Putin Wins Again at Oil Chess: OPEC Is Facing An Existential Crisis

[Jan van Eck + 7,558]

41 minutes ago, Bobby P said:

It's not stupid if Alberta has no other option. 

There are always other options. 

One that comes to mind is the placement of a crude-oil / refined oil pipeline next to one of the current RR tracks across the Ontario Northland,dropping down to the refineries in Montreal and also Sarnia.  What you would do is dig say twenty feet to one side of the tracks, and bury the pipe. It would be expensive to do, but at least you don't have to argue with the litigants, because the rail right-of-way is already owned by that railroad (or possibly by the Feds and use thereof granted to the RR, I don't know how they set that up).  And you can bring the pipe to the jobsite by railcar and unload the pipe sections by a crane, drop it in the trench, and weld it up. 

The other option is currently being done by both Alberta govt and the Feds.  That is building a fleet of new tank cars.  Shipping by unit train is not as ridiculous as everybody here seems to think.  it can be just as cheap as pipe, the reason it is expensive is because the RR have this monopoly and can charge in large part whatever they think the shipper is going to pay.  A freight train consisting of 100 oil tank cars moving along at 50 mph is pulling a lot more oil to destination a lot faster than some pipe. If you are using a diluent to keep the heavy oil from congealing, then remember the diluent can get a free ride back when the empty railcars are sent back.

Can it be done?  Yes.  Can a captive domestic market be developed?  Yes.  Can the current govt do it?  Probably not.  Does Ottawa have the bureaucrats capable of implementing any of this?  Probably not.  Could anybody ever be found to do it?  Sure.  Who?  Well, for openers, I could, but then again, nobody is hiring me.  So I sit here and type the concept out, you guys can read it and come up with other ideas, and it goes nowhere because we are not talking to Ottawa.  And even if we were, still Ottawa listens to nobody. 

The reality is that political dysfunction stops all these ideas cold.  The voters in Canada have to dump the political dysfunction.  You had the same situation in the USA, and the voters, in total disgust, voted in The Donald.  Now all these people are aghast and all horrified. Meanwhile, Donald is seriously shaking up the bureaucratic tree.  It does not go far, mostly because his inner circles inside the White House consists of political ideologues and grotesquely incompetent louts. But that does not mean that the voters did not have the right idea: toss out the useless politicians, and try new blood.  And you can bet the voters will repeat that, and again bring in new blood, until they finally get it right. 

[canadas canadas + 136]

It looks like OAPEC vs OPEC since Saudi Arabia, UAE and Libya are members of OAPEC (and OPEC) while Iran and Venezuela are only members of OPEC.  If Opec falls apart, there will still be OAPEC.

[Ward Smith + 6,615]

1 hour ago, Jan van Eck said:

There are always other options. 

One that comes to mind is the placement of a crude-oil / refined oil pipeline next to one of the current RR tracks across the Ontario Northland,dropping down to the refineries in Montreal and also Sarnia.  What you would do is dig say twenty feet to one side of the tracks, and bury the pipe. It would be expensive to do, but at least you don't have to argue with the litigants, because the rail right-of-way is already owned by that railroad (or possibly by the Feds and use thereof granted to the RR, I don't know how they set that up).  And you can bring the pipe to the jobsite by railcar and unload the pipe sections by a crane, drop it in the trench, and weld it up. 

The other option is currently being done by both Alberta govt and the Feds.  That is building a fleet of new tank cars.  Shipping by unit train is not as ridiculous as everybody here seems to think.  it can be just as cheap as pipe, the reason it is expensive is because the RR have this monopoly and can charge in large part whatever they think the shipper is going to pay.  A freight train consisting of 100 oil tank cars moving along at 50 mph is pulling a lot more oil to destination a lot faster than some pipe. If you are using a diluent to keep the heavy oil from congealing, then remember the diluent can get a free ride back when the empty railcars are sent back.

Can it be done?  Yes.  Can a captive domestic market be developed?  Yes.  Can the current govt do it?  Probably not.  Does Ottawa have the bureaucrats capable of implementing any of this?  Probably not.  Could anybody ever be found to do it?  Sure.  Who?  Well, for openers, I could, but then again, nobody is hiring me.  So I sit here and type the concept out, you guys can read it and come up with other ideas, and it goes nowhere because we are not talking to Ottawa.  And even if we were, still Ottawa listens to nobody. 

The reality is that political dysfunction stops all these ideas cold.  The voters in Canada have to dump the political dysfunction.  You had the same situation in the USA, and the voters, in total disgust, voted in The Donald.  Now all these people are aghast and all horrified. Meanwhile, Donald is seriously shaking up the bureaucratic tree.  It does not go far, mostly because his inner circles inside the White House consists of political ideologues and grotesquely incompetent louts. But that does not mean that the voters did not have the right idea: toss out the useless politicians, and try new blood.  And you can bet the voters will repeat that, and again bring in new blood, until they finally get it right. 

Most people don't know what the acronym SPRINT stood for. Southern Pacific Railway International Network Telephony. They did essentially what you're talking about, running fiber optic conduit all along their right of way by the tracks. The reason Canadian Northern isn't going to do your idea is because transporting bits wasn't direct competition to transporting goods. Pipelines ALWAYS win over railroads, for lots of reasons. Yes, they only move the oil at walking speed, but they move it 24/7/365. Railroads are horrendously inefficient at getting something from point A to point B in a timely manner. And they won't improve because they just don't care. Monopolies are cancer. 

Perhaps you're familiar with the expressway debacle in Alberta? To resolve the traffic congestion, they were building a loop around the city, much as Dallas has. One "tribe" of perhaps 300 named individuals who could at least pretend they were a First Nation claimed some of the land that was to be used for the expressway. Last I heard, they had demanded about $5million per head to approve, or many times what the rest of the expressway was worth. 

In the US we deal with this by eminent domain, there are complaints but not a ton of sympathy for the greedy hold outs. The Nelo SCOTUS decision carried it a bit too far for my libertarian principles but I'm more in favor of progress than against, if it serves "the commonweal".

Native Americans only acquired and retained their land by constantly warring with their neighbors. Pretty much the same way nation states and African tribes did at the same time. Having magical superseding rights today as a form of progressive penance is a bit of a joke to me, but then I know more Native Americans than most people have ever met. 

Edited May 9, 2019 by Ward Smith

[William Edwards + 708]

4 hours ago, Bobby P said:

Yeah. I am sure you seen how well "pleasing" environmentalist's has worked out right? Not an inch of pipe has been laid since the past three years. There is no way to please them, how many times does the TMX pipeline have to be "approved"? Even after the June 18th 2019 tentative approval from the fed government, I am willing to bet these so called "environmentalists" will be back creating havoc impeding construction. So yes, to me it is a failed endeavor and there is no way to please them. 

It's not stupid if Alberta has no other option. 

It is stupid if that option is not realistic. Just try forcing ten gallons of oil into a five gallon bucket. That is the analogy of Canada's hope to build pipelines to move oil from where is cannot be used to another location where it cannot be used and is, therefore, not wanted. That is the basic problem of more oil sands production.

And to counteract your potential workaround that "it can displace another crude", that is true only if the price is low enough to push out $20 oil, or if the receiver has acquired a "magic, cost free" conversion wand".

 

[Jan van Eck + 7,558]

1 hour ago, William Edwards said:

It is stupid if that option is not realistic. Just try forcing ten gallons of oil into a five gallon bucket. That is the analogy of Canada's hope to build pipelines to move oil from where is cannot be used to another location where it cannot be used and is, therefore, not wanted. That is the basic problem of more oil sands production.

And to counteract your potential workaround that "it can displace another crude", that is true only if the price is low enough to push out $20 oil, or if the receiver has acquired a "magic, cost free" conversion wand".

 

Except that in Canada's unique case, the feds could (if they got their act together) create a closed market.  You want crude?  You buy it from Alberta oilsands, you don't like that crude, you go without.  Settles that issue. 

[William Edwards + 708]

4 hours ago, canadas canadas said:

It looks like OAPEC vs OPEC since Saudi Arabia, UAE and Libya are members of OAPEC (and OPEC) while Iran and Venezuela are only members of OPEC.  If Opec falls apart, there will still be OAPEC.

Forget the organizations. The only thing that counts is reserve capacity and the means to produce it. And the incentive there is the same as in the US and Canada, namely, "produce all you can when you can" -- at the futures traders' prices. If an organization, of a producing country, is smart enough, smooth enough, or sufficiently persuasive to talk another producer into shutting in some of his potential, then that will be pursued also.

[William Edwards + 708]

4 minutes ago, Jan van Eck said:

Except that in Canada's unique case, the feds could (if they got their act together) create a closed market.  You want crude?  You buy it from Alberta oilsands, you don't like that crude, you go without.  Settles that issue. 

But it does not create an open-ended capability to satisfy Canada's producers. Consumption has its limits, including financial ones.

[Jan van Eck + 7,558]

23 minutes ago, William Edwards said:

But it does not create an open-ended capability to satisfy Canada's producers. Consumption has its limits, including financial ones.

And that is very true.  You will not get beyond what Canada will have as aggregate demand.  

That said, having a captive market will allow the producers to get their act together in terms of streamlined production capabilities and technology.  That should lower their costs, and then (if they have any gumption at all) they can go invade other markets to sell the stuff, secure in the knowledge that that domestic market  is there to backstop them in case their offerings do not sell. 

Do I think that any of this is going to happen?  Answer:  No.  But that should not be taken as an indicator that it could not happen. 

[William Edwards + 708]

28 minutes ago, Jan van Eck said:

And that is very true.  You will not get beyond what Canada will have as aggregate demand.  

That said, having a captive market will allow the producers to get their act together in terms of streamlined production capabilities and technology.  That should lower their costs, and then (if they have any gumption at all) they can go invade other markets to sell the stuff, secure in the knowledge that that domestic market  is there to backstop them in case their offerings do not sell. 

Do I think that any of this is going to happen?  Answer:  No.  But that should not be taken as an indicator that it could not happen. 

Interesting, Jan. Sounds like the US strategy prior to 1970. The system even protected prices in the US to shut out foreign competetion. It works until the arithmetic of supply/demand/price/cost reach an untenable limit.

[Jan van Eck + 7,558]

3 hours ago, William Edwards said:

Interesting, Jan. Sounds like the US strategy prior to 1970. The system even protected prices in the US to shut out foreign competetion. It works until the arithmetic of supply/demand/price/cost reach an untenable limit.

Then again, the Canadians do all that with domestic milk.  Milk, together with Quebec Maple Syrup, are supply-controlled.  The milk farmers get quotas, they can produce "so much."  The maple syrup guys regularly produce more than the market can absorb, so to avoid price crashes, the Syrup Marketing Board requires all producers to sell to the Board, and then the Board in turn sets the resale price and stores the overflow in holding tanks.  And finally in the supreme example, the DeBeers organization held back tons of diamonds in order to have a remarkably high retail price for what is, in effect, a mined mineral, common enough in South Africa. 

The "limit" is whatever the society deems appropriate.  At one time in the USA the Civil Aeronautics Board set the prices of air fares.  Each air carrier charged exactly the same fare between the same points.  After deregulation, airplane travel became cattle cars, as prices dropped dramatically and the carriers attempted to make up for lost revenue with more bodies on the plane.  Lots of carriers went bankrupt.   Society made a choice to remove the price controls.  That is a philosophical resolution.  Yet in Canada today, charter bus travel is Provincially regulated, and in say Ontario, the Govt determines who your bus company is going to be by the street corner your group is being picked up on.  If your group is on the West side of the street, you must use Company A, because they have a protected permit for that territory. If on the East side of the street, you must book with Company B, as that is their protected territory.  Consumer choice is not in the equation.  So for Canadians, making the leap to a protected market for oilsands crude is not that great.  Cheers.

[Ward Smith + 6,615]

5 hours ago, William Edwards said:

It is stupid if that option is not realistic. Just try forcing ten gallons of oil into a five gallon bucket. That is the analogy of Canada's hope to build pipelines to move oil from where is cannot be used to another location where it cannot be used and is, therefore, not wanted. That is the basic problem of more oil sands production.

And to counteract your potential workaround that "it can displace another crude", that is true only if the price is low enough to push out $20 oil, or if the receiver has acquired a "magic, cost free" conversion wand".

 

Not all oil is created equal William. The super light sweet oil produced from shale is great for making gasoline and naptha, but useless for making kerosene, jet fuel and diesel. No long chain molecules. Now the big refineries in the gulf spent tens of billions installing delayed cokers to deal with nasty, heavy oil from Mexico and Venezuela. Valero showed how it could be quite profitable to eschew the high grade WTI oil and opt instead for the heavy cheap crude like Maya and Orinoco. Others quickly followed suit, which is why the gulf is the number one destination for Western Canada Select et al. I believe the Whiting refinery in Indiana can take some as well. If you want to know which refineries can take how much heavy, just count the towers on the delayed cokers and multiply by about 20k bbls per day, minus one tower for changeover. 8 towers good for about 140k bbls per day. 

Canada saw fit to spend about $100k per flowing barrel of capacity for a fly to the moon refinery Sturgeon that will produce gasoline for about $5 or so per gallon. What they SHOULD have done was spent about 1/10th that amount on fly to the moon upgrader  technology that displaces delayed coker. Oh well, politicians are known dumb critters

[William Edwards + 708]

15 hours ago, Jan van Eck said:

Then again, the Canadians do all that with domestic milk.  Milk, together with Quebec Maple Syrup, are supply-controlled.  The milk farmers get quotas, they can produce "so much."  The maple syrup guys regularly produce more than the market can absorb, so to avoid price crashes, the Syrup Marketing Board requires all producers to sell to the Board, and then the Board in turn sets the resale price and stores the overflow in holding tanks.  And finally in the supreme example, the DeBeers organization held back tons of diamonds in order to have a remarkably high retail price for what is, in effect, a mined mineral, common enough in South Africa. 

The "limit" is whatever the society deems appropriate.  At one time in the USA the Civil Aeronautics Board set the prices of air fares.  Each air carrier charged exactly the same fare between the same points.  After deregulation, airplane travel became cattle cars, as prices dropped dramatically and the carriers attempted to make up for lost revenue with more bodies on the plane.  Lots of carriers went bankrupt.   Society made a choice to remove the price controls.  That is a philosophical resolution.  Yet in Canada today, charter bus travel is Provincially regulated, and in say Ontario, the Govt determines who your bus company is going to be by the street corner your group is being picked up on.  If your group is on the West side of the street, you must use Company A, because they have a protected permit for that territory. If on the East side of the street, you must book with Company B, as that is their protected territory.  Consumer choice is not in the equation.  So for Canadians, making the leap to a protected market for oilsands crude is not that great.  Cheers.

Funny that you should mention DeBeers. Their operation provides the model that OPEC should adopt. Set the floor price and manage supply, simultaneously. As long as you don't get too greedy, that is the formula for stable and ad]ttractive prices.

You also make a good case for allowing the "free market system" to include some marketing rules.

[William Edwards + 708]

15 hours ago, Ward Smith said:

Not all oil is created equal William. The super light sweet oil produced from shale is great for making gasoline and naptha, but useless for making kerosene, jet fuel and diesel. No long chain molecules. Now the big refineries in the gulf spent tens of billions installing delayed cokers to deal with nasty, heavy oil from Mexico and Venezuela. Valero showed how it could be quite profitable to eschew the high grade WTI oil and opt instead for the heavy cheap crude like Maya and Orinoco. Others quickly followed suit, which is why the gulf is the number one destination for Western Canada Select et al. I believe the Whiting refinery in Indiana can take some as well. If you want to know which refineries can take how much heavy, just count the towers on the delayed cokers and multiply by about 20k bbls per day, minus one tower for changeover. 8 towers good for about 140k bbls per day. 

Canada saw fit to spend about $100k per flowing barrel of capacity for a fly to the moon refinery Sturgeon that will produce gasoline for about $5 or so per gallon. What they SHOULD have done was spent about 1/10th that amount on fly to the moon upgrader  technology that displaces delayed coker. Oh well, politicians are known dumb critters

Thanks for reminding me that crudes possess different yields and qualities. To show my gratitude for your assistance, I might throw a bit more info into that discussion.

You seem to have lost from your thinking the primary reason for "refining" capacity -- to alter the crude composition to match product demand. That need changes with time, markets and supply composition. If crude quality happened to match product demand composition, only the simplest refining would be needed. If your crude is at one end of the spectrum and your product mix at the other, then extensive refining would be needed. Or, possibly more economically, maybe you might choose a different crude supply to better match your demand profile.

Suppose that your crude stream were composed of only gasoline and diesel cuts. Your refinery would require only a splitter. Or take another case where your crude was 100% resid and your need was bunker fuel. Still only a stripper needed. But suppose that your market were for gasoline and diesel and the crude quality were all resid. You would need massive technology and extensive cracking to convert that resid into those products.  Refining requirements are a moving target.

Further, since refining capacity is built incrementally, and not en masse, the designer of a new refinery will "guess" what the crude composition may be, what the product split might be, and then try to match the two at minimum cost and maximum profit. Thus a design is created that, at one time period, may be heavy oil cracked to gasoline and another time may be light oil simply sent through a splitter. Times change. And refinery planners get it wrong, just like the refiners that foolishly decided that oil sands quality was the thing of the future. And then shale oil, mostly composed of gasoline and diesel cuts, took its expected place. This potentially leaves expensive conversion capacity sitting idle because tight oil is the growing supply and it needs no conversion.

 

 

[Ward Smith + 6,615]

@William Edwards, I'm not trying to pick a fight, are you? There's another element to the equation, often overlooked in the chemical engineering game. What are the costs of the inputs? Refiners can make the very conscious decision to purchase lower cost, lower grade crudes, and over time they'll more than recover their capital expenses versus the competition who opted for the easy route, saved on CapEx but takes it in the shorts on OpEx. I'll even go out on a limb and say refiners buying WCS at a 50% (effective) discount to WTI quality crudes are doing very well indeed, and the recovery of sulfur and vanadium are icing on their cakes. As you well know, all crudes sell up (or usually down) compared to the benchmarks. Like grocery stores, refining is a low margin high turnover business. Any incremental improvement in margin has a big multiplier effect on annualized return. 

[William Edwards + 708]

41 minutes ago, Ward Smith said:

@William Edwards, I'm not trying to pick a fight, are you? There's another element to the equation, often overlooked in the chemical engineering game. What are the costs of the inputs? Refiners can make the very conscious decision to purchase lower cost, lower grade crudes, and over time they'll more than recover their capital expenses versus the competition who opted for the easy route, saved on CapEx but takes it in the shorts on OpEx. I'll even go out on a limb and say refiners buying WCS at a 50% (effective) discount to WTI quality crudes are doing very well indeed, and the recovery of sulfur and vanadium are icing on their cakes. As you well know, all crudes sell up (or usually down) compared to the benchmarks. Like grocery stores, refining is a low margin high turnover business. Any incremental improvement in margin has a big multiplier effect on annualized return. 

No, Ward. No offense intended. It was just that you appeared to assume that we readers understood almost nothing about refining and economics. That is true for some, but not for others. I made a poor attempt to try to broaden your own perspective, but obviously failed. My bad! Your statements are correct, just limited in scope and perspective. But that is fine. Thanks for your participation.

[Ward Smith + 6,615]

3 hours ago, William Edwards said:

No, Ward. No offense intended. It was just that you appeared to assume that we readers understood almost nothing about refining and economics. That is true for some, but not for others. I made a poor attempt to try to broaden your own perspective, but obviously failed. <b>My bad! Your statements are correct, just limited in scope and perspective. </b>But that is fine. Thanks for your participation.

Still sounds like you're trying to pick a fight, or maybe you're just adept at left handed compliments? I'm not as ignorant as you might believe about this space but I'm not going to use this mobile device to go all word salad like Jan does. While I admit, most of my patents are upstream oriented, I have some downstream patents pending. There is a ton of room for improvement everywhere I look in the oil arena, and little to no meaningful innovation. We're not interested in licensing to oil companies, that's a dead end road. We've been signing farm in deals instead and utilize our tech to make more money than they were, on their own properties. We got backed into downstream as a consequence of that, because we're not fans of friction. I'm not interested in explaining it further to you. 

[William Edwards + 708]

1 hour ago, Ward Smith said:

Still sounds like you're trying to pick a fight, or maybe you're just adept at left handed compliments? I'm not as ignorant as you might believe about this space but I'm not going to use this mobile device to go all word salad like Jan does. While I admit, most of my patents are upstream oriented, I have some downstream patents pending. There is a ton of room for improvement everywhere I look in the oil arena, and little to no meaningful innovation. We're not interested in licensing to oil companies, that's a dead end road. We've been signing farm in deals instead and utilize our tech to make more money than they were, on their own properties. We got backed into downstream as a consequence of that, because we're not fans of friction. I'm not interested in explaining it further to you. 

I agree. We have said enough.