Western Canada Select price continues to sink

7 minutes ago, William Edwards said:

I agree that it is likely that the IMO will cut the industry some timing slack. But I expect it to be timing only. 

For you information, there is a low cost way to create additional MDO while eliminating high sulfur bunker fuel. Simply shut in high sulfur Canadian production and replace that quantity in the global market with Permian production. Two million barrels a day of that switch solves the quantity problem while reducing the cost of supply to the industry.

Will, the Canadians are not going to be fond of your solution, notwithstanding that it makes eminent sense.  Logic does not prevail in these circumstances. They simply have to pump the WCS and sell it, even if the sales are to themselves.  They will boil out the oil from the oilsands, and ship it to Eastern Canada and demand that it be processed into gasoline. Come hell or high water, that WCS will be produced and sold.  Makes no difference if it makes sense, gets done anyway.  Cheers. 

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(edited)

5 minutes ago, Jan van Eck said:

Will, the Canadians are not going to be fond of your solution, notwithstanding that it makes eminent sense.  Logic does not prevail in these circumstances. They simply have to pump the WCS and sell it, even if the sales are to themselves.  They will boil out the oil from the oilsands, and ship it to Eastern Canada and demand that it be processed into gasoline. Come hell or high water, that WCS will be produced and sold.  Makes no difference if it makes sense, gets done anyway.  Cheers. 

Please apply quantities to your ideas, Jan. You might hit some limitations.

Of course the Canadians will not be fond of my proposed solution. But let us face it, they are not fond of the current $40 discount that the market applies to their price, but they have no choice until they shut in. And when the discount increases to $50 or 60, as it has in the past, it will be even less fond for them.

Edited by William Edwards
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3 minutes ago, Jan van Eck said:

Dan, keep in mind that there are multiple jurisdictions involved, and thus multiple players and multiple bureaucrats.  You have the trans-ocean controller, the IMO, which is setting the new 0.5% sulfur limit.  Then you have in-port jurisdictions, large harbors such as Antwerp, who can and will set a 0.1% limit.  Then you have the Port of Los Angeles and the Port of Long Beach, which I predict will require pure diesel from 20 miles out, and may well require electric tugboats for the last two miles in and out.  So you have all these players and they have conflicting and competing agendas. 

Of the players, I predict the IMO will blink first. However, the California ports are not going to blink. The non-compliant boat will either pay to be towed in and out, or it will be sent away.  Californians are huge on compliance.  Indeed, I think that bureaucracy invented the concept. 

Your explanation would be my first argument, if I were a shipper, as to why I need time: all of these conflicting limits!  Then I would move on to my next reason: There's a worldwide crises!  We have to ship the oil and we just don't have the time to stop and modify, and it will create great financial burdens for the company!  As for California standing their ground: do most shippers have at least some vessels that are or will be compliant in time so that they can simply schedule those vessels to deliver to California?

Do Californians and Canadians hang out together?

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4 minutes ago, Dan Warnick said:

Your explanation would be my first argument, if I were a shipper, as to why I need time: all of these conflicting limits!  Then I would move on to my next reason: There's a worldwide crises!  We have to ship the oil and we just don't have the time to stop and modify, and it will create great financial burdens for the company!  As for California standing their ground: do most shippers have at least some vessels that are or will be compliant in time so that they can simply schedule those vessels to deliver to California?

Do Californians and Canadians hang out together?

But what will be the IMO's reaction when we whisper in their ears "We have a novel strategy for converting 3%S fuel to 0.5% S fuel in an economically sound and timely fashion"?

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6 minutes ago, Dan Warnick said:

  As for California standing their ground: do most shippers have at least some vessels that are or will be compliant in time so that they can simply schedule those vessels to deliver to California?

Do Californians and Canadians hang out together?

Your first question:   no.   The shipping community has done basically nothing so far.  There are a number of reason for this.  First, boats must have new bilge-processing equipment installed soon, to avoid marine organisms getting transplanted to where they will become huge pests.  And that takes up a lot of real-estate on a boat, which has little to spare.  Second, boats need even more real estate to put in scrubbers, and that costs some $2.75 million per boat, which nobody wants to spend on older ships that are heading for the scrapyard soon enough.  So the industry has done nothing, except for newbuilds, and they all plan to go to running marine gasoil and slow-steam, but there are technical limits to that. Now if the industry all intends to go to diesel, where is all that diesel going to come from?  Mars?  The moon?  Planet Jupiter? And if there isn't enough to go around, would you expect price rationing?  So now your cost of fuel doubles or triples, and the industry goes instantly upside-down.  Now what?

As to your second  question:  but of course!

Edited by Jan van Eck
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(edited)

6 minutes ago, Jan van Eck said:

As to hyour second 

Yes....?

Edited by Dan Warnick

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Just now, Dan Warnick said:

Yes....

It got cut off and I went back and finished it. 

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19 minutes ago, Jan van Eck said:

Your first question:   no.   The shipping community has done basically nothing so far.  There are a number of reason for this.  First, boats must have new bilge-processing equipment installed soon, to avoid marine organisms getting transplanted to where they will become huge pests.  And that takes up a lot of real-estate on a boat, which has little to spare.  Second, boats need even more real estate to put in scrubbers, and that costs some $2.75 million per boat, which nobody wants to spend on older ships that are heading for the scrapyard soon enough.  So the industry has done nothing, except for newbuilds, and they all plan to go to running marine gasoil and slow-steam, but there are technical limits to that. Now if the industry all intends to go to diesel, where is all that diesel going to come from?  Mars?  The moon?  Planet Jupiter? And if there isn't enough to go around, would you expect price rationing?  So now your cost of fuel doubles or triples, and the industry goes instantly upside-down.  Now what?

As to your second  question:  but of course!

Jan, may I address your question "Now if the industry all intends to go to diesel, where is all that diesel going to come from?  Mars?  The moon?  Planet Jupiter? And if there isn't enough to go around, would you expect price rationing?  So now your cost of fuel doubles or triples, and the industry goes instantly upside-down.  Now what?"? 

You have done the thing that is common in life, you have worked one side of the picture but have neglected the other side. Let me fill you in.

You presume that you replace HSFO with MDO. You wonder where the MDO comes from. But you have forgotten that, on the other hand, you have a a similar quantity of HSFO that must disappear. As it turns out, when refineries switch feedstock to eliminate the HSFO output, the result is an almost identical increase in output of MDO-capable material. So the answer to your question "where is all that diesel going to come from?' is "It will come from the same refining industry that was supplying the former HSFO supply." No big impact on price and no big deal.

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William, if you are planning to "switch feedstock" then the new stuff has to be hauled to the various refineries.  Then you also have to haul the output (the MDO) to the various bunkering ports. And you have to move quite a lot of the stuff; ships consume perhaps 5% of total world oil output. Somebody has to pay for all that. The shipping world is anticipating a doubling of their fuel bills. 

If you are switching feedstocks, then somebody else's feedstock is getting shut in  (and that correlates with your suggestion that WCS will end up abandoned, much to the chagrin of the Canadians). If you are pulling the replacement feedstock out of the Bakken, then you have to get quite a few new oil railcars built - tens of thousands of them.  That also does not happen overnight.  And you will have to double-track certain choke-points, which also does not happen overnight.  From a logistical viewpoint, it is not so sanguine. Just saying. 

Lots of money involved. It gets expensive fast. 

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3 minutes ago, Jan van Eck said:

William, if you are planning to "switch feedstock" then the new stuff has to be hauled to the various refineries.  Then you also have to haul the output (the MDO) to the various bunkering ports. And you have to move quite a lot of the stuff; ships consume perhaps 5% of total world oil output. Somebody has to pay for all that. The shipping world is anticipating a doubling of their fuel bills. 

If you are switching feedstocks, then somebody else's feedstock is getting shut in  (and that correlates with your suggestion that WCS will end up abandoned, much to the chagrin of the Canadians). If you are pulling the replacement feedstock out of the Bakken, then you have to get quite a few new oil railcars built - tens of thousands of them.  That also does not happen overnight.  And you will have to double-track certain choke-points, which also does not happen overnight.  From a logistical viewpoint, it is not so sanguine. Just saying. 

Lots of money involved. It gets expensive fast. 

Jan, you have just suggested to me that I know the logistics of oil better than you. Not a criticism, just an observation. Of course I have the advantage of having spent a long career continuously trying to suggest steps that various parties (including international major oil companies) can take to optimize their operations. You realize, of course, that ocean transportation cost is minuscule relative to such items as de-sulfurizing Canadian bitumen, or shipping by tank car, maybe by a factor of 5 or 10. Factor, not dollars! My plan substitutes steps of $2-4 tanker shipping for $20-40 processing plus transportation steps. So I have a lot of room before I get to the step of spending a lot of money. I try to avoid spending money!

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After Canada and the USA don't have the best relationship in the last weeks..... our Friend Trump blamed Canada afaik for one contract (of many) he quit/did not sign or canceled. Canada is the largest crude oil source for the US since at least 35 years... if not for ~45 years (1973? Alberta still produces a lot of conventional heavy oil and even middle or high quality oil in whole Canada, the oil price boom only made that giant amounts of bitumen extraction from "oil-sands" possible in kombination with experience from other mining companys, as they use such special trucks, in the French/German (ARTE, it is a cooperation station not running 24/7, at least when I stopped watching TV in the early morning etc. it was something else and to the evening...), they showed it there once, 3 barrels of water are needed for extracting 1 barrel of the so called "oil", which seems to be a not soo easy process and the refineries (as I already posted with my 1st post today a question why its sooo hard and takes sooo long to produce refineries? Iraq has to import gasoline, Mexico is exporting less and less oil, fuel efficiency of course increases here too, mostly from used US cars, but I think the age of US cars is quite high, maybe I'm wrong, but did really 600 units per 1000 population bought a vehicle in the last 10 years? (includes EVERY vehicle, for economy, means Wal-Mart & Co., Trucks for heating oil, gasoline/diesel to fuel stations, private vehicles, pickups, camping vans, private vehicles...?! In Mexico, the Iraq and all the other many states with fuel shortages... I mean the US was also once a place for exporting finished oil products to the market... almost no risk, if the US don't take it, than the islands in the extreme east of Canada will take it, or Mexico will... the rest really comes from other Canadan locations, Russia, Europe, Scandinavia, Ireland/UK? the Druschba Oil Pipeline and their natural gas pipeline counterparts did lead to a depency of up to 94% for Russian oil and/or gas in Bulgaria for example... it can be, thats the only good thing, very very easy be substituted, not within hours, but per ship with many small tankers through Istanbul if the Turkey agrees (only warships are not allow to enter or leave), even if they would not they would deliver it to Greece... Romania the most important Ally in WW2 at least (yes they were, without them and US companies making really good cash, like GM made cash with building Opel Blitz 5 ton trucks until 1943. The "Hydrierwerke" were attacked less than 1 month before the D-Day... a bombing at all costs in 1941 would have led to a very fast end... lucky that this "Todt" (Tod = Death) Minister for Armory and weapons did not had a serious problem with Hitler earlier, because directly after having such one he got in his plane and after a few minutes the plain collapsed, he was dead, state funeral, and Albert Speer took over the German war economy and stop stupid wasting like gasoline for higher officers for their free time... they were lucky that the French campaign brought in more oil than the tanks and aircraft and few ships used, as the storage tanks in the Benelux states were not destroyed, in France I think only the usual gasoline station and some smaller stocks from companies were taken by surprise, which should deliver oil against the oil ration cards, if there was a oil ration in 1940, 

So Canada is looking for new ways to get refineries to get higher quality oil from its "middle" (Alberta) and pipelines leading to the Pacific or/and Atlantic and to be able to export to anyone?! A Canadian minister, at least I did read this, saw that speech from Trump as a direct verbal attack against Canada, also how he was acting in the G7 +1 (now without +1 as Russia for known reasons is not taking part...), I mean he left the most important (I think so, the 7 most important economies, with Russia 8, meet and the US president leaves earlier to be the first politician to meet with a North Korean leader, I think there has been not even any kind of minister who had serious talks with Kim 1.0, 2.0 or 3.0...... its simply like in the football (the real one^^) World Cup 2018 in the Finale in Moscow... 81.000 people in the stadium waiting for a game but than the favorized team gives a small message to the referee "We have to go after 90 Minutes. We have a match vs. Gibraltar and we have to fly almost 4 hours to arrive there". It was even worse, like "we have to do after 60 minutes, but than they would get kicked soo hard in their... back.

What does the average Canadian says/thinks about Trump and what he is doing? First calling "us" (Europe) a threat... only 1 week or so later "Enemies".... I mean this is ... "abusive" (yea had to use a dictionary^^). Imagine we would have called Obama-USA a threat to us and there fore to worlds peace, and only days later adding that its not just a threat, all these bases they have in Europe (many of them were secret CIA torture prisons, obamas first act as president was too ban the torture in these "secret" (no longer than... but however) and to release the ones which even after 24 hours or more of "white torture" did not say what they did or just said the usual stuff "tell me what you want to hear, just make it stop", but Trump with his 99 Cent toupee for example does not check that torture is not effective if you want information or "the truth".......

But how does Canada see the relationship now, 1 year ago, 10 years ago..... and even longer ago if you can remember and you are old enough :D

"Im Westen nicht neues" ? (All quiet on the Western front? Such a stupid translation, word for word it would be "Nothing new in the West", that was the daily report, however still one of the best WW1 movies and for 1929 its very good quality, I long time thought it is/was German! 

So you think your Neighbor (the only one?!) will re-elect Trump?! I fear yes... as the effects of a trade war like he started take time, I mean if I  buy a machine today at Media-Markt (the electric Wal-Mart, together with Saturn which was also in many countries but they are going to close it now it seems and only the red Media-Markt remains and continues to expand as far as Moscow and all over Europe etc... in the project I live they bought one (A+ is the minimum required by law for machines of that size since 1. January 2018, even though our was bought in 2017 and the 40€ for getting it up over 100 stairs... it was on stock or in one of the market... however it was build months ago, than shipped with economic speed of around 12 to 15 knots to Europe, I guess in a container ships through the Sues Canal... than it landed here somewhere and had to be transported from the harbor to the main stock for the country...

 

also the US has a netto growth, I mean look @ US Censuses (whats the plural? Censuses?! all the earlier Census results? Is it such a word without plural which you can only write like I did?), in 1920 the US reached the magic "This was the first census that recorded a population exceeding 100 million."

In 1940 they had: 132,164,569

In 1950, 1960, 1970 etc:

 

150,697,361. 179,323,175. 203,302,031. 226,545,805. 248,709,873. 

Yea and than we are at the year 2000 already with their result from the 1st April 2000 of 281,421,906! This increase was "overkill", maybe because only secret operation and support was done and no real wars with larger number, no young families destroyed before the wife and man could get 25 or often even 20 years old.... than the last one for a country with the greatest recession since 1929 was not bad too... 308,745,538. Without migrants will will be a bit like in Europe, 2 children for a family is not enough, even for a "small" growth of the American Dream the families need 3 kids per family, and more especially in the extreme rural areas, I dont know much about Canada but I had always in minds "It is a better version of the US"^^ Being never in North America.....

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18 hours ago, William Edwards said:

I see it differently, Jan. My arithmetic says that Canadian oil is too costly to be produced and converted into gasoline and diesel fuel, and moved to the market to compete with other supply sources. If that is the case, the likely result is that Oil Sands production will decline significantly, not because of the inability to move it out of Canada, but because there will be no customer to purchase the high cost product. Canada's only hope is to find a creative and low cost strategy to remove the problem component, asphaltenes, from the production and then convert the heavy oil to a heavy marine fuel that meets the sulfur restriction. That might be competitive. Intensive processing to make small molecules out of big ones doesn't make economic sense.

LNG is the fuel of the future for ships, in the long term IMHO. https://link.springer.com/article/10.1186/s41072-016-0007-1

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6 minutes ago, ronwagn said:

LNG is the fuel of the future for ships, in the long term IMHO. https://link.springer.com/article/10.1186/s41072-016-0007-1

Until we develop a means for avoiding the use of half of the world's current oil production (containing a heavy high sulfur cut), we had better preserve a burning option for a portion of that supply. LNG is fine, in its place, but its place is not everywhere.

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8 hours ago, William Edwards said:

As I see it, politicians can employ creative financing for awhile, but eventually reality puts a stop to economically unsound activities.  For instance, Chavez did as he pleased for a long time, but Venezuela's unrealistic economy eventually collapsed.  I see the same for Canada's oil industry.

^  noteworthy point.

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22 hours ago, William Edwards said:

The US does not need it (Canadian heavy oil) and cannot afford it if the Canadians charge a world-based price for it. Basrah Heavy or Arabian heavy will do a better job in US refineries at a much lower production cost. 

William,

production cost aside - is there something in heavy crude quality which would make US refiners to choose ME crudes over one from Athabasca? Sulfur content?

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3 hours ago, DanilKa said:

William,

production cost aside - is there something in heavy crude quality which would make US refiners to choose ME crudes over one from Athabasca? Sulfur content?

For a given sulfur and asphaltene content, the main difference between ME crudes and Athabasca crude would be the delivered price. But it is well to note that the oil sands asphaltene content is about 15%, whereas Arabian Heavy is only half the amount. Thus the price difference would have to reflect the lower yield or higher cost for the oil sands processing.

There is another difference that would rule out Athabasca crude if the refiner's metallurgy is not designed for a high TAN feedstock. High TAN crude is destructively corrosive to carbon steel.

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Again the Sudan and South Sudan "Game"... only that you are not 2 countries now, Heavy to know how low the oil price for Canadian oil (or Bitumen?!) is... as the OPEC said that in 2016 Nigeria had the highest production costs of all members, including the new 2 "baby producers" Gabon and Equatorialguinea. They said 32$ per barrel... why? Because they have hired so many private units that this price comes out, according to OPEC and maybe they reduced it a bit, as every men and ship/helicopter in the area costs much money, but before this the Nigerians which want a really "free" Nigeria launched some serious attacks against the oil producing/storage complexes.

Kazakhstan has a extreme high amount of sulfur, now after I think trying to drill for a decade or so (the weather only allow production on 9 or 10 of the 12 months, in the deep winter its simply to cold down there, I'm sure they solved this already or they work hard at a solution... Tengiz and other very large oil fields in the Caspian Sea (a large Sea with unbelievable amounts of oil and natural gas). The sulfur is extracted at factories, and the wind is doing the rest...its a sick world, most people on the planet I would say have not enough food, water, electricity etc. but we in the "West" have problems like... do I buy a Huawei P10 lite or a P20 Lite, maybe a Mate 8 or better?! or in the US "iPhone 9" or which number it is right now...tariffs will change everything, especially the few rare earth elements that are really rare are parts of O(LED) 4k Displays for 5 - 5.9 inch smartphone displays, the whole GPU, CPU and RAM is united in phones and modern consoles on a single DIE with maybe much more mm² and using very low amounts of special RAM, made only for the limited things a console does. Watching movies/blu-rays etc. is done by the GPU unit and its (shared?) VRAM... but China was not only producing over 80% of the worlds steel in 2016, Polysilicon deliveries stopped not long ago, and I think even if China would again start to export it, our genius Trump put a tariff on it...

I think Playstation 5 will be the point where many users do not pay 30-50% more than the US prices are today and than an additional 25% for example we had over 1300$ for MSI/ASUS GTX 1080 Ti in Euros and now the new generation comes and still the GTX 1080 (Ti) remains quite expensive,, even with longer routes from production locations to the US than to most European markets, my Ryzen 7 2700X was made in Taiwan and only in the US they packed it into a small thing and send it to the wholesaler and further down to the franchise where I use to buy my PC's since 2003(?), later with looking the bill with all details I realized... in fact maybe 1-2 part seem to have been really produced in the US, everything else not, also I learned that "be quiet!" is not a US or UK brand as I thought all the years, but a German, explains why so many important parts are from them,. I'm unsure about the GTX 1070 (Inno3D, a quite new and cheap swedish brand), if only the small GPU was also made in Asia or in the US. The RAM I'm quite sure (DDR4-3000, together with the Samsung 960 Evo SSD a South Korean product), "TechPowerUp GPU-Z" (good program, CPU-Z counterpart) writes 8GB VRAM and the program shows me a (Micron) behind this, this is a US company I think, but everything else is "be quiet!", Toshiba (3 TB storage HDD), Tower, power adapter and the Dark Pro 4 250W CPU fan added to the Wraith Prism standard cooling of the Ryzen 7 2700X.... its almost equal to many water cooling fans...

I think a next Desktop will not exist if Trump puts an additional tariff on that most Germans according to a vote (once per registered user) had the plan to keep older desktops for multimedia, youtube, netflix maybe etc... and the gaming part which is for civilians the most important part I think would be done by the than most recent non-Microsoft console... and here of course Playstation beats Nintendo, Nintendo prepared already with releasing Diablo III for the switch these days, this small little thing looking like a 15 year old "PSP" can be laid into a connector which makes the games no longer running on the small display but on your giant TV, as most TVs are far away from 4k Gaming/watching maybe some will have WQHD or ~2k resolution. I would buy a Playstation in this case than too. Even if the Xbox would be cheaper and offering better performance on the paper, it would be a boycott and also Sony got the best games exclusive for Playstation, Final Fantasy XV and other recent games, like the remake of the Final Fantasy VII and VIII remake, I remember playing it in 2003 on my win xp desktop... great game if you like Diablo and everything with collecting items and exp and a good story, and the dialogs, which are not soo intelligent in final fantasy 7 and 8, but still you get different answers, according to what you are saying, I haven't played so much Final Fantasy XV yet, maybe I should start, it starts with an annoying part, but this is fast done and than you already start hunting exp, gold, and items while the "prince" and his friends are waiting for their oldtimer to be repaired by an very old man in a very remote area....

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