My goal is to eventually add the larger of the Canadian E&P companies to the coverage list. Most are traded on the Toronto Exchange, and reporting requirements are very different there. But I do plan on posting interesting articles I see like this one on the Canadian oil sands.
The oil sands (aka tar sands), is produced by strip mining or in many newer projects by injecting steam into the ground to heat the oil enough and lower its viscosity, so that it can be pumped out of the ground. The size of recoverable resources is absolutely massive. A major issue has been transporting it to somewhere it can be refined. The oil is processed in an "upgrader" locally before it is mixed with a dilutent such as very light condensate (think pentane, hexane) which then allows the upgraded oil to be liquid enough to pipe down to the US Gulf Coast. In some cases the dilutent originates around the Gulf Coast, and is shipped up to Canada, mixed with the heavy oil, and shipped right back down to the Gulf Coast. The "high complexity" refineries along the Gulf Coast are ideal for handling this heavy oil. In this article they note that the increasing production of light oil from the Duvernay and other tight formations in Canada may provide a lower cost source of dilutent and make the oil sands more economical. The increasing use of crude by rail may also help, since less dilutent is needed compared to pipeline transported crude. The speculation that canadian oil can be re-exported from the Gulf Coast, as is postulated in this article, doesn't seem particularly likely to me, unless there is something I am missing. The US has the most complex refineries in the world, ideal for handling heavy oil. Now we are producing a huge and increasing quantity of light oil from the Bakken, Eagleford and other tight oil formations, as discussed in this recent EIA article. There is too much light oil and not enough heavy oil in the USA. Why would we re-export all that heavy oil sands-oil?
I think that the surplus of light oil in North America will be solved in one of two ways: Congress ending the export ban of American produced crude, or refiners expanding capacity to handle larger volumes of light crude at existing refineries, then exporting products like diesel and gasoline. Increasing product exports is not well known, but it is now a very well defined trend. Here is a chart showing product exports since 1980. This trend should benefit US refiners, who have already been profiting from the healthy, though shrinking, differential for mid-continent oil like WTI vs. seaborne grades like Brent. Once all the light oil imports have been offset, and we are very near that point now, we may start to see bigger discounts for Gulf Coast light oil (like Louisiana Light Sweet- LLS on bloomberg). When that happens the Gulf Coast refiners may see even bigger margin expansion. It almost makes me want to buy Valero.http://www.rigzone.com/
The oil sands (aka tar sands), is produced by strip mining or in many newer projects by injecting steam into the ground to heat the oil enough and lower its viscosity, so that it can be pumped out of the ground. The size of recoverable resources is absolutely massive. A major issue has been transporting it to somewhere it can be refined. The oil is processed in an "upgrader" locally before it is mixed with a dilutent such as very light condensate (think pentane, hexane) which then allows the upgraded oil to be liquid enough to pipe down to the US Gulf Coast. In some cases the dilutent originates around the Gulf Coast, and is shipped up to Canada, mixed with the heavy oil, and shipped right back down to the Gulf Coast. The "high complexity" refineries along the Gulf Coast are ideal for handling this heavy oil. In this article they note that the increasing production of light oil from the Duvernay and other tight formations in Canada may provide a lower cost source of dilutent and make the oil sands more economical. The increasing use of crude by rail may also help, since less dilutent is needed compared to pipeline transported crude. The speculation that canadian oil can be re-exported from the Gulf Coast, as is postulated in this article, doesn't seem particularly likely to me, unless there is something I am missing. The US has the most complex refineries in the world, ideal for handling heavy oil. Now we are producing a huge and increasing quantity of light oil from the Bakken, Eagleford and other tight oil formations, as discussed in this recent EIA article. There is too much light oil and not enough heavy oil in the USA. Why would we re-export all that heavy oil sands-oil?
I think that the surplus of light oil in North America will be solved in one of two ways: Congress ending the export ban of American produced crude, or refiners expanding capacity to handle larger volumes of light crude at existing refineries, then exporting products like diesel and gasoline. Increasing product exports is not well known, but it is now a very well defined trend. Here is a chart showing product exports since 1980. This trend should benefit US refiners, who have already been profiting from the healthy, though shrinking, differential for mid-continent oil like WTI vs. seaborne grades like Brent. Once all the light oil imports have been offset, and we are very near that point now, we may start to see bigger discounts for Gulf Coast light oil (like Louisiana Light Sweet- LLS on bloomberg). When that happens the Gulf Coast refiners may see even bigger margin expansion. It almost makes me want to buy Valero.http://www.rigzone.com/
No comments:
Post a Comment