When it comes to pipelines, maybe understanding it all is overrated
June 9, 2014
June 9, 2014
I have tried and tried, but I’ve now come to the conclusion that understanding is vastly overrated – or is it?
So, I’m going to give us all a break and not frustrate anyone further by trying to put a dart in the political bull’s eye of hypocrisy with yet another diatribe on the various pipeline proposals currently used as door stops in the offices of politicians and their fawns on both sides of the border.
To heck with politics, environmental concerns, jobs, North American energy independence and security!
Let’s say we teleport the shale and oil sands oil straight to the Gulf of Mexico – home to 40% of the refining capacity of the largest crude oil consumer on the planet.
Not so fast.
Refiners on the Gulf invested billions in the 1990s and early 2000s on Cokers and Hydrotreaters to facilitate the refining of heavy sour crude from Canada, Venezuela and Mexico.
This was in anticipation of a supply infrastructure – especially for oil sands crude, which was to be in place – but as we all know, to date, it is not. In fact, it’s no place at all. Now, they find themselves in a glut situation with the wrong form of glut – the cheap, very light, and sweet shale oil from North Dakota and Texas.
What about re-tweaking the refineries to take lighter Bakken?
That’s simply not so easy. Light crudes produce more condensates and other light ends up at the top of the column versus the high value gasolines and diesel. Surprisingly, light crudes require more heat so furnace capacity has to be increased adding to costs and bottom line corrosion.
The obvious way to relieve the glut of light oils is to export them to refineries that can handle them; but this is impossible as the U.S. government outlawed exporting domestic crude in 1973.
The only country permitted to receive U.S. crude is Canada on condition that it not re-export it. In April of this year, the Canadian refineries in Quebec and the Maritimes imported 8.1 million barrels of U.S. shale oil crude versus 4.2 million barrels in April, 2013. Almost double the volume.
There is a groundswell of opinion in the U.S. that the export ban be lifted, but there is also resistance from independent refiners because this will increase the cost of domestic crude, which they have to buy on the open market and narrow their profitability.
This is dangerous ground politically for the Obama Administration because gasoline pump prices will increase in the U.S. Mid-west heartland, and it would be viewed as giving away American oil. One positive for President Obama would be if he lifted the export ban; this would maintain and increase crude oil production along with employment in the Oil Patch.
But herein lies the problem – this would mean Obama would have to decide, which, as we have so painfully witnessed time and again, he is at pains to do.
Refiners can see this trait as well and they aren’t waiting.
You can’t export U.S. crude, but you sure can export “petroleum products”, which you would think would be gasolines and distillates such as diesel, heating oil and kerosene.
But are they?
Out of frustration, due to the export ban and the glut of light crudes, full-fledge refineries are being built, but they merely fluff the hydrocarbon pillow to barely produce “petroleum products” that are then exported and re-refined to make the finished on spec products at the host importers’ refineries.
Maybe I’m wrong (I was wrong once but I was mistaken), and I’m willing to try to understand it all because understanding isn’t overrated politicians are.
Roger McKnight is the Chief Petroleum Analyst with En-Pro International Inc.
Roger has over 25 years experience in the oil industry, and has held senior marketing management positions responsible for national and international accounts. He is the originator of the card lock concept of marketing on-road diesel that is now the predominant purchase method of diesel in Canada. Roger's knowledge of the oil industry in North America, and pricing structures has resulted in his expertise being sought as a commentator by local, national, and international media. Roger is a regular guest on radio and television programs, and he is quoted regularly in newspapers and magazines across Canada. All posts by Roger McKnight