OPEC Sneezes, US Industry Gets the Flu and Canada Gets Pneumonia

[William Edwards + 708]

1 minute ago, D Coyne said:

William,

I don't estimate OPEC surplus capacity at 2 to 4 Mb/d, present day potential increase might be 1 Mb/d.  As I have said repeatedly oil is produced and stored, eventually the traders become aware of high stock levels and prices fall, or they anticipate rising stock levels by looking at storage level trends and trends in output and consumption.  In addition, OPEC can signal that they plan to ramp up output to take back market share and that is often enough to lead to lower oil prices, which increases demand so that OPEC can flood the market with crude.

The price dropped in the fall of 2018 because Trump granted waivers for many nations on the Iranian sanctions, this was unexpected so the market expected a glut of oil, OPEC cuts reassured the oil market.  The drop in price of the Alberta crude was not the cause of the drop in Brent and WTI.

Your view and mine are so different that I think it unproductive to counter. We shall just wait and see.

[ceo_energemsier + 1,818]

1 minute ago, William Edwards said:

Good. How much of the required 3 MMB/D will come onstream by January 1? My concern is that you, like Cenovus, Aramco, Mexico, etc. have been shown the path to upgrading, but have not judged it necessary to pull the trigger in a big way. The fiction of high prices, presented temporarily by future traders and mis-undestood by the industry, have allowed hope to substitute for wisdom. Thus we have a timing problem.

I dont intend to be able to solve the world's sulfur problem all on my own. One company a barrel can do much. We are upto 650,000bpd for one JV and more to follow before the deadline. I am happy with what we have created and achieved. AT the fuels end we have 250,000bpd upgrading in the process which will go up higher.

[William Edwards + 708]

2 minutes ago, ceo_energemsier said:

I dont intend to be able to solve the world's sulfur problem all on my own. One company a barrel can do much. We are upto 650,000bpd for one JV and more to follow before the deadline. I am happy with what we have created and achieved. AT the fuels end we have 250,000bpd upgrading in the process which will go up higher.

And for the progress that you have made you are to be commended. Further, the ineptitude of the industry who does nothing will enhance the profit from your own astute activities. But if less is done than is necessary ( my guess), then the unusable surplus hgh sulfur resid will crater the global crude price. Then all will suffer.

Edited May 6, 2019 by William Edwards

[ceo_energemsier + 1,818]

3 minutes ago, William Edwards said:

And for the progress that you have made you are to be commended. Further, the ineptitude of the industry who does nothing will enhance the profit from your own astute activities.

Being proactive in any industry is the key. We dont want to go the way of the dinosaurs, clean up our products and impact on the environment and keep moving forward doing better at each level.

And thank you for the words of encouragement.

Edited May 6, 2019 by ceo_energemsier
Correction

[William Edwards + 708]

2 minutes ago, ceo_energemsier said:

Being proactive in any industry is the key. We dont want to go the way of the dinosaurs, clean up our products and impact on the environment and keep moving forward doing better at each level.

Being proactive is wonderful. Being smart is the icing on the cake.

[D Coyne + 305]

22 minutes ago, William Edwards said:

Your view and mine are so different that I think it unproductive to counter. We shall just wait and see.

William,

The oil sands crude (especially the bitumen that has not been upgraded, but simply diluted with condensate so it can flow in a pipeline) has a very limited market and actually has difficulty making it to markets where it can be used due to pipeline contraints.

That is the reason for the crash in central Alberta crude prices, a lack of transport options and perhaps no place to store the oil in Alberta (storage being filled).  Can you clarify how this affects the pricing at the refinery gate for the rest of the refiners who have no desire to purchase the dilbit from Canada in any case because they cannot utilize that crude stream.  It seems from my perspective that the markets would be separate.

It would be a little like a frozen orange juice factory not being affected by a drop in the price of apples, to the apple juice maker and the producers of apples this would be important, but orange growers would be relatively unaffected.

[William Edwards + 708]

Just now, D Coyne said:

William,

The oil sands crude (especially the bitumen that has not been upgraded, but simply diluted with condensate so it can flow in a pipeline) has a very limited market and actually has difficulty making it to markets where it can be used due to pipeline contraints.

That is the reason for the crash in central Alberta crude prices, a lack of transport options and perhaps no place to store the oil in Alberta (storage being filled).  Can you clarify how this affects the pricing at the refinery gate for the rest of the refiners who have no desire to purchase the dilbit from Canada in any case because they cannot utilize that crude stream.  It seems from my perspective that the markets would be separate.

It would be a little like a frozen orange juice factory not being affected by a drop in the price of apples, to the apple juice maker and the producers of apples this would be important, but orange growers would be relatively unaffected.

As long as bitumen can be isolated from the rest of the system, your idea holds. The problem begins when (if) Canadian oil can be offered, in a desperate fashion, to refiners outside Canada's tributary system. Canadian exports to the US have been at about 3.4 MMB/D for a year and a half, even though Canadian production capacity has increased. Transportation restraints have prevented Canadian supplies from entering global trade. Once Canadian production falls because of the rejection of high-priced low quality oil, the desperate Canadian sellers will have plenty of transportation capacity available and, then, their desperation will impact the rest of the system's prices.

[ceo_energemsier + 1,818]

3 minutes ago, D Coyne said:

William,

The oil sands crude (especially the bitumen that has not been upgraded, but simply diluted with condensate so it can flow in a pipeline) has a very limited market and actually has difficulty making it to markets where it can be used due to pipeline contraints.

That is the reason for the crash in central Alberta crude prices, a lack of transport options and perhaps no place to store the oil in Alberta (storage being filled).  Can you clarify how this affects the pricing at the refinery gate for the rest of the refiners who have no desire to purchase the dilbit from Canada in any case because they cannot utilize that crude stream.  It seems from my perspective that the markets would be separate.

It would be a little like a frozen orange juice factory not being affected by a drop in the price of apples, to the apple juice maker and the producers of apples this would be important, but orange growers would be relatively unaffected.

Cenovus has JV refineries in the US, where they process their crude moved by rail and pipeline to IL and to TX, which reduces their exposure to the Canadian crude price spiral to a degree on their production side.

The diluted Canadian crude is moved west and south into the USGC and also the MIdWest, refineries do run this crude oil (majors and indies both). Given the shale production, these Canadian barrels are blended again and processed at USGC refineries as well. One big market for this blend of crude oil is in China and India.

[ceo_energemsier + 1,818]

Just now, William Edwards said:

As long as bitumen can be isolated from the rest of the system, your idea holds. The problem begins when (if) Canadian oil can be offered, in a desperate fashion, to refiners outside Canada's tributary system. Canadian exports to the US have been at about 3.4 MMB/D for a year and a half, even though Canadian production capacity has increased. Transportation restraints have prevented Canadian supplies from entering global trade. Once Canadian production falls because of the rejection of high-priced low quality oil, the desperate Canadian sellers will have plenty of transportation capacity available and, then, their desperation will impact the rest of the system's prices.

I believe that the CHinese are investing $$$ in Alberta to build 2 refineries that will process this Canadian crude.

[ceo_energemsier + 1,818]

3 minutes ago, William Edwards said:

As long as bitumen can be isolated from the rest of the system, your idea holds. The problem begins when (if) Canadian oil can be offered, in a desperate fashion, to refiners outside Canada's tributary system. Canadian exports to the US have been at about 3.4 MMB/D for a year and a half, even though Canadian production capacity has increased. Transportation restraints have prevented Canadian supplies from entering global trade. Once Canadian production falls because of the rejection of high-priced low quality oil, the desperate Canadian sellers will have plenty of transportation capacity available and, then, their desperation will impact the rest of the system's prices.

https://www.reuters.com/article/us-canada-refinery-sinopec/chinas-sinopec-plans-to-build-canadian-oil-refinery-idUSKCN1LU2CU

https://business.financialpost.com/commodities/chinese-firms-and-indigenous-groups-propose-major-new-refinery-in-alberta

 

[William Edwards + 708]

Just now, ceo_energemsier said:

I believe that the CHinese are investing $$$ in Alberta to build 2 refineries that will process this Canadian crude.

I understand, as well, that they are looking at the possibility. I also understand that they are considering using the Selex-Asp technology. Further, I am aware that no decision will be implemented before the 2020 price collapse. So let us wait and see what transpires. The economics of paying $20 plus $10/B transportation to produce bitumen that is worth $15/B on the water ON THE GULF COAST ( parity with coal), may discourage much of that type of activity.

[William Edwards + 708]

12 minutes ago, ceo_energemsier said:

Cenovus has JV refineries in the US, where they process their crude moved by rail and pipeline to IL and to TX, which reduces their exposure to the Canadian crude price spiral to a degree on their production side.

The diluted Canadian crude is moved west and south into the USGC and also the MIdWest, refineries do run this crude oil (majors and indies both). Given the shale production, these Canadian barrels are blended again and processed at USGC refineries as well. One big market for this blend of crude oil is in China and India.

Only an idiot will be sucked in by believing the economics presented by transfer prices. Real values dictate.

Have you done the arithmetic on moving dilbit to India and China, competing with rejected high sulfur resid? Not too attractive. Maybe $20/B negative. The Indians and the Chinese are not that stupid. They do not have the blinders on. Only the Canadians.

Edited May 6, 2019 by William Edwards

[ceo_energemsier + 1,818]

2 minutes ago, William Edwards said:

Only an idiot will be sucked in by believing the economics presented by transfer prices. Real values dictate.

Have you done the arithmetic on moving dilbit to India and China, competing with rejected high sulfur resid? Not too attractive. Maybe $20/B negative. The Indians and the Chinese are not that stupid. They do not have the blinders on. Only the Canadians.

For the domestic Indian and Chinese markets, they will still continue to use high sulfur products for a long time to come. With possible Iran sanctions this crude maybe very attractive to them specially if it is marketed at a discounted price compared to their preferred benchmarks after blending. I have seen cargoes being moved to India and China of this blended material, they have even picked up cargoes from Singapore to haul to India in the past. If the Canadians can market this or some other oil trader does that and markets it to the buyers looking for a deal, I guess everyone comes out a winner? or a whiner?

I have sold over 100,000bpd of condensate pre shale boom from as far as Australia, to Canadian companies to be used as a diluent, After the shale boom , lot more condensate sold to the Canadian companies from the Bakken, Utica, Eagle Ford and Permian. SInce the export ban was repealed I have seen many cargoes of the material coming back from Canada and being shipped overseas  as well as being used in the US refineries both coastal and inland.

[William Edwards + 708]

Just now, ceo_energemsier said:

For the domestic Indian and Chinese markets, they will still continue to use high sulfur products for a long time to come. With possible Iran sanctions this crude maybe very attractive to them specially if it is marketed at a discounted price compared to their preferred benchmarks after blending. I have seen cargoes being moved to India and China of this blended material, they have even picked up cargoes from Singapore to haul to India in the past. If the Canadians can market this or some other oil trader does that and markets it to the buyers looking for a deal, I guess everyone comes out a winner? or a whiner?

I have sold over 100,000bpd of condensate pre shale boom from as far as Australia, to Canadian companies to be used as a diluent, After the shale boom , lot more condensate sold to the Canadian companies from the Bakken, Utica, Eagle Ford and Permian. SInce the export ban was repealed I have seen many cargoes of the material coming back from Canada and being shipped overseas  as well as being used in the US refineries both coastal and inland.

I am speaking of price competition. Of course the oil has flowed and will continue to flow, if the price is right. And the buyer will insure that the price is right. I have sold 100,000 B/D of six oil, but I never received an unjustified premium price. Competition prevails.

[ceo_energemsier + 1,818]

4 minutes ago, William Edwards said:

I am speaking of price competition. Of course the oil has flowed and will continue to flow, if the price is right. And the buyer will insure that the price is right. I have sold 100,000 B/D of six oil, but I never received an unjustified premium price. Competition prevails.

It goes without a doubt that Canadian dilbit faces a very strong head wind and they may end up shutting down  a lot of the production unless, they are able to move it directly in significant volumes to their west coast for export to China and or build massive refineries in Alberta and also set up heavy oil upgraders. They have to remain "relevant" with the changing demands and market conditions, changing regulatory requirements and an extremely competitive crude oil market. One of the avenues could be the massive Chinese independent refineries who have been given permits to import and refine without going thru SOE's. Again pricing and access will determine how much they are able to purchase and or willing to purchase. Test trials are just that. Unless we see 300,000bpd or more going under contracts for long term then it just means test trials didnt pan out.

[ceo_energemsier + 1,818]

Just now, ceo_energemsier said:

It goes without a doubt that Canadian dilbit faces a very strong head wind and they may end up shutting down  a lot of the production unless, they are able to move it directly in significant volumes to their west coast for export to China and or build massive refineries in Alberta and also set up heavy oil upgraders. They have to remain "relevant" with the changing demands and market conditions, changing regulatory requirements and an extremely competitive crude oil market. One of the avenues could be the massive Chinese independent refineries who have been given permits to import and refine without going thru SOE's. Again pricing and access will determine how much they are able to purchase and or willing to purchase. Test trials are just that. Unless we see 300,000bpd or more going under contracts for long term then it just means test trials didnt pan out.

https://www.oilsandsmagazine.com/market-insights/crude-oil-pricing-differentials-why-alberta-crude-sells-at-deep-discount-to-wti

 

https://www.neb-one.gc.ca/nrg/sttstc/crdlndptrlmprdct/rprt/2018wstrncndncrd/2018wstrncndncrd-eng.pdf

[ceo_energemsier + 1,818]

10 minutes ago, William Edwards said:

I am speaking of price competition. Of course the oil has flowed and will continue to flow, if the price is right. And the buyer will insure that the price is right. I have sold 100,000 B/D of six oil, but I never received an unjustified premium price. Competition prevails.

https://theenergymix.com/2018/03/05/exclusive-out-of-the-loop-the-fatal-flaw-of-albertas-oil-export-expansion/

[ceo_energemsier + 1,818]

1 minute ago, ceo_energemsier said:

https://theenergymix.com/2018/03/05/exclusive-out-of-the-loop-the-fatal-flaw-of-albertas-oil-export-expansion/

And this doesnt mean that this has been happening a lot more.

First import of Western Canadian crude since Aug 2015 arrives: In the LOOP

The Louisiana Offshore Oil Port last week received a cargo of Western Canadian crude, the heavy sour grade Access Western Blend, which appears to be the oil terminal’s first import from that region in recent history.

Marathon imported last week about 579,000 barrels of 24.1 API Access Western Blend on the 109,000 mt Aframax tanker Seavoyager, which originally sailed from Vancouver, according to US Customs and Platts Analytics data.

Cenovus was listed as the shipper. It departed Vancouver on April 19, moved along the Pacific Coast of North America before transiting the Panama Canal around May 5-6 and arriving at LOOP around May 11, according to Platts vessel-tracking software cFlow.

LOOP has not previously imported any Western Canadian crude by water, having only before seen Eastern Canadian grades Hibernia, Terra Nova and Hebron, according to data dating back to August 2015. Most market sources seemed to think this may have been LOOP’s first import of Western Canadian crude by any means; however, there is not the same level of visibility into pipeline shipments of crude as there is for waterborne movements.

“[Western Canadian Select] has made it to LOOP via vessel in the past but nothing on the pipeline,” said one source who is familiar with LOOP operations.

Other sources were in agreement that the only pipeline option would be Shell Midstream’s Houston-to-Houma, Louisiana, Zydeco crude pipeline, but that pipeline handles light sweet grades and not heavy sours.

US Customs and Platts Analytics data shows just four US waterborne imports of AWB. In addition to the LOOP import last week, there were roughly Aframax-sized imports in October at Texas City, Texas, and February and April at Long Beach, California.

LOOP did not respond to a request for comment.

Access Western Blend is typically 21.8 API, 3.9% sulfur with high metals, according to Crude Quality Inc., which maintains the Western Canadian online crude data bank www.crudemonitor.ca. It is a blend of bitumen and diluent, according to co-producer MEG Energy. Market sources say it is typically valued anywhere from $2.40/b to $1.90/b less than regional heavy sour benchmark
Western Canadian Select. Like WCS, it arrives in the Houston refining center by pipeline. AWB has been exported out of the US Gulf Coast. In late October, Lukoil shipped 22.2 API, 3.81% sulfur AWB from Port Arthur, Texas, to Shandong, China,-based Haiyou Petrochemical.

Hedging is a complicating factor, with no established US Gulf Coast marker for medium or heavy sour crudes, even though most regional refiners maintain a steady diet of these crudes.

[Ward Smith + 6,615]

Just now, ceo_energemsier said:

It goes without a doubt that Canadian dilbit faces a very strong head wind and they may end up shutting down  a lot of the production unless, they are able to move it directly in significant volumes to their west coast for export to China and or build massive refineries in Alberta and also set up heavy oil upgraders. They have to remain "relevant" with the changing demands and market conditions, changing regulatory requirements and an extremely competitive crude oil market. One of the avenues could be the massive Chinese independent refineries who have been given permits to import and refine without going thru SOE's. Again pricing and access will determine how much they are able to purchase and or willing to purchase. Test trials are just that. Unless we see 300,000bpd or more going under contracts for long term then it just means test trials didnt pan out.

I've asked here whether Canada is hosed and I'm trying to remember if either of you joined that thread. Since I'm a relative newcomer here you might not have been interested. The subject however is very interesting to me. 

The refinery problem is just the other side of the production Problem coin. If they can't get raw product out in sufficient volume, how can they get refined product out? Alberta with their 4 million consumers aren't going to make a dent. 

[ceo_energemsier + 1,818]

4 minutes ago, Ward Smith said:

I've asked here whether Canada is hosed and I'm trying to remember if either of you joined that thread. Since I'm a relative newcomer here you might not have been interested. The subject however is very interesting to me. 

The refinery problem is just the other side of the production Problem coin. If they can't get raw product out in sufficient volume, how can they get refined product out? Alberta with their 4 million consumers aren't going to make a dent. 

I believe one of the goals of the refinery in Alberta was to be export oriented but then again they will have to build pipelines west or ship it south to the USGC. But if the CHinese are going to invest 8bil$+ I am sure they will want to have an assurance that pipeline route is done.

Generally speaking, yes I would agree, from the things where they are, Canadian (dilbit, high sulfur crude( is going to get hosed for the most part. They need to have a change in policy and a change on a large scale to upgrading  and take away capacity

Edited May 6, 2019 by ceo_energemsier
adding info

[ceo_energemsier + 1,818]

US Oil, Gas Industry Sets Production, Export Records

May 2, 2019 Alex Mills

Texas has a reputation of being a leader in energy production from coast-to-coast. That reputation has grown internationally as Texas leads the nation with dramatic increases in oil and natural gas production and exports.

The International Energy Agency (IEA) recently called the rise in production in Texas and the U.S. “the standout champion of global supply growth” and it expects the trend to continue.

“The second wave of the U.S. shale revolution is coming,” IEA Executive Director Faith Birol was quoted in the April issue of the American Oil and Gas Reporter. “It will see the United States account for 70 percent of the rise in global oil production and some 75 percent of the expansion in liquefied natural gas trade over the next five years. This will shake up international oil and gas trade flows, with profound implications for the geopolitics of energy.”

The U.S. Department of Energy’s Energy Information Administration (EIA) reports both oil and dry natural gas production set U.S. records in February. Oil production hit 12.1 billion barrels per day, Natural gas soared to 89.2 billion cubic feet per day, the highest for any month since EIA began tracking monthly dry natural gas production in 1973.

Crude oil, refined petroleum products, and natural gas exports from the U.S. continue to increase and imports continue to decline.

 

EIA reports U.S. net petroleum imports fell 1.5 million barrels per day in 2018 to an average of 2.3 million barrels per day, the lowest level in more than 50 years. EIA projects net oil and petroleum imports will continue to fall to an average of 1.0 million barrels per day in 2019 and will become a net exporter in 2020.

“And the same story line is playing out for natural gas and natural gas liquids (NGLs), too,” the American Oil and Gas Report stated. “Consequently, exports of everything from natural gas to gasoline, and from distillate fuel oil to propane and ethane, are at unprecedented levels.”

The volumes of petroleum increases have been created through technological developments in drilling, completion, and production techniques developed in Texas and throughout the U.S. that has been blessed with ultralow-permeability source rocks that has held massive amounts of hydrocarbons. The multiple pay zones in the Permian Basin of West Texas have been the leading target, which has produced a multiple mix of liquid and gas hydrocarbons.

“Greater U.S. exports to global markets strengthen oil security around the world,” Birol said. “Buyers of crude oil, particularly in Asia, where demand is growing fastest, have a wider choice of suppliers. This gives them more operational and trading flexibility, reducing their reliance on traditional long-term supply contracts.”

Alex Mills is the former President of the Texas Alliance of Energy Producers. The opinions expressed are solely of the author.

[Falcon + 222]

6 hours ago, ceo_energemsier said:

I believe one of the goals of the refinery in Alberta was to be export oriented but then again they will have to build pipelines west or ship it south to the USGC. But if the CHinese are going to invest 8bil$+ I am sure they will want to have an assurance that pipeline route is done.

Generally speaking, yes I would agree, from the things where they are, Canadian (dilbit, high sulfur crude( is going to get hosed for the most part. They need to have a change in policy and a change on a large scale to upgrading  and take away capacity

Beforethey bought in the Chinese were promised adequate pipelines would be built to move the product.  They were fooled.  I think they paid $5 billion for their oil sands holdings. In the beginning foreign companies were limited to 49% investment.  That all changed.  The Canadian government had to approve the Chinese purchase.  

[ceo_energemsier + 1,818]

1 minute ago, Falcon said:

Beforethey bought in the Chinese were promised adequate pipelines would be built to move the product.  They were fooled.  I think they paid $5 billion for their oil sands holdings. In the beginning foreign companies were limited to 49% investment.  That all changed.  The Canadian government had to approve the Chinese purchase.  

Yes I recall that was for their upstream oilsands investments and the refinery investment announcement was much ,later just last year.

Inside China’s Failed $15 Billion Canadian Oil Sands Investment

https://oilprice.com/Energy/Crude-Oil/Inside-Chinas-Failed-15-Billion-Canadian-Oil-Sands-Investment.html

https://business.financialpost.com/commodities/new-alberta-refinery-proposal-shows-china-has-not-given-up-on-the-oilsands

 

https://calgaryherald.com/news/politics/liberal-government-reviewing-ban-on-chinese-oilsands-ownership

 

https://www.cbc.ca/news/canada/calgary/china-investment-oilsands-jim-carr-1.4152520

 

https://business.financialpost.com/opinion/dont-do-it-justin-why-letting-china-back-into-canadas-oilsands-would-be-a-big-mistake

 

https://www.thespec.com/news-story/2210792-chinese-firm-buys-alberta-s-opti-oilsands-for-2-1-billion/

[William Edwards + 708]

1 hour ago, ceo_energemsier said:

Yes I recall that was for their upstream oilsands investments and the refinery investment announcement was much ,later just last year.

Inside China’s Failed $15 Billion Canadian Oil Sands Investment

https://oilprice.com/Energy/Crude-Oil/Inside-Chinas-Failed-15-Billion-Canadian-Oil-Sands-Investment.html

https://business.financialpost.com/commodities/new-alberta-refinery-proposal-shows-china-has-not-given-up-on-the-oilsands

 

https://calgaryherald.com/news/politics/liberal-government-reviewing-ban-on-chinese-oilsands-ownership

 

https://www.cbc.ca/news/canada/calgary/china-investment-oilsands-jim-carr-1.4152520

 

https://business.financialpost.com/opinion/dont-do-it-justin-why-letting-china-back-into-canadas-oilsands-would-be-a-big-mistake

 

https://www.thespec.com/news-story/2210792-chinese-firm-buys-alberta-s-opti-oilsands-for-2-1-billion/

Gomer said, "Fool me once, shame on you. Fool me twice, shame on me!"

[D Coyne + 305]

On 5/6/2019 at 2:54 PM, William Edwards said:

As long as bitumen can be isolated from the rest of the system, your idea holds. The problem begins when (if) Canadian oil can be offered, in a desperate fashion, to refiners outside Canada's tributary system. Canadian exports to the US have been at about 3.4 MMB/D for a year and a half, even though Canadian production capacity has increased. Transportation restraints have prevented Canadian supplies from entering global trade. Once Canadian production falls because of the rejection of high-priced low quality oil, the desperate Canadian sellers will have plenty of transportation capacity available and, then, their desperation will impact the rest of the system's prices.

William,

Perhaps there is more demand for Canadian crude than I realize.  Are there facilities that can handle the high sulfur crude to bring it to the new ISO standard?  Until that occurs, there will be a separate market for these high sulfur heavy grades of crude, once they can be handled and transport is available to get the Canadian oil sands to water, then there is simply extra oil supply available on the World market and I agree that this will tend to reduce oil prices.  No idea how long it will take to get there, perhaps 5 years?