Montreal, for Eastern-Canada, will become an outpost for oil trading just like Calgary or Houston in the U.S.
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.
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*:
*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.
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).
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 !
Minerva cuts new turf, A pioneering aframax fixture from Canada to Europe has raised hopes of a new trade for the tankers. -TradeWinds
About the Brent/Ural market: