- Summary: Shipping Tar-Sands from Alberta to the pacific coast is believed to be the fastest and cheapest route to the world-market but the reality is maybe different for Canadian Heavy Sour*.
- Where is the refining demand for Heavy Sour ?
Padd III (USGC) Beaumont/Port Arthur refining country –home to four large refineries ExxonMobil, Valero Shell/Saudi Aramco with the emphasis placed on Keystone XL and pipe reversals.
To a lesser extent in Eastern Canada: (Suncor, Valero and Irving Oil refineries) with the construction of
.PADD V: Puget Sounds’ and some Californian refineries.
Asia’s newest refineries,
Indian refiners (Essar and Reliance) are also potential targets for Canadian Tar Sands.
High Nelson Complexity Index ratios are concentrated in North America. According to Oil & Gas Journal, 44% of Catalytic Cracking and 38% of Catalytic Reforming units world capacity is located in North-America.
How do you extract value in Canadian Heavy Sour Oil ? For refiners or traders: Location, H/L spread and Condensates/Heavy spreads come in play. What is the Western Canadian-Select ? The WCS is a Typically a blend of bitumen 11 A.P.I 5.5% Sulfur and Condensate 65 A.P.I 0.1% Sulfur giving a 20.5 A.P.I 3.5% sulfur, TAN KOH 0.93/g. Asian refining complex has typically a configuration for light-paraffinic crudes.
- Heavy Sour/aromatic is typically not blended with light-paraffinic crude to avoid asphalthene precipitation.
- Asphaltenes have the potential to cause downstream disruptions, such as adhering to hot surfaces in refineries.
- Heavies’ high metal content can cause catalytic units poisoning.
- Since there are incompatibilities between the high-asphaltene crudes and the high-paraffinic crudes, Aromatics/heavy crudes are often separated from light-paraffinic crudes to avoid asphaltene precipitation.
- Costs associated with the asphaltene deposition, catalytic poisoning during refining operations is in the order of billions of dollars a year. For this reason, the prevention or minimization of precipitation of asphaltenes is an important goal for many downstream oil companies .
These technicalities will make Asians very picky when receiving heavy crudes, high sulphur from Canadian producers.
Transportation of WCS by pipeline or rail require diluent to cope with WCS low API gravity. For instance, railcars are topped with a diluent products (higher API) to facilitate the transportation of the WCS.
Refiners have an undeniable preference for crudes will lesser amounts of diluent.
During the winter months diluent can be high as 33%. The higher diluent volume, the higher will be the WCS relative discount to crudes with lower levels of diluent.
Option West Coast
Endbridge’s Northern Light could still supply 2 highly complex refinery in the West-Coast. However as John Kingston emphasized:
One thing to remember is that oil from the oil sands carries a very heavy Carbon Intensity rating under the LCFS Low Carbon Fuel Standard. California refineries choosing to use it are going to need to ensure that they either buy credits to offset such a high CI, or they are going to need to blend in more low-carbon inputs, like a low CI-rated crude or sugar-based ethanol. This would make California a less-than-optimal market for oil sands-based crudes. -John Kingston, Platts director of news
Some of Asia’s newest refineries and JVs operated by Chevron, Shell, ExxonMobil, SK, JX Nippon Oil & Energy can already process complex crudes.
Asian refiners are a less likely destination for Canadian Heavy Sour, as most of their refineries are geared toward light and waxy crudes.
You may ask why Asians Energy Companies are pouring money into the Tar-Sands ? I will leave this as an open question but it’s factual to say that: -there are plenty of crude in Alberta for the next hundred years, reserves which can be capitalized on a B/S while most other countries offer PSAs [production sharing agreements] which have a different accounting treatment.
Geologists say that pumping heavy oil is basically like pumping a thick Nesquik Nestle milkshake whereas pumping light oil is like pumping Pepsi… Sipping heavy oil requires more time/energy than sipping light oil but heavy oil have a very flat depletion curve. Because or their very flat depletion curve, CFs from Heavy Oil reservoir ≤ CFs from conventional reservoir in the early years of production and ≥ in the long-term (assuming constant prices).
“China and Asia in total are expected to add slightly more than 3-million b/d of refining capacity between now and 2016, according to OPEC.” I asked Platts, the Price Reporting Agency who regularly engages with market participants in Asia about what will be the % of this new refining capacity geared towards heavy sour ?
-Most of the 3-million b/d new refining capacity coming online in Asia (mostly China) are complex refineries with coking capacity, which means they can refine crudes with specific gravity as low as 15 degrees API (very heavy sour crudes) Almost 90% of all new refining capacity coming online in Asia would be able to handle Canadian and Arabian heavy sour crudes. -Esa Ramasamy [thanks for the answer].
Quite astonishing % isn’t ? Now, let’s see what will be the deviation between realized and expected new refining capacity.
From now and 2016, the myth of lucrative asian markets might finally become true ! Transportation, blending, refining and marketing of Heavy Oil from tar-sands have their own complications but this supply might be seen as the baseload of the oil market for the future.
© 2014 –The Trade, Shipping and Finance Wizard
*Syncrude or Dilbit can be economically classified as heavy oil since they command a quality discount and share many characteristics including, High total acid number, high sulfur content and low gravity.
Canadian Heavy Oil is also in a special category of opportunity /challenging crudes.
In general, what makes challenging crudes problematic are: Inherent contaminants, Oil field additives, Blending practices, Equipment limitations, high levels of water, salt, metals, solids, asphaltene incompatibility, high pour point (low flammability) or high conductivity.
These grades present processing challenges and impact multiple units in the refinery. The result is that they often command a discounted price due to these processing issues
CRUDE OIL EMULSIONS – COMPOSITION STABILITY AND CHARACTERIZATION, Prof Manar El-Sayed Abdel-Raouf, InTech