An interesting read....
The fatal flaw of Alberta's oil expansion
By
Paul McKay in
Opinion | March 7th 2018
Mine site in Alberta's oilsands. File photo by Andrew S. Wright
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Two weeks ago, the first supertanker capable of holding two million barrels of oil departed for the first time from America’s newly upgraded—and only—terminal able to dock and load crude-carrying behemoths of this size. Bound for China, the inaugural run signals a major shift in global oil shipping patterns, economics, and the highly competitive oil refinery business.
It is no accident that the Louisiana Offshore Oil Port (LOOP), terminal was built deep in the Mississippi Delta. To the south, a 29-kilometre pipeline stretches across the shallow Gulf of Mexico coastal shelf, to a point deep enough to allow Very Large Crude Carriers (VLCCs) to unload or load their vast tonnages of oil. Just north of Port Fourchon, an underground complex of salt caverns and surface tanks stores both oil imports headed for U.S. refineries, and fast-increasing volumes of oil bound for export.
The LOOP terminal is a speculator’s venture on steroids. Built with private capital, it is North America’s first oil port dedicated to the planet’s largest crude tankers, handling bi-directional oil flows. It’s designed to thrive on fierce global fights over not just oil supply and demand, but the multi-billion dollar bets corporate oil traders and hedge funds place, hoping to buy low and sell high—now, or two or five years from now.
Any VLCC from any country can now unload or load at LOOP. They can bring oil from the Persian Gulf, Nigeria, Russia, or Brazil. They can carry it—two million barrels at a time—to China, India, Indonesia, or Europe, at a shipping price lower than smaller tankers. And because the LOOP bi-directional pipeline can pump oil at a mind-bending 100,000 barrels per hour, supertankers can arrive with one load for refining and take off with another, by barely dropping anchor.
That will likely prove fatal to Alberta’s plans to expand unrefined bitumen exports either by the proposed Trans Mountain pipeline to the British Columbia coast, or the proposed Keystone XL pipeline because:
• Potential foreign refiners and customers will demand that future oil price, quality, shipping costs, and delivery speeds match those that LOOP can offer.
• For marine safety reasons, the maximum oil tanker cargo allowed through B.C.’s Burrard Inlet is an Aframax class ship at 80 per cent capacity carrying 550,000 barrels, only about one-quarter the load of a VLCC. That means a refiner in Asia would need to book and pay for four tankers to ship the same amount as from the LOOP terminal, then wait longer for the full order to arrive.
• The diluted bitumen Alberta wants to export has chemical and combustion properties that make it
far inferior to the higher-quality oil LOOP has access to from U.S. formations in the Dakotas and Texas, or OPEC countries, or North Sea producers. Tar sands/oil sands bitumen can be upgraded and refined, but that adds significant costs and requires dedicated facilities.
• The terminus of the Keystone XL will be refineries on the Texas Gulf Coast near Houston which are
not connected to the LOOP. Even if future Alberta bitumen were to be refined there, it would take three fully-loaded Aframax tankers leaving Texas for ship-to-ship transfers to each VLCC.
These important changes in tanker and terminal technology and scale are no secret in the oil industry outside Canada. Nor is the dirty chemical composition of tar sands/oil sands bitumen. Nor is the cutthroat competition among global oil producers, refiners, shippers, and speculators, in which nickels per barrel of oil delivered are fought over fiercely.
In fact, the bad news for Alberta’s oilpatch has been building for a decade. That’s when shipbuilders in South Korea, China and Japan began constructing what has become a global fleet of about 750 VLCCs (with 50 more ordered for 2018), and the scrapping of Aframax class tankers began accelerating. This in turn drove down the benchmark price for ocean oil shipping, triggered the LOOP terminal upgrade, effectively consigned oil terminals like those in Burnaby, B.C. to minor league status, and left oil deposits far from deep port tidewater at a significant cost disadvantage.
When the undeniably dirty content of Alberta’s bitumen deposits is added into these negative cost equations, global oil players know when to cut and run. Compared to conventional heavy crude, bitumen contains 102 times more copper, 21 times more vanadium, 11 times more sulphur, 11 times more nickel, six times more nitrogen, and five times more lead, according to the U.S. Geological Survey. It also has a much lower ratio of hydrogen to carbon, which degrades combustion efficiency.
This helps explain why, in the recent past, oil giants such as
Exxon-Mobil,
Conoco-Phillips,
Royal Dutch Shell, Total S.A., and Norwegian oil company
Statoil have abandoned gargantuan bitumen deposits in western Canada and/or taken billion-dollar write-downs, to the howls of shareholders.
For environmentalists and climate scientists, the chemical composition of Alberta bitumen is cause for deep worry about toxic air emissions, potential spills into waterways and aquifers, and further destabilizing the Earth’s precarious climate. Together with First Nations, they have vowed to fight long and hard for ecological reasons.
But for potential foreign purchasers of that oil, the key question is how much extra it will cost to extract the dirty chemical compounds in Alberta bitumen so that the quality is on par with export oil being produced at high-grade, low-cost shale formations like the Bakken, Permian, and Eagle Ford in the United States.
No refiners will pay the same price to process sweet light crude and bitumen because they have to make costly capital outlays to configure their refineries to extract higher sulphur and heavy metals like copper and lead, make up the hydrogen deficit of bitumen, then dispose of the mountains of chemical crud left over. So refiners—anywhere on the planet—will charge Alberta producers more to process each barrel of bitumen.
These facts are readily evident to those at the back end of the global oil supply chain. Alberta’s huge oilsands deposits cost too much to dig up, refine, and ship. They are in the wrong place, far from tidewater. And they rank among the dirtiest to refine into gasoline, aviation fuel, or home heating oil.
These are the reasons—hiding in plain sight—why Western Canada bitumen fetches the infamous “discount” price per barrel compared to oil supplies shipped from Texas and the North Sea. The LOOP terminal for VLCCs will magnify that spread, and no mythical Asian refiner, trader, or nation is likely to purchase for long a dirtier product that costs more and arrives on slower, smaller boats.
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Such details are apparently irrelevant to Alberta Premier Rachel Notley and her federal oilsands ally, Prime Minister Justin Trudeau. Instead, they seem to be choreographing a long con political gambit premised on blithe assurances that the optimal way to cut Alberta carbon emissions is to increase oilsands output by 40 per cent in the next 12 years.
You read that right. The oft-repeated “hard cap” the premier and prime minister publicly promote is a con. Alberta’s official energy plan is to increase oilsands emissions from 70 to 100 megatonnes per year by 2030.
