50% of US refining capacity. Beyond that, there are no existing pipelines designed to move heavy crude from Texas to Louisiana. The nearest we get to the Keystone crude is Nederland, Texas. Finally, we do have the ability to modify the refineries to add additional HDS capacity so as to produce low sulfur fuel oil, but, its more expensive and its at the expense of not running our delayed cokers which are the current sink for unwanted sulfur.

Beyond our parochial problems in Louisiana, the last time I checked, Asia is the main supplier of marine fuel oil. What are the chances of those large state sponsored refineries going along with the IMO rules? Does anybody actually listen to the UN anymore? So, to answer your hypothetical question about Warren Buffet, I would suggest that he would 1) buy Cap line, as well as 2) Keystone and Keystone XL. While he is at it, he might also 3) buy in to Gulf Coast complex refining. Remember, this is the guy who bought railroads when nobody wanted to hear about unit trains.

Edited June 11, 2018 by Eric Smith
typos

[William Edwards + 708]

38 minutes ago, Eric Smith said:

Very late to the thread, but I would point out that down here in Louisiana, we are trying to get more heavy sour Canadian crude delivered, not less. One example is a proposal to reverse Cap line in order to ship sour crude to St. James terminal from Patoka, Ill. and thence to our complex refineries along the Mississippi.

As certain astronauts on Apollo 13 pointed out "Houston, we have a problem!". Our problem is that our existing refineries require heavy crude in order to operate and traditional suppliers like Venezuela and Mexico have not been cooperating. I would also point out that Gulf Coast refineries account for over 50% of US refining capacity. Beyond that, there are no existing pipelines designed to move heavy crude from Texas to Louisiana. The nearest we get to the Keystone crude is Nederland, Texas. Finally, we do have the ability to modify the refineries to add additional HDS capacity so as to produce low sulfur fuel oil, but, its more expensive and its at the expense of not running our delayed cokers which are the current sink for unwanted sulfur.

Beyond our parochial problems in Louisiana, the last time I checked, Asia is the main supplier of marine fuel oil. What are the chances of those large state sponsored refineries going along with the IMO rules? Does anybody actually listen to the UN anymore? So, to answer your hypothetical question about Warren Buffet, I would suggest that he would 1) buy Cap line, as well as 2) Keystone and Keystone XL. While he is at it, he might also 3) buy in to Gulf Coast complex refining. Remember, this is the guy who bought railroads when nobody wanted to hear about unit trains.

Eric, can you get any of your refining friends that want Canadian crude to contact me? I think that you have my number. And are they willing to take oil with 30% condensate as feedstock rather than, say Iraqi Heavy crude at the same price?

[Jan van Eck + 7,558]

Getting back to the issue of IMO Regulations and how to deal with the costs, including going to slow-steaming:

I would mention that the problems with slow-steaming are interrelated to the design of large motor vessels using one very large engine, typically direct-coupled to the propeller shaft. When that engine speed is reduced to effect slow-steaming, the problems start, related to operating temperatures and rate of combustion.

One alleviant to all this that is consistently overlooked, or avoided, is changing the configuration of the engine itself. Posit the design of icebreakers: they typically have a number of smaller engines direct-coupled to generators, which feed to a main power distribution panel, which then feeds to a giant electric motor coupled to the propeller shaft. Now the technical reason for this is that an icebreaker is constantly going back and forth, so the fastest way to reverse is to reverse the electric drive motor. If in heavy ice, all the generator motors are roaring along, pumping out the kilowatts; but when you want to loaf on station, all the skipper needs to do is run on one engine, let that one run at the optimal design parameters, and the ship slow-steams simply because (in the case of an icebreaker with say four generator engines) it is operating at 1/4 power.

Now if you took that principle and applied it to newbuilds, you could slow-steam all you want all day long, and experience zero problems to the machinery. And if conditions warrant or you have a specific charter with specific speed requirements, you can simply add on more generators: run on one, two, three, or four engines, whatever you want.And the final kicker: you can even optimize each engine to a different fuel. So you can have one engine designed to run on bunker, two on diesel, and even one on CNG, if you wanted to get fancy. And you could design the engine on bunker to be say 50% of the power capability, the others at 25% each, run at 50% power on your slow-steam runs on LSFO, whatever combination of machinery and fuel you could possibly dream up.

Now, I grant you that giant bulk carriers use the monster-motor system because it is inherently cheaper to build (maybe not, but the buyers seem to think so) and the losses inherent in a motor-generator setup are avoided. Personally, I think the icebreakers are on to something. That motor setup is the same as used in rail locomotives; those guys don't use direct drive either, although in theory they could. For example, a steam engine is direct-drive.

Here's my guess: newbuilds are going to start being outfitted with multiple motors. It has an inherent logic. Cheers.

[William Edwards + 708]

48 minutes ago, Jan van Eck said:

Getting back to the issue of IMO Regulations and how to deal with the costs, including going to slow-steaming:

I would mention that the problems with slow-steaming are interrelated to the design of large motor vessels using one very large engine, typically direct-coupled to the propeller shaft. When that engine speed is reduced to effect slow-steaming, the problems start, related to operating temperatures and rate of combustion.

One alleviant to all this that is consistently overlooked, or avoided, is changing the configuration of the engine itself. Posit the design of icebreakers: they typically have a number of smaller engines direct-coupled to generators, which feed to a main power distribution panel, which then feeds to a giant electric motor coupled to the propeller shaft. Now the technical reason for this is that an icebreaker is constantly going back and forth, so the fastest way to reverse is to reverse the electric drive motor. If in heavy ice, all the generator motors are roaring along, pumping out the kilowatts; but when you want to loaf on station, all the skipper needs to do is run on one engine, let that one run at the optimal design parameters, and the ship slow-steams simply because (in the case of an icebreaker with say four generator engines) it is operating at 1/4 power.

Now if you took that principle and applied it to newbuilds, you could slow-steam all you want all day long, and experience zero problems to the machinery. And if conditions warrant or you have a specific charter with specific speed requirements, you can simply add on more generators: run on one, two, three, or four engines, whatever you want.And the final kicker: you can even optimize each engine to a different fuel. So you can have one engine designed to run on bunker, two on diesel, and even one on CNG, if you wanted to get fancy. And you could design the engine on bunker to be say 50% of the power capability, the others at 25% each, run at 50% power on your slow-steam runs on LSFO, whatever combination of machinery and fuel you could possibly dream up.

Now, I grant you that giant bulk carriers use the monster-motor system because it is inherently cheaper to build (maybe not, but the buyers seem to think so) and the losses inherent in a motor-generator setup are avoided. Personally, I think the icebreakers are on to something. That motor setup is the same as used in rail locomotives; those guys don't use direct drive either, although in theory they could. For example, a steam engine is direct-drive.

Here's my guess: newbuilds are going to start being outfitted with multiple motors. It has an inherent logic. Cheers.

Interesting explanation, jan. I will watch and see if in five years we start to see this happening. Presuming, of course, that I can still read in five years.

[Janet Alderton + 124]

I am also late to this fascinating discussion.

Does anyone know if heavy Mexican crude must be diluted with condensate to be pumped through a pipeline to U.S. refineries? Diluted bitumen from Canada is also known as "dumb-bell crude" because it lacks the middle weight hydrocarbons that are quite useful.

[William Edwards + 708]

4 minutes ago, Janet Alderton said:

I am also late to this fascinating discussion.

Does anyone know if heavy Mexican crude must be diluted with condensate to be pumped through a pipeline to U.S. refineries? Diluted bitumen from Canada is also known as "dumb-bell crude" because it lacks the middle weight hydrocarbons that are quite useful.

Mexican crude does not have to be diluted to be pumped in a pipeline. It is already at the viscosity of the diluted bitumen. Diluted bitumen contains 30% naphtha which has been added to bitumen that is 85% atmospheric resid. The result is roughly 35% naphtha, 10% middle weight hydrocarbons and 55% resid. Mayan crude is 15% naphtha, 45% middle weight hydrocarbons and 60% resid. The middle weight hydrocarbons are the most valuable components.

[Dan Warnick + 6,100]

1 hour ago, William Edwards said:

Mexican crude does not have to be diluted to be pumped in a pipeline. It is already at the viscosity of the diluted bitumen. Diluted bitumen contains 30% naphtha which has been added to bitumen that is 85% atmospheric resid. The result is roughly 35% naphtha, 10% middle weight hydrocarbons and 55% resid. Mayan crude is 15% naphtha, 45% middle weight hydrocarbons and 60% resid. The middle weight hydrocarbons are the most valuable components.

Hello, William.  Nice to see you.

[William Edwards + 708]

Just now, Dan Warnick said:

Hello, William.  Nice to see you.

Thanks, Dan. Apparently the site has corrected a glitch that shut me out of receiving notifications.