Canada could beat Russia in its own backyard, a Synthetic Ural “made in Canada” for Europe

Montreal, for Eastern-Canada, will become an outpost for oil trading just like Calgary or Houston in the U.S.

ship minerva

The imposing Minerva Gloria. Source: Tradewinds

With Enbridge, Rail and Trans-Canada = you create new volume which is great for traders.

The St-Lawrence River will become a little Mississippi and terminals will build-up.

Also the big picture is that WCS exports offer an opportunity to create a Synthetic Ural Crude that will be used to compete the Kremlin and Russian oil companies in their own backyard: Europe.

The market will ” put a sanction” on Ural pricing.

With the introduction of competition from Alberta streams, the odds are that Russian blends will have to be discounted further in Europe.

This week, WCS was originated by traders at Hardisty, Alberta at near $US 70/bbl.  The cost of “railling” the crude to Montreal is fetching $US 12.

Traders can deliver the WCS cargo to a refinery such Gdańsk, Poland at just $US 85/bbl while Urals is currently priced at near 2$ below the Dated Brent, or over $US 96/bbl.

So yes, it is indeed very big.

The cargo from Montreal has a reported buyer in Italy; Italian refiner Saras S.p.A. (Saras Raffinerie Sarde SpA) in Sardinia controlled by the Morrati family.

saras energy

Sardegna

According to Paolo Scafetta, Energy and Refining Senior Consultant at ICIS in Italy, Sarroch refinery owned by “Saras Raffineria Sarde” has a Nelson complexity of 8 (quite complex compared to peers in Europe) and the following specs:

Crude distillation: 355,000 barrel per day (mbd)
Vaccum: 131 mbd
Reforming CC: 33 mbd
FCC: 101 mbd
Hydrocracking mild: 114 mbd
Visbreaking: 45 mbd
Alkylation: 9 mbd
+ several hydrodesulfurization units

Scafetta, who is an expert in LP (Linear Programming), told me that he would have to run a complex linear program to know the exact optimal WCS blend that Canadian producers like Suncor could market in Europe.

He gave me this hint: Sulfur (S) blends linearly by weight whilst API doesn’t blend linearly.

I said hint because Saras, (I think) in this case will use the WCS for power generation during this Winter. 

Saras has 575 MW of installed power, they feed their Combined Cycle power plant with heavy residues from their refinery.

They will achieve this by two operations:

  • Processing the WCS through the desulfurization unit to drop the S level and comply with regulations.
  • Blending the WCS linearly with a sweet crude oil grade ( a type of petroleum with very low sulphur).

Saras group meets more than 30% of the energy needs of the Sardinia.

You can calculate specific gravity (SG) that blends linearly by volume and then use the following formula*:

2 API gravity

*This formula should not be unknown to you if you trade oil !

Other important properties that necessary to consider are viscosity (a measure of pumpability of fluid), RVP, Pour Point, and so on because, as you know, each refinery is designed to handle a suitable range of crude oil with limited flexibility of properties.

The blending of different crude oils affects the properties above.

Scafetta who is based out of Milan, also added that it’s important to know also product distribution in terms of volume percentage (gasoline, gas oil, and so on) of the current crude oil versus substitute feedstocks.

Therefore to replace one crude by the Canadian WCS, one needs to run a LP model to find the blended crude properties and optimum blending ratio.

Linear Optimization in Commodity Trading:

A Synthetic Ural made in Canada ! considering only S and API.

The Italian refinery run a light grade of Urals – around 32-33 API – 1.35% S.

You’d like to create a blend of Albertan WCS with a light-sweet North-Sea or African Crude to replicate the Ural diet of a European refiner with an aggressive price mark-up to enter the market.

Suncor hold a 29.9% interest in the Buzzard field, in the North Sea.

Crude Assays

Crude oil assays

Optimized for API and S, the blend that we are looking is 73/27 Forties/WCS.

The result is an API very closed to the Russian Ural (34.8) and witha  similar sulphur content (1.35 %S).

Linear optimization in commodity trading

Currently with WCS exports originated from Montreal, Suncor and traders can deliver this Synthetic Ural “made in Canada” right at the door of the European refiners and for cheaper than what Russians are pricing.

Navigating the commodities markets with Freight and Spreads

More on Montreal, the new oil exports hub:

You will continue hear about what Suncor does in the market prints !

Suncor Looks East to Find Buyers for Western Canada Crude, Bloomberg 

Or Noir à Vendre, Pétroliers : le trafic des navires de brut pourrait doubler sur le Saint-Laurent Radio-Canada

One more time: Canadian Western Select crude oil headed Montreal to the US Gulf – Platts

Minerva cuts new turfA pioneering aframax fixture from Canada to Europe has raised hopes of a new trade for the tankers. -TradeWinds

About the Brent/Ural market:

Futures, forwards, physicals and shipping in the Brent market. The Contango explained

Aframax Markets:

Pacific Basin and WC Energy and Trade Flows

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4 thoughts on “Canada could beat Russia in its own backyard, a Synthetic Ural “made in Canada” for Europe

  1. The Petroleum industry has always been expert at optimizing its operation from the well head to the gas pump.
    In order to maximize the earnings from its integrated business a lot of energy is deployed to move the crude molecules through the critical path from the crude reservoir to the gas tank.

    It implies crude selection which by definition has inherent characteristics that allows it to be refined in a particular refinery. Refiners have to carefully balance their crude slate in order that each molecule coming out of the crackers is optimum in cost.

    Hence depending on their cracking tower technology and configuration some refiners will prefer this crude or that crude. This is what the Italians are seeing: a crude that can run optimum in their refinery. Once that technical definition is met, the other aspect is the landed cost of the crude, which by definition is well head price plus transportation to the refiner.

    That transportation is possibly: road, rail, sea or pipeline. Obviously each mode of transport offers its inherent risks and benefits and carries a cost to bear for it.

    The industry will carefully balance these variables and chose how to move those molecules at the lowest cost possible with the lowest affordable risk. The pipelines by far offer the most secure and lowest cost possible option for their continuous flow, followed by tankers for the larger capacity and then by rail.

    Of importance to note the risks associated with each follows that sequence too with pipeline being the safest to rail being the most unsafe. One has to note also that following the incidents such as the EXXON VALDEZ, the whole industry has taken big steps to reduce the risks associated with moving crude in tankers. Such things as double hull, separated compartments etc. are now the norm and make product movement in tanker a lot safer than 30 years ago or 60 years ago when many tankers brought crudes to the Montreal refineries from oversea.

    The development of a safe, high volume crude movement activity on the St Lawrence should be welcome news to all of Eastern Canada and in particular Québec where it will bring significant economic benefits: creating jobs, tax income, and income for the individuals and where they live.

    This is a high quality operation that follows the highest security standards controlled by the tightest Quality Controls to manage all the processes involved.

    Sleep sound and thank God something like that happens right now when the Québec economy needs a revival.

    Roger Bertrand, P. Eng.
    rogerbertrandsavoie@hotmail.com

    Like

  2. As already reported in my previous comment, the Nelson Complexity Index for Sarroch’s refinery is 8 in line with the current level of European refinery complexity.
    The Sarlux IGCC (integrated gasification combined cycle) plant close to Saras’ refinery gasifies heavy oil to produce electricity linked to the Sardinian power grid. Sarlux could buy WCS as feedstock for its gasification process (Texaco technology) taking an advantage from cheaper cost of oil.

    Paolo Scafetta, Chem. Engineer, ICIS consultant
    paolo.scafetta@icis.com
    http://www.linkedin.com/pub/paolo-scafetta/25/426/100

    Like

  3. As already reported in my previous comment, the Nelson Complexity Index for Sarroch’s refinery is 8 in line with the average current level of European refinery complexity.

    The Sarlux IGCC (integrated gasification combined cycle) plant, located close to Saras’ refinery, gasifies heavy oil coming from the refinery to produce electricity. Sarlux takes vacuum residue as feedstock for its gasification process (Texaco technology).

    Sara’s choice to buy WCS, possibly in replacing some amount of Middle Eastern crude oil, could reflect economic reasons. It is also clear that Canadian oil does not alter significantly the crude slate of refinery.

    Paolo Scafetta, Chemical Enginner, ICIS consultant

    Like

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