Refining the process: Canada’s oil and the risk-averse nature of the oil industry

November 10, 2011

This post was last updated in 2012. The newer version, from February 2015 is under construction here.

By November 2014, according to FT Alphaville’s Izabella Kaminska, formerly a producer at CNBC, a natural gas reporter at Platts and an associate editor of BP’s internal magazine, the unanticipated over-production of ultra-sweet, light crude oil in the United States has resulted in market oversupply at a time when refineries had invested “huge sums of money”to develop highly complex refineries with coker units capable of processing cheap inferior crudes just as efficiently as light sweet grades (Kaminska 2014).”

Ongoing controversies surrounding the construction of inter-provincial and international pipelines to transport bitumen from the oil sands have raised questions about the reasons Canada does not develop an even more integrated value-added oil industry. By 2013 with profits soaring, there was a pulling back of taxation easing and a decrease in enthusiasm for what many perceive as subsidies for the oil industry. In the report entitled “Public Services for Ontarians: a Path to Sustainability and Excellence” by the Commission on the Reform of Ontario’s Public Services, committee chair, economist Don Drummond, lamented the lack of federal support for Ontario’s green energy initiatives, while the oil and gas sectors received $1.4 billion in annual subsidies. However, there is at the same time, an aggressive push towards relaxing environmental concerns to allow for expansion of the already impressive network of pipelines to expand markets for bitumen with a focus on Asia.

Hearings of the Northern Gateway Project Joint Review Panel Hearings, examining “the environmental viability of the proposed $6-billion twin pipeline project” were besieged by protesters who claimed the review was as undemocratic and alienating as observers watch the proceedings on screen in “dark and dreary rooms” separated from presenters in an effort to maintain order and respect. While the thousands of interveners protesting are successful in capturing media attention, there is a sense that pipeline expansion is inevitable as the oil industry and federal and Alberta governments align in their focus on increasing bitumen production and access to markets (west, east, south and even north). In 2012, faced with a boom in North American oil production, a shale and oil sands revolution and lack of pipeline capacity the very low price of WCS at $57 US a barrel suffered a 36% differential against WTI. With current North American crude oil markets, Mark Corey argued that once crude reaches tidewater, this waterborne crude will have higher value than landlocked crude. Getting tidewater access pricing point depends on increased pipeline access.

John Carruthers, President, Enbridge Northern Gateway Pipelines and Enbridge’s panel of well known energy economists including Calgarian Bob Mansell and Muse Consultants were cross-examined by Alberta Federation of Labour president Gil McGowan. McGowan argued that there would be increased job loss if 585,000 barrels of bitumen a day were exported to China rather than upgraded and refined in Canada. Mansell argued Alberta does not have strong, major consumer markets for refined products and there is therefore no market incentive for large-scale refining. The NDP leader is promoting pipelines to eastern Canadian refineries. A report Muse Consulting claims that as crude prices rise Canadian crude producers revenue increases but so does the cost of feedstock to Canadian refiners using western crude wherever they might be reducing the benefit of Canadian crude to Canadian refineries by about 25 per cent. (Pratt, Sheila. 2012-09-05. “Enbridge pipeline hearing focuses on economic benefits.” Edmonton Journal.)

At the February, 2012 parliamentary session on “Current and Future State of Oil and Gas Pipelines and Refining Capacity in Canada” Michael Ervin of Kent Group argues against the expansion of oil refineries claiming there is a trend towards decreasing the use of gasoline in North America, the US has made massive cuts in refineries, the BRIC countries will continue to building massive oil refineries and Albertan/Canadian refineries will be unable to compete at a global level.

“I sometimes hear speculation that the building of more Canadian refineries would lower the price of wholesale and retail fuels for Canadian consumers. It is important to understand, however, that Canadian refineries are really just part of a North American capacity pool, and lower wholesale prices in Canada brought about by more capacity would quickly attract U.S. wholesale buyers, thus negating any hopes of sustained lower prices in Canada (Ervin 2012-02).”

“According to Michael Ervin, while the Keystone XL and Northern Gateway proposals are important to ensure continued growth in Canada’s upstream industry, particularly the oil sands, they would reduce the competitiveness of Canadian refineries that currently process crude oil from Western Canada.63 Furthermore, Joseph Gargiso, Administrative Vice-President of Communications at the Energy and Paperworkers Union of Canada, told the Committee (with reference to estimates by economist Michael McCracken) that “for every 400,000 barrels of raw bitumen exported out of the country for upgrading and refining, 18,000 [well-paid] jobs in Canada will be lost […],” not including jobs related to downstream activities, such as manufacturing.64″

Standing Senate Committee on Energy, the Environment and Natural Resources tabled their report entitled “Now or Never” in which they recommended shipping crude oil from the west to the east of Canada:

<blockquote> “The committee also looks favourably upon the prospect of shipping western Canadian crude to the East for refining and marketing in Ontario,
Quebec, Atlantic Canada and international markets. This idea has long been touted as an obvious way to boost Eastern Canadian energy security and advance nation-building, but it has repeatedly been delayed because of inadequate market conditions. However, the economics for piping oil to the East have improved considerably, particularly because higher prices can be achieved for oil in Eastern Canada than in the American Midwest.” (Standing Senate Committee on Energy, the Environment and Natural Resources. July 2012. Now or Never: Canada Must Act Urgently to Seize its Place in the New Energy World Order. </blockquote>

For most of us it is confusing to attempt to follow the flow of crude oil through complicated networks of pipelines from north to south (or west to east) then back again as much more expensive, products refined in the United States? Or will be purchasing refined products from the eastern United States from refineries that process crude oil imported from Saudi Arabia, Africa and Venezuela? As China buys more of the oil sands and China and India complete their super refineries, will the gasoline in Canadian pumps will be coming from there, an even cheaper source than the United States? Does that mean bitumen from northern Alberta will traverse British Columbia/Alberta borders, then cross the ocean twice to return to us as refined products that cost less to the Canadian consumer and the environment? What are the guarantees that we will have access to oil and its byproducts in future markets when 40% of the oil sands industry is already foreign-owned and managed?

“According to the Canadian Energy Research Institute, as oil sands production grows, employment in Canada as a result of new oil sands investments in production and processing is expected to grow from 75,000 jobs in 2010 to 905,000 jobs in 2035, with 126,000 jobs being sourced in provinces other than Alberta. New oil sands development is expected to contribute more than $2.1 trillion (2010 dollars) to the Canadian economy over the next 25 years – about $84 billion per year. The oil sands industry will pay an estimated $766 billion in provincial and federal taxes and royalties in the same period, which contributes to quality of life and services across Canada (CAPP. 2011-09-22. “Oil sands a Canadian job creator; domestic and U.S. processing needed.” )”

CAPP

Oil sands a Canadian job creator; domestic and U.S. processing needed

Integrated firms, such as Calgary-based Husky (controlled by Hong Kong billionaire Li Ka-shing) with its crude storage system in Hardisty, pipelines, upgrader and refineries, use the cheaper oil sands crude oil as refinery and upgrader feedstock. The mitigation potential of integrated firms is substantial. Husky’s net earnings increased by 22% since April 2011 in spite of the volatility of price of crude. The Calgary-based American integrated company, Imperial Oil, with its refineries posted a 30% increase in earnings in the first quarter of 2012 (Calgary Herald 2012-04).

In North America, the benchmark crude oil price is West Texas Intermediate (“WTI”), a high-quality, light-weight, low-sulphur, sweet crude; WTI is the underlying commodity of the (NYME) New York Mercantile Exchange’s oil futures contracts. These properties make it excellent for making gasoline, which is why it is the major benchmark of crude oil in the Americas. WTI is generally priced at about a $5-6 per barrel premium to the OPEC Basket Price and about $1-2 per-barrel premium to Brent (Amadeo February 13, 2012).” Western Canadian Select (WCS) are priced/discounted against the the price of West Texas Intermediate (WTI) crude oil (http://www.baytex.ab.ca/operations/marketing/benchmark-heavy-oil-prices.cfm). According to reuters, in February 2013 WTI was at $93; WCS at $57 (a 36% discount) and Brent was $111 per barrel. In October 2012 WTI was at US$96.21 a barrel and WCS was at US$74.21 a $22.00 discount or differential which is 22.8%. (http://www.baytex.ab.ca/files/pdf/Operations/Historical%20WCS%20Pricing_October%202012.pdf) In December 18, 2012 WCS was $55 US per barrel with $33 US discount relative to WTI grade at $88 US. The world price for light sweet Brent Crude was just shy of $109 per barrel. (Kleiss, Karen. 2012-12-19. “Plunging oil price a long-term concern for Alberta.” Edmonton Journal). Lower prices, which are also related to seasonal events, are consistently tied to over supply and inadequate transportation infrastructure to suitable refineries.

As one question appears to be answered another is raised as issues concerning the oil industry cannot be disentangled from questions and concerns about complex financial instruments that have changed basic concepts of economics globally. Public policy regarding energy strategies needs to balance concerns about the economy in general, employment, transportation and the environment.

“[T]he government’s focus began to really sharpen in the mid-1990s in the wake of several significant accidents and the industry’s response […] of a broad commitment to risk management. The ebb and flow of legislative and regulatory mandates is directly tied to accidents, with the regulatory tide becoming ever higher when the accidents come in groups, as they did in 1994 and 1995, 2000 and 2001, and most recently, [in 2010].” Tenley, George. 2011-04-04/07. Opening Address. Managing Pipeline Integrity. 11th Workshop. Banff, AB.

How long will it take for greener energies to be developed gradually replacing our thirst for oil? How green will they really be? How deep are the changes you are willing to make? In the interim, how can we manage risks inherent in the energy industries?

Pipelines and/or refineries? What are the environmental costs for both?
Truck transport versus Pipeline Transport?
From where does Canada import its oil?
Why does Canada not have a cohesive national energy strategy?
Why does Canada not have more oil refineries?
How much does it really cost to build a brand new and economically viable oil refinery?
Supermajors, Concentration, Vertical Relationships, Competition in Retail Gasoline Markets
Where are Canada’s oil refineries?
Who owns Canada’s oil refineries?
Where are Canada’s oil pipelines?
Who owns Canada’s oil pipelines?
What if there is an oil shortage or crisis?
Timeline of Selected Events related to Canada’s oil refineries in process
whoswhoPeople, organizations, institutions, entities related to Canada’s oil refineries (incomplete)
Urls used as resource material for this post
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What if there is an oil shortage or crisis?

“Can Canada replace the oil it imports with resources from its own territory if our suppliers become unreliable, or if an oil crisis becomes a reality? The answer is a resounding NO! Under NAFTA, we must keep sending the same proportion of our oil to the United States no matter what happens on the world stage. Article 605 of NAFTA only allows us to reduce exports to the U.S. if we cut our domestic supplies by the same proportion. Furthermore, we can’t charge the U.S. a higher price than the one
in Canada and we can’t disrupt or restrict the normal channels of supply. What are those normal channels? A huge network of 16,000 km of pipelines sends Canadian oil south, mainly to the American mid-west. At the moment, no pipeline takes Alberta’s oil to eastern Canada (Council of Canadians).”

According to most North American economists and the business community the the responsibility of the CEO’s of incorporated companies such as the oil sands giants, which include super major oil companies (who represent more than 80% of the oil sands production in Canada: BP Canada Energy Company (British multinational oil and gas company headquartered in London, United Kingdom), Canadian Natural Resources Limited, Cenovus Energy Inc., ConocoPhillips Canada Resources Corp. (American multinational energy), Devon Canada Corporation(largest U.S.-based independent natural gas and oil producer), Imperial Oil (controlled by US based ExxonMobil, which owns 69.6% of its stock), Nexen Inc., Shell Canada Energy(Canada-based subsidiary of Royal Dutch Shell, one of the largest multinational oil companies in the world), Statoil Canada Ltd., Suncor Energy Inc.(Canadian), Teck Resources Limited (Canadian), Total E&P Canada Ltd.)(French multinational oil and gas company, one of the six “Supermajor” oil companies in the world), the major players in the oil refining industry (Imperial Oil, Husky (controlled by Hong Kong billionaire Li Ka-shing) Harvest (controlled by state-owned Korea National Oil Corporation (KNOC), Chevron (American multinational energy corporation, one of six super majors), Suncor (Canadian), Shell (Canada-based subsidiary of Royal Dutch Shell, one of the largest multinational oil companies in the world), NOVA Chemicals, Ultramar (Canadian), Irving Oil (private Canadian) and the oil pipeline industry (TransCanada (Canadian), Enbridge (Canadian), Seaway), is to increase the market value of stocks owned by shareholders.

The Canadian Council of Chief Executives (CCCE) an influential public policy advocate association composed of the CEOs of 150 leading Canadian companies, CEOs, who “collectively administer C$4.5 trillion in assets, have annual revenues in excess of C$850 billion, and are responsible for the vast majority of Canada’s exports, investment, research and development, and training.” In 2012 they hosted a series entitled “Canada in the Pacific Century: Ensuring Canada’s Success in a Rebalanced Global Economy.” In the session in Calgary December, 2012 there was much celebratory congratulations on the federal decision to approve $15B Chinese takeover of Nexen. Alberta’s Energy Minister repeats again his call to get bitumen to tidewater or saltwater ports so Alberta can get “world price” instead of suffering increasing price differentials against WTI. Because Alberta is landlocked, not at tidewater, the oil industry loses $15 – $20 billion in revenues annually. He claims the lost oil revenue is reflected in lost provincial royalties although Alberta receives Bitumen Royalty-in-Kind (BRIK) by which the government has the option to take its royalty share either in cash or in kind. “Currently, the government takes its share of conventional crude oil production in kind and collects its royalty share for other resources in cash. The decision to exercise the in-kind option for bitumen was identified in October 2007 as a way for the Crown to use its share of bitumen strategically to supply potential upgraders and refineries in Alberta, and to optimize its royalty share by marketing those volumes (Government of Alberta. Energy. BRIK. FAQ).”.

Pipelines and/or refineries? What are the environmental costs for both?

Corrosion, poor planning and response

“The evolution of safety regulation in North America has moved to a new focus; namely, the total corporate responsibility for every facet of the operation, including the integrity management plan and the actions taken under it. This strong focus on the “management” side of “integrity management” has occurred over a relatively short timeframe, and has been made operational in the wake of serious industry sins of omission at the highest levels of corporate leadership.” Tenley, George. 2011-04-04/07. Opening Address. Managing Pipeline Integrity. 11th Workshop. Banff, AB.

Pipelines are aging. Newer pipelines can have monitoring devices built in but these new smart technologies are difficult to adapt to pipelines built 50 years ago. In its 2010 field surveillance report, the Energy Resources Conservation Board (ERCB), an independent agency of the Government of Alberta, recorded “687 pipeline failures across the province” (ERCB. 2011-11. ST57-2011 “Field Surveillance and Operations Branch Provincial Summary 2010” p. 16 http://www.ercb.ca/docs/products/STs/ST57-2011.pdf).” (626 were leaks/hits, 18 were ruptures, and 43 were hits with no release (ERCB 2010).

There is an intense race to add new lines, reverse flows and repair old pipelines as oil sands’ projects increase production. There are three major pipeline projects proposed in British Columbia: Enbridge’s Northern Gateway Pipeline, the expansion of Kinder Morgan’s Trans Mountain Pipeline, and the Pacific Trails Pipeline by Apache, Encana and EOG Resources. There is currently an over production of light and heavy Canadian crude varieties and a pipeline bottleneck in the American Midwest. Refineries are closed for maintenance or expediency and Canadian crude is steeply discounted against WTI (Calgary Herald 2012-04). There is also a heightened competition between Alberta’s oil sands and North Dakota’s Bakken formation “tight” oil for pipeline priorities. Oil refineries are costly to build and/or refurbish and the market is considered to be “mature.” International agreements appear to limit the ability of nation-states to make logical, reasonable decisions.

“One of the key barriers identified was the risk-averse nature of the [oil] industry. Unless industry is given a compelling reason to do so, such as fiscal or regulatory pressure from the government, companies are unlikely to invest in new refining capacity in the mature North American market. Rather, they will invest capital wherever in the world that returns are highest. According to industry, government will have to play an instrumental role if the vision is to be achieved (Laureshen, Clark and Du Plessis 2005:15).“

Alberta alone has 400,000 km of provincially regulated pipelines. (CBC. 2012-07-20. “Alberta pledges pipeline safety review: 3-pronged review to be carried out by independent party, energy minister says.”) see map image here mapping Alberta’s pipelines. This Financial Post map is interactive.

“In order to transport bitumen to refineries equipped to process it, bitumen must be blended with a diluent, traditionally condensate, to meet pipeline specifications for density and viscosity (NEB).” Dilbit: Growth in non-upgraded bitumen supply will increase the demand for diluent required to facilitate pipeline transportation to market. The Board’s outlook for traditional diluent (i.e., condensate) projects little growth in supply through to 2015, while demand under current operational conditions would be
expected to rise by approximately 50 000 m3 /d (315 mb/d). Additional supply could be made available by directing condensate used for other purposes to diluent usage, but the majority of the gap must be filled through the use of substitutes. Several opportunities exist for substitutes including refinery naphtha and conventional light oil; however, the most suitable solution, due to its availability, is synthetic crude oil (SCO) ( (NEB 2004:12).”

Pipelines: Internal Corrosion

“A chief concern about the transport of Canadian crude through the proposed Keystone XL pipeline is a claim that dilbit poses more release risks than other types of crude. In particular, the committee will examine whether there is evidence that dilbit has corrosive or erosive characteristics that elevate its potential for release from transmission pipelines when compared with other crude oils. Should the committee conclude there is no evidence of an increased potential for release, it will report this finding to the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) by spring 2013 (Institute for Corrosion Ohio University).”

“Pipeline integrity is an increasing challenge to the energy industry as the infrastructure is aging, and new field developments are introduced in both deep and remote areas of the world (source).”

Although the industry claims that diluted bitumen (dilbit) is no more corrosive than conventional crude, older pipelines are at higher risk because water that separates from dilbit tends to collect and start corroding (Linda Daugherty, US Pipeline and Hazardous Materials Safety Administration (PHMSA)’s deputy associate administrator for policy and programs).

“As a starting point, the committee might want to reference similar types of crudes,” suggested Linda Daugherty, US Pipeline and Hazardous Materials Safety Administration (PHMSA)’s deputy associate administrator for policy and programs. “Age also is a definite factor. Many pipelines were installed 40 years ago and have sharp turns where water which has separated from dilbit would tend to collect and start corrosion (Snow, Nick. 2012-07-24. “Diluted bitumen, heavy crudes are similar, NAS panel told.” Oil and Gas Journal. OGJ Washington Editor.).”

“Internal corrosion is a leading cause of pipeline failure — and one of the most difficult to detect.” Monitoring internal corrosion of pipelines is both “challenging and expensive” costing “several billion dollars annually in the U.S. alone.” Internal corrosion of pipelines can occur when moisture mixes with impurities (salts, like chlorine, and sulphur compounds). (source Bill Shaw, engineering professor at the University of Calgary and director of the Pipeline Engineering Centre, which studies corrosion and monitoring).

“Problems mainly arise when water that has not been removed from a crude before it goes into a pipeline begins to separate and collects at points along the bottom of the pipe’s interior, he explained. Dissolved gases—primarily carbon dioxide—and oil extracts such as organic acids also can influence corrosion rates, Moghissi said. Running a pig through the pipeline probably is the most effective corrosion inhibiter, although chemicals also can help, he told the panel.”

Tank Truck transport versus Pipeline Transport?

Canadian Energy Pipeline Association President Brenda Kenny argues that it “would need five and a half million trucks a year to replace the oil pipeline network in Canada (O’Neil, Peter. 2012-08-09. “Beleaguered pipeline industry vows to rally around PR campaign.” Postmedia News).”

“Until the early 1980s, bitumen was trucked to asphalt reﬁners in Alberta and Saskatchewan. Growing volumes through the early 1980s supported the development of pipelines from producing areas to Edmonton, from where the bitumen could access high-conversion reﬁneries and broader asphalt markets. Between 1982 and 1985 Alberta Energy Company (AEC) built a pipeline system designed to move bitumen blend from Cold Lake to Edmonton and to ship diluent to Cold Lake from Edmonton (Walker, Ian C. 1998. “Marketing Challenges for Canadian Bitumen.” Imperial Oil, Calgary, Alberta, Canada).”

Truck transport is more expensive to the oil industry than pipelines. (McKibben,M. J.; Gillies, R. G. 2000. “Predicting pressure gradients in heavy oil—water pipelines.” “Because truck transport is expensive, pipeline transport of heavy crude oil is of interest.”

By 2003 there was concern that the transportation of crude bitumen would face huge obstacles. “Road conditions, weather problems, and fuel prices are some of the other issues that hauling companies have to deal with routinely. Although the preferred mode of transporting crude bitumen is pipelining wherever possible, the Alberta Utilities and Energy Board estimates that unless there is a dramatic technological breakthrough, or a substantial increase in the price of crude bitumen, pipelining of this product will not be technically or economically feasible within the foreseeable future (Laverty, K. 2003-04-07. “Super trucks: Loads grow so fast that the oil industry’s ‘transport architects’ stopped keeping score on size records.” Oilweek Magazine. Vol. 54. No. 14. page(s) 42-46).

Alberta Provincial Highway No. 63 built in 1970 is a 240-kilometre-long, two-lane north–south highway road connecting Fort McMurray and the Oil Sands bitumen mine sites to southern Alberta. According to Syncrude Canada, Highway 63 probably ferries the highest tonnage per mile of any road in Canada and is “inadequate for the traffic that uses it.” Plans are underway (2012) to expand it into a four-lane divided highway to accommodate the heavy traffic of logging trucks, SUVs, semi-trailers, buses and tanker trucks including convoys of extra-wide loads carrying tires, turbines and cokers (source). There are numerous fatal accidents on the highway as tankers and logging trucks slow traffic to a crawl while oil workers race to get in and out of the site. The expansion would cost c. one-billion-dollar and the province is considering using toll booths to place the cost of the oil sands’ driven needs on the shoulders of the users: the oil sands industry. This would increase the cost of trucking oil by tankers and intensify the push for more pipeline capacity.

Among the list of complaints received by the Energy Resources Conservation Board (ERCB) regarding the oil and gas industries, complaints about truck transport are high on the list (Energy Resources Conservation Board (ERCB). 2011-11. ST57-2011 “Field Surveillance and Operations Branch Provincial Summary 2010” p. 16 http://www.ercb.ca/docs/products/STs/ST57-2011.pdf).”

In his paper on bio-oil (not heavy oil) Pootakham claimed there was less of an environmental footprint if pipelines not trucks were used as transportation (Epub. Pootakham T, Kumar A. 2010-01. “A comparison of pipeline versus truck transport of bio-oil.” 101(1):414-21.
Pootakham T, Kumar A. 2009-08-21. “A comparison of pipeline versus truck transport of bio-oil.“).
Epub. Pootakham T, Kumar A. 2010-01. “A comparison of pipeline versus truck transport of bio-oil.” 101(1):414-21.

There has been a call for an oil industry-financed railway from Fort McMurray to Edmonton since at least 2005. Since 2009 Calgary-based Canadian Pacific Railway Ltd. carry North Dakota Bakken to refineries to compensate for pipeline bottlenecks. “With each tank car containing 650 barrels of oil, that’s 126,000 barrels a day — a significant pipeline on rail (Cattaneo, Claudia. 2012-03-02. “As pipelines stall, railways keep oil flowing.” Financial Post).”

In the same Financial Post article (2012-03-02),

“CN, in response to customer demand, is moving crude (i.e., heavy crude, light crude, pure bitumen) from areas in Western Canada to various markets,” it said in an emailed statement. “CN has also been providing truck-to-rail transportation solutions for crude oil, where CN is loading directly from truck to rail.”

Oil industry: not subsidies but federal and provincial incentives

The oil industry has received various forms of federal and provincial incentives in the years prior to the boom. For example, the governments provide funds for research on improved technologies and methodologies for extraction, land recovery, etc. Companies who receive this multi-million dollar funding are not obligated to use the technologies they develop if the profit-margins would be negatively affected by their implementation. How many millions of public funds have been quietly assigned to this research?

From where does Canada import its oil?

“Most Canadians are under the impression that we do not need to worry about our energy security. We see ourselves as a country rich in oil, and we assume that our own resources are available to us for consumption. That assumption is incorrect. Canadians do need to ask where their oil comes from because it doesn’t necessarily come from Canada! Canada imports more than half of the crude oil it needs. We purchase around 55 per cent of our oil from countries such as Algeria, Saudi Arabia and Venezuela. We are also turning increasingly toward new sources including Russian and African producers. Canadians should question whether we can count on those suppliers for a steady supply of oil (Council of Canadians).”

This debate unfolds at a time when Canadians consume about 1.8 million barrels of oil a day according to Peter Boag, president of the Canadian Petroleum Products Institute (Lindell, 2012-01-31). While Boag also claims that Canada’s 19 refineries produce two million barrels of day, and are only operating at 80% capacity, he neglects to mention that many Canadian refineries are older, smaller, inefficient and not designed for bitumen. The product Canadians produce is exported and Canada relies on U. S. refineries to supply gasoline and airline fuel for example. Eastern refineries rely on oil imported from Saudi Arabia, Africa and Venezuela, which are much more volatile than WTI prices for geopolitical reasons. In March 2012 the Brent-WTI differential continued to negatively impact the price of bitumen from the oil sands. Western Canada Select was priced at a $35.50 U. S. discount to West Texas Intermediate (WTI) (37% below the U.S. crude), which itself trades at a substantial discount to the Brent crude oil prices. Brent crude oil prices rose (2012-03-21) to a record high of near $125 per barrel (Hussain, Yadullah. 2012-03-21. “Oil industry may lose $18B a year in crude price discounts: CIBC.” Financial Post).

The market value of Western Canada Select

The inadequacy of the current pipeline national and Canada-U.S. networks also decrease the market value of Western Canada Select. Until TransCanada’s Keystone XL portion is operational, there is a bottle neck which limits the movement of bitumen to U.S. refineries capable of upgrading the heavy oil. Some predict that this pipeline extension will not be in place until late 2013 and until then the Brent-WTI differential will remain.

There is a request under review for a west-east reversal and expansion of the Seaway pipelines which would also positively impact the Alberta’s oil (Hussain, Yadullah. 2012-03-21. “Oil industry may lose $18B a year in crude price discounts: CIBC.” Financial Post.) “Ontario’s oil comes from Western Canada, but it is sent first to the United States to be refined before being delivered to the province.”

“The heightened pressure on lawmakers to get more revenue for Alberta’s bitumen follows recent calls to address a predicted decline in synthetic oil produced in the province, as a percentage of total bitumen output. The Energy Resources Conservation Board predicts 47% of bitumen produced in the province in 2020 will be upgraded to light oil, down from 58% in 2010. In 2008, the province had set a goal of 66%. The regulator’s summer forecast had some eyeing jobs and tax revenue attached to additional upgraders crying out for government actionPenty 2011-11-25.“

Synthetic Crude Oil Production: “In 2010, all crude bitumen produced from mining, as well as a small portion of in situ production (about 11 per cent), was upgraded in Alberta, yielding 46.1 million m3 (290 million barrels) of SCO. About 58 per cent of total crude bitumen produced in Alberta was upgraded in the province in 2010. By 2020, SCO production is forecast to almost double to 81.5 million m3 (513 million barrels). While this is a significant increase compared to 2010, it is expected that only 47 per cent of total crude bitumen produced in Alberta will be upgraded in the province by the end of the forecast period because of an expected narrow price differential of bitumen relative to light crude oil. Over the next 10 years, mined bitumen is projected to continue to be the primary source of the bitumen upgraded to SCO in Alberta. However, it is projected that bitumen from in situ production will be increasingly upgraded to SCO in the province. The portion of in situ production upgraded in the province will increase from 11 per cent in 2010 to 13 per cent by the end of the forecast period.” ERCB. 2011-06. “ST98-2011 Alberta’s Energy Reserves 2010 and Supply/Demand Outlook 2011-2020.” p. 6.

There is a call for keeping more employment in Canada and for expanded use of eastern oil refineries.

“A poll conducted by ThinkHQ Public Affairs showed 81% support in Alberta for the government taking steps to increase the amount of oilsands upgrading and refining done in the province, with the support cutting across partisan lines. The survey showed 73% support for the idea of putting higher royalties on the export of raw bitumen and 56% support for tax incentives for private investment. Support dropped under 50% for a Crown corporation to build and operate upgraders, operating subsidies to private sector upgraders and investing tax dollars to help build private sector projects (Wood 2012-01-26).”

Questions and concerns about the race to sell bitumen using today’s water-hungry and natural-gas hungry technologies, are being raised. There is a call to slow down the process. However, the price of natural gas has fallen dramatically and “natural gas is a key raw material for refineries, which use it predominantly as a source of fuel to operate. Hydraulic fracturing methods have significantly increased the supply of natural gas in the U.S.” “Natural gas is a market that has been turned upside down in the last few years with the development of technology for extracting gas from shale beds with hydraulic fracturing. The new resources made available through fracking have caused the price to drop from $8 for a million BTUs to between $4 and $5 per MBTU. The U.S. has been in the lead when it comes to exploiting shale gas (Kanellos 2011-06-09).

“In Natural Gas, U.S. Will Move From Abundance to Imports.” Canada is the only OECD nation that does not have a national energy plan which complicates the environmental and economic issues related to energy. Ever since Prime Minister Trudeau’s Energy Plan almost divided the country along the east-west axis, no Prime Minister has dared to touch the topic. In the Canadian system, provinces control energy while the federal government controls pipelines. Canadian cannot look to the risk-averse, profit-motivated oil industry to consider long-term resource development, investment of profits towards infrastructure beyond extraction, transportation and minor upgrading. It is only through federal-provincial and in some cases regional pressure that the oil industry could be pressured/encouraged to build oil refineries in Canada to develop an even more integrated oil industry. The federal government needs to take the lead. In March 2012 Alberta Premier Alison Redford began to discuss openly the possibility of a Canadian energy strategy as opposed to a national energy plan. Phase 4 of TransCanada’s Keystone pipeline project met major hurdles at the U. S. federal level in late 2011. Alberta Premier Alison Redford says her government will take a hands-off approach to the increased upgrading of bitumen in the province as Alberta’s oilsands production continues to ramp up (Wood 2012-01-26).”

“With the energy spotlight focused recently on the proposed Keystone XL and Northern Gateway pipelines that would ship raw bitumen to the United States and Pacific Coast, respectively, there have been growing calls for increasing the capacity in Alberta to upgrade and refine oilsands into products like synthetic crude, gasoline and diesel.” “Redford said it is up to the market and energy industry to determine opportunities for more processing (if it makes economic sense) — not the government. “If we have wheat, we’re not going to say to people you can only export bread.” “Redford remains committed to the planned North West upgrader, but there are no other projects in line for provincial involvement.”(Wood 2012-01-26).”

Even though “we would get far more value for our resources if we were to ship refined product,” Canada only refines about 50% of oil and the rest goes to refineries in the United States. Increases in oil refinery facility size and improvements in efficiencies have offset much of the lost physical capacity of the industry.

Concerns about state-capitalism and oil sands takeover by state-owned companies (SOE)

Why does Canada not have a cohesive national energy strategy?

“Without a Canadian Energy Strategy – a strategy that will give Canadians security of their energy supplies, guaranteed access to energy reserves in times of need, and strong policies that protect our environment and focus on fi nding alternative, less harmful energy solutions – our country will continue to be a victim of an energy gold rush. Politicians cannot let corporations and the market set the agenda, focusing on big business needs, and privatizing public services, while ignoring the energy security needs of Canadians (Council of Canadians).”

We need a strong government position yet we do not have a cohesive energy strategy. The oil industry is a risk-averse industry and at this time there is an unwillingness to develop infrastructure beyond extraction and minimal upgrading. In the United States refineries are being closed. The proposed $6 billion Shell refinery was cancelled in 2009 because of “the current project execution environment, market conditions and the current inflationary pressures across the oil and gas industry.” Although greener technologies are being developed, it is estimated that we will continue to be dependent on fossil fuels until c. 2040. Why not stretch out our use of these invaluable resources? There are opportunities for job creation through the development and implementation of innovative marketable technologies that will make the extraction process more efficient, environmentally friendly and financially feasible? Federal funds have supported much research in the field that never sees the light of day because the oil industry, like the ocean liner, can’t adapt quickly to change. Enbridge is in the process of applying to the National Energy Board to reverse the flow in 35-year-old Line 9 Sarnia/Montreal pipeline to the original direction for which it was designed in 1975 to take western Canadian crude to Montreal refineries. “It would give Quebec and Atlantic Canada – which currently get 80 per cent of their crude from Europe, Africa and the Middle East – a reliable source of domestic oil. As Joseph Gargiso of the Communications, Energy and Paperworker’s Union said in support of the line reversal: “A country that is blessed with petroleum resources like Canada should first and foremost assure that the country as a whole has access to a guaranteed supply.” The pipeline reversal would also allow the Alberta oil industry to get a better price for its product (Calgary Herald 2012).”

Where does Canada’s oil come from?

“Canadians need a national energy strategy – one that puts citizens’ interests ahead of multi-billion-dollar oil companies. Right now, our country does not have a national energy strategy that addresses where our energy comes from, where it is going, or the high price of environmental devastation that comes with producing it. For nearly 20 years, Canada has lived with free trade agreements and free-market rules that are used to ensure that our energy resources keep fl owing out of the country with little or no direction from government. As one of the coldest countries on earth, Canada’s energy security is decided by the whims of the United States, the markets and the big oil companies.”

How many jobs do the oil sands provide?

Government of Alberta fact sheet (2011-02) entitled “Economic Activity in Alberta” claimed that, “Almost 139,000 Albertans [were] employed in Alberta’s mining and oil and gas extraction sectors. .. [O]n average over the next 25 years, oil sands are forecast by Canadian Energy Research Institute (CERI) to require more than 450,000 annual work positions across Canada. This totals more than 11.4 million person-years of employment.”
For example Husky has 4,380 permanent employees (Husky Annual Report 2010);

Why does Canada not have more oil refineries?

The Canadian Petroleum Products Institute (CPPI) commissioned The Conference Board of Canada study entitled “Canada’s Refining Sector: An Important Contributor Facing Global Challenges” . Pedro Antunes, (2011-10-31) argued that even if the upstream (oil and gas exploration and production) segment of the industry continues its robust expansion in Canada, “the future economic benefits, job creation, and profits from oil refining and processing are much less assured (Crawford, Todd. 2011-10-31. “Canada’s Refining Sector: An Important Contributor Facing Global Challenges.” The Conference Board of Canada. Commissioned by The Canadian Petroleum Products Institute (CPPI). 52 pages.

Document Highlights: Canada’s refining industry has undergone a massive restructuring over the past 30 years. Since the 1970s, the number of operating refineries has dropped from 40 to just 18 today. While global demand for petroleum products continues to rise and the outlook for Canada’s upstream energy sector is bright, Canadian refiners face a very particular set of challenges, since North American and other OECD markets will likely be characterized by declining demand.

Arguments for building more oil refineries in Canada

Increases in oil refinery facility size and improvements in efficiencies have offset much of the lost physical capacity of the industry.
Recent controversies surrounding the construction of pipelines to transport bitumen from the oil sands has raised questions about the reasons Canada does not develop a more integrated value-added industry. “We would get far more value for our resources if we were to ship refined product.”

Arguments against building more oil refineries in Canada

“In 2009 through 2010, as revenue streams in the oil business dried up and profitability of oil refineries fell due to lower demand for product and high reserves of supply preceding the economic recession, oil companies began to close or sell refineries. Due to EPA regulations, the costs associated with closing a refinery are very high, meaning that many former refineries are re-purposed (Wayman E. Recession’s latest victim: oil refineries. Earth magazine. June 2010. Pgs 10-11).In 2009 Royal Dutch Shell Europe’s largest oil company closed oil refineries in the US and considered selling or closing its 130,000-barrel-per-day refinery in Montreal, which it has operated since 1933.
Shortage of qualified labour
risk-averse industry
oil industry is closing refineries not constructing new ones.
multinational oil companies lack motivation to protect Canadian interests. 16 of the largest 20 global oil companies are state owned, and together control over 80 per cent of oil reserves. Canada had a state-owned oil company Petro Canada but it was acquired by Suncor.
government needs to take leading role in motivating oil industry to build oil refineries in Canada to develop integrated oil industry
high standards for environmental protection would be required in new constructions of oil refineries
International companies like Imperial Oil, Husky look at profits for global company. Integrated firms, such as Calgary-based Husky (controlled by Hong Kong billionaire Li Ka-shing) with its crude storage system in Hardisty, pipelines, upgrader and refineries, use the cheaper oil sands crude oil as refinery and upgrader feedstock. The stocks of these integrated firms are substantially mitigated. Husky’s net earnings increased by 22% since April 2011 in spite of the volatility of price of crude. Light and heavy Canadian crude varieties were steeply discounted against WTI in 2012 on pipeline bottlenecks in the U.S. Midwest, made worse by high production and refinery downtime (Calgary Herald 2012-04). The Calgary-based American integrated company, Imperial Oil, with its refineries posted a 30% increase in earnings in the first quarter of 2012 (Calgary Herald 2012-04).
MIT has argued for a liquid fuel converted from natural gas to replace gasoline. “[T]he chemical conversion of natural gas into some form of liquid fuel may be the best pathway to significant market penetration in the transportation sector (MIT 2011).”
Kearn oil sands project: “The product will be transported to market through a pipeline system. Imperial and ExxonMobil own extensive refinery infrastructure in Canada and the U.S. that could receive bitumen or upgraded feedstock to make a variety of refined products. Production may also be sold to third parties. Any future upgrading capacity to support the Kearl project would be the subject of separate application.”
Multinationals are not concerned about Canadian economy
1990s mergers created companies that have more market power
loss of competition
Athabaskan oil sands are extra heavy and high in sulphur involving most complex and expensive refining processes
green movement has oil sands under microscope
oil refineries are major polluters in themselves
oil industry has market power so control of oil refinery production can affect gasoline prices etc
weak anti-trust laws
poor global economic conditions
Albertan oil industry promises revenue and employment
it is costly to build an economically oil refinery that passes environmental standards
The biggest oil refinery Suncor in Edmonton, Alberta processes 135,000-barrel-per-day and runs entirely on oil sands-based feedstocks and produces a high yield of light oils.” Suncor be the fifth largest oil and gas company in North America with assets of $43 billion. When it acquired PetroCanada it became Canada’s largest upstream producer and second largest refiner of gasoline and oil products.

How much does it really cost to build a brand new and economically viable oil refinery?

The estimated cost of the Wallaceburg, Ontario oil refinery proposed by Shell Canada in 2007 was between $6 billion and $8 billion. The projections were for the employment of 700 people once operational and thousands of jobs during construction. The project was cancelled c. 2009 because of “the current project execution environment, market conditions and the current inflationary pressures across the oil and gas industry.” Is there more of a financial benefit to Canada to see raw bitumen? Cooper, Mark. 2003-10. “Spring Break in the US Oil Industry: Price Spike, Excess Profits and Excuses.”

Supermajor oil companies oil sands’ profits: Oligarchy, concentration, Vertical Relationships, Competition in Retail Gasoline Markets

Among others, Canadian oil sands are being developed by supermajors, the world’s five or six largest publicly-owned oil and gas companies: BP p.l.c., Chevron Corporation, ExxonMobil Corporation, Royal Dutch Shell plc, Total S.A. and ConocoPhillips Company A supermajor is one of the world’s five or six largest publicly-owned oil and gas companies. In an effort to improve economies of scale, hedge against oil price volatility, and reduce large cash reserves through reinvestment, largely in response to the a severe fall in oil prices the major mergers and acquisitions of oil and gas companies took place between 1998 and 2002. (BP’s acquisitions of Amoco in 1998 and of ARCO in 2000; Exxon’s merger with Mobil in 1999, forming ExxonMobil; Total’s merger with Petrofina in 1999 and with Elf Aquitaine in 2000, with the resulting company subsequently renamed Total S.A.; Chevron’s acquisition of Texaco in 2001; and the merger of Conoco Inc. and Phillips Petroleum Company in 2002, forming Conoco Phillips.
This process of consolidation created some of the largest global corporations as defined by the Forbes Global 2000 ranking, and as of 2007 all were within the top 25. Between 2004 and 2007 the profits of the six supermajors totaled US$494.8 billion (wiki)

Reductions in storage capacity and the number of gasoline stations of over ten percent have also taken place in just the past half-decade. These reductions in capacity have been driven in part by a merger wave that has resulted in a significant increase in the concentration of ownership of refinery capacity and gasoline outlets. Four-fifths of regional refinery markets have reached levels of concentration that trigger competitive concerns, even by the standards adopted by the antitrust division of the Reagan administration’s Department of Justice. In these markets, the largest four firms account for at least one-half and as much as three quarters of the refined product output. A similar trend has been in evidence at the level of gasoline stations.

“In 1990, 22 integrated companies covered an average of 28 states. In 1999, 17 companies covered an average of 26 states.” (Gilbert and Hastings, p. 27; see also Hastings, Justine, “Vertical Relationships and Competition in Retail Gasoline Markets: Empirical Evidence from Contract Changes in Southern California,” Competition Policy Center, 2000.) “The rule of thumb reflected in all iterations of the Merger Guidelines is that the more concentrated an industry, the more likely is oligopolistic behavior by that industry…. Still, the inference that higher concentration increases the risks of oligopolistic conduct seems well grounded. As the number of industry participants becomes smaller, the task of coordinating industry behavior becomes easier. For example, a ten-firm industry is more likely to require some sort of coordination to maintain prices at an oligopoly level, whereas the three-firm industry might more easily maintain prices through parallel behavior without express coordination (U.S. Department of Justice and Federal Trade Commission Horizontal Merger Guidelines, 1997, at section 0.1.).”

Where is oil found in Canada?

“Not surprisingly, the biggest Canadian producer is the province of Alberta, which accounts for two-thirds of Canada’s production. Saskatchewan is next at roughly 18 per cent, and Newfoundland produces 13 per cent with its off-shore resources. Manitoba, Ontario, British Columbia and the Northwest Territories round out Canadian output with a combined share representing 2.8 per cent of production (Council of Canadians).”

Where does Canadian crude oil and petroleum products go?

66% of Canada’s oil production goes almost exclusively to the United States in the form of exports (Council of Canadians).

How many oil refineries does Canada have in 2012?

“The refining, distribution and marketing of transportation fuels industry operates through an infrastructure with close to 100,000 employees. The industry’s infrastructure in Canada includes 19 refineries in 8 provinces, a complex network of 21 primary fuel distribution terminals, 50 regional terminals and 12,000 retail service stations ( The Canadian Petroleum Products Institute (CPPI) 2011 ).”

“Canada is home to 18 refineries, 16 of which are operated by Canadian Petroleum Products Institute (CPPI) members and represent the majority of the country’s refining capacity. CPPI claims Canada is a net exporter, mainly to the United States, of refined petroleum products and crude oil.” However, Canada imports most of its refined fuel from the United States. “Eastern Canada relies on imported oil — despite the fact that some provinces are oil producers. There are several offshore drilling operations in Newfoundland and Labrador, but none of the oil is actually used in Canada. The eastern provinces rely on an oil supply that’s imported from Saudi Arabia, Africa and Venezuela (CBC. 2012-01-25.”

Where are the existing oil refineries in Canada?

The following table is from Statistics Canada website. Statistics on Canadian Petroleum products — Refined petroleum products, refinery production by type

Centre for Energy: Canadian Oil Refineries Map

British Columbia

Husky Energy Inc. Prince George Refinery, Prince George BC.”Husky’s U.S. refining operations process a mix of different types of crude oil
from various sources but are primarily light sweet crude oil at the Lima, Ohio Refinery and approximately 50% heavy crude oil
feedstock at the Toledo, Ohio Refinery. The Company’s refined products business in Canada relies primarily on purchased refined
products for resale in the retail distribution network. Refined products are acquired from other Canadian refiners at rack prices or
exchanged with production from the Husky Prince George Refinery (Husky Annual Report 2011).” Husky is controlled by Hong Kong billionaire Li Ka-shing.
Chevron Canada Limited. Burnaby Refinery. Burnaby BC

Alberta

Suncor Energy Products Partnership. Edmonton Refinery. Edmonton AB
Shell Canada Products
- Scotford Refinery Fort Saskatchewan AB
Imperial Oil Limited Strathcona Refinery Edmonton AB

Saskatchewan

Consumers’ Cooperative Refineries Limited Regina SK * Not a CPPI member
Husky Energy Inc. Lloydminster SK* Asphalt plant and CPPI member. Husky is controlled by Hong Kong billionaire Li Ka-shing.

Nova Scotia

Imperial Oil Limited Dartmouth Refinery Dartmouth NS

Newfoundland

North Atlantic Refining Limited Come by Chance Refinery Come by Chance NF. North Atlantic Refining Limited is a downstream subsidiary of Harvest Operations Corporation which is a wholly-owned subsidiary of the Korean state-owned Korea National Oil Corporation (“KNOC”). The Korea National Oil Corporation, whose CEO is a KNOC executive who replaced is a “significant operator in Canada’s energy industry offering stakeholders exposure to an integrated structure with upstream (exploration, development and production of crude oil and natural gas) and downstream (refining and marketing of distillate, gasoline and fuel oil) segments. [] KNOC Upstream oil and gas production is weighted approximately 70% to crude oil and liquids and 30% to natural gas, and is complemented by their long-life refining and marketing business.” The replacement in 2012 of a Canadian CEO by a Korean CEO is considered to be a major paradigm shift in the Asian-Canadian oil investment partnerships.

Ontario

Ontario refineries had a capacity of 74,400 m3/day (468,700 b/d) in 2007. At that time these refineries included:

Imperial Oil – Nanticoke, Ont. 112,100;
Imperial Oil – Sarnia, Ont. 121,600;

Shell Canada Products a European Oil Major Sarnia Manufacturing Centre (Corunna refinery) 75,000 barrels of crude oil daily. Corunna ON Originally built in 1952 by Canadian Oil Companies Limited.
Imperial Oil Limited Sarnia Refinery Sarnia ON
NOVA Chemicals (Canada) Limited Sarnia ON “NOVA Chemicals’ Corunna site The Corunna facility started up in late 1977 and was purchased by NOVA Chemcals in 1988. It was the first fully integrated refinery and petrochemical complex in North America. It is a refinery and petrochemical complex that supplies between 30% and 40% of Canada’s total requirements for primary petrochemicals. The refinery is capable of producing in excess of 3.5 billion pounds (1.6 million tonnes) of basic petrochemicals and 3 billion pounds of refinery and energy products annually. The Corunna site processes crude oil, condensate and natural gas liquids (NGLs) that are delivered to the site by pipeline from western Canada. These products are the feedstocks used to manufacture ethylene, propylene, butadiene, iso-butylene, n-butylene, benzene, toluene and xylene. During petrochemical production, other co-products are also manufactured, including synthetic natural gas, liquefied petroleum gas, gasoline components, diesel fuel, home heating oil and heavy residual fuel oil. ” 500 employees work at the Corunna plant.
Imperial Oil Limited Nanticoke Refinery Jarvis ON. Approximately 25 percent of petroleum products sold in Ontario originate from the Nanticoke refinery. Approximately 260 employees. Daily capacity: 112,000 barrels of crude oil.
Suncor Energy Products Partnership Petro-Canada Lubricants Centre Mississauga, ON
Nova Chemicals – Sarnia 80,000; Corruna; Moore; St. Clair River;
Suncor Energy Products Partnership Sarnia Refinery Sarnia ON 85,100

Quebec

Suncor Energy Products Partnership Montréal Refinery Montréal QC
Ultramar Ltd. Jean-Gaulin Refinery Lévis QC

New Brunswick

New Brunswick Irving Oil Limited Saint John NB * Not a CPPI member

Context Timeline of Selected Events in Integrated Oil Industry

7 November 2014

According to FT Alphaville’s Izabella Kaminska, formerly a producer at CNBC, a natural gas reporter at Platts and an associate editor of BP’s internal magazine, the unanticipated over-production of ultra-sweet, light crude oil in the United States has resulted in market oversupply at a time when refineries had invested “huge sums of money”to develop highly complex refineries with coker units capable of processing cheap inferior crudes just as efficiently as light sweet grades (Kaminska 2014).”
2012-07-23China National Offshore Oil Corporation (CNOOC Group) one of the largest state-owned oil companies in resource-hungry China, announced it had “agreed to acquire Nexen for $15.1 billion, China’s biggest foreign takeover bid. Shares of Nexen jumped almost 52 percent that day.” (Reuters. 2012-07-28. “SEC alleges insider trading ahead of CNOOC-Nexen deal.”).” CNOOC “promised to retain all employees and to make Canada home base for its Western Hemisphere operations.”

2012-03-05“In the crude market, the Enbridge pipeline outage deepened discounts for Canadian heavy crude against U.S. benchmark West Texas Intermediate. Western Canada Select heavy blend for April delivery traded at C$33.00 ($33.21) per barrel under the West Texas Intermediate benchmark, down from C$32.80 under the benchmark last week. Barrels for March delivery were bid at C$40 a barrel under WTI. Canadian crude was already suffering deep discounts due to limited pipeline space on Enbridge and other pipeline systems (

Reuters 2012-03-05).”

2012-03-05 U.S. April 2012 contract Light Crude Oil (Light Crude) [West Texas Intermediate (WTI) crude oil] rose 30 cents to $107.00 a barrel after settling $2.14 lower at $106.70. Front-month Brent rose 30 cents to $123.95 a barrel by 0332 GMT. Brent fell 2 percent on Friday after Saudi Arabia denied a media report of an explosion at a Saudi oil pipeline that had helped Brent crude prices shoot up $5 to $126.20, their highest level since 2008.”Jaganathan, Jessica. 2012-03-05.”
2012-03-02 Brent crude rose $3.54, or 2.89%, to settle at $126.20 a barrel, then traded as high as $128.40 in post-settlement trading, the highest intraday price since July 23, 2008, when front-month Brent reached $129.50. Brent crude rose sharply reacting to an unconfirmed Iranian media report of an explosion on an unknown Saudi Arabian oil pipeline (Robert Gibbons and Lisa Shumaker 2012-03-01 Reuters)
2012-03-01 Canada’s Oil Sands Innovation Alliance (COSIA), with Dr. Dan Wicklum as CEO, is an alliance of 12 oil sands producers who represent more than 80% of the oil sands production in CanadaBP Canada Energy Company, Canadian Natural Resources Limited, Cenovus Energy Inc., ConocoPhillips Canada Resources Corp., Devon Canada Corporation, Imperial Oil, Nexen Inc., Shell Canada Energy, Statoil Canada Ltd., Suncor Energy Inc., Teck Resources Limited, Total E&P Canada Ltd.. COSIA’s focus is on accelerating the pace of improvement in environmental performance in Canada’s oil sands through collaborative action and innovation. Through COSIA, participating companies will capture, develop and share the most innovative approaches and best thinking to improve environmental performance in the oil sands, initially focusing on four Environmental Priority Areas (EPAs) – tailings, water, land and greenhouse gases. COSIA will take innovation and environmental performance in the oil sands to the next level through a continued focus on collaboration and transparent exchange.Van Loon, Jeremy.
2012-03-01. “Oil-Sands Producers Group May Offer New Businesses, Suncor Says.” Bloomberg. Dr. Dan Wicklum was Director General of Water Science and Technology for Environment Canada. While working at EC, Wicklum’s stressed, “You can’t manage what you can’t measure.” Sustainability metrics is becoming more common but it is not enough. “Quality guru W Edwards Deming went further, putting ‘management by use only of visible figures, with little consideration of figures that are unknown or unknowable’ at No 5 in his list of seven deadly management diseases. Henry Mintzberg, the sanest of management educators, proposed that starting ‘from the premise that we can’t measure what matters’ gives managers the best chance of realistically facing up to their challenge (Caulkin 2008).”
2012 Thomas Golembeski’s spokesman for Sunoco claimed that Sunoco’s Northeast refining business lost c. $1 billion from 2009-2012 (Philips 2012-03-01). Another source cited, “Thomas P. Golembeski, a Sunoco spokesman, said the company’s Northeast refining business has lost more than $900 million in the past three years (Penn lawmakers 2012-02-16).” “Thomas Golembeski, spokesperson for Sunoco claimed their oil refineries lost 8 out of the last 10 quarters between 2009 and 2011 to a total of $772 million (Nixon 2011-09-17).”
2012-02 According to a recent report “the world is becoming more reliant on gasoline and diesel fuel refined in the U.S. This week, we learned that in 2011, the U.S. became a net exporter of gasoline, diesel and other fuels for the first time since 1949. Such refined products were the top U.S. export in 2011, beating out such staples of U.S. manufacturing as Detroit’s autos and Boeing’s (BA) airplanes (Philips 2012-03-02).“
2012-02-21 Roger McKnight, of Ontario-based En-Pro International Inc., senior analyst with 30 years experience in predicted that the price of gasoline will be up across Canada by 15% at the end of April. Challenging record prices in 2008: (ex. Estimated price per litre of gasoline in the summer of 2012: Calgary: $1.30; Vancouver: $1.50). McKnight argues that the major factor in the rise in prices is the distribution changes in the U.S. – “refinery implosion that we’ve had in the eastern part of the U.S., in the Philadelphia area, which has basically taken a million barrels of production out of the system.” “McKnight said the fire last week at BP’s Cherry Point refinery in Washington is also a factor in higher B.C. prices, because the plant – which contributes to Vancouver’s supply — is producing less. Making the price more volatile is the The uncertain geopolitical situation with Iran makes the price more volatile CBC News 2012-02-21) .
2012-01-20 “TransCanada Corp. is considering possibilities for moving Bakken shale crude south to the US Gulf Coast via a stand-alone system following the US rejection of the company’s permit application for the Keystone XL crude oil pipeline. TransCanada had originally envisioned moving Bakken crude south as part of Keystone XL, concluding a binding open season for its Bakken MarketLink Project in early 2011. Options for moving Bakken crude south could include a completely new-built pipeline, or modification of Bakken MarketLink plans to route Bakken production to the existing Keystone pipeline, already delivering Canadian crude to Cushing, Okla. TransCanada declined to comment on specific possibilities, saying that discussions need to occur with customers and nothing has been finalized (TransCanada mulls Bakken options while reapplying for Keystone XL).”
2012-01-18 President Barack Obama halted TransCanada’s proposed Keystone XL tar sands pipeline project, which would have brought bitumen from the Alberta oil sands (“dilbit”) through the U.S., to Gulf Coast refineries near Port Arthur, Texas, where the oil would then be exported to the global market.
2012-01-26 Premier Alison Redford says her government will take a hands-off approach to the increased upgrading of bitumen in the province as Alberta’s oilsands production continues to ramp up. “With the energy spotlight focused recently on the proposed Keystone XL and Northern Gateway pipelines that would ship raw bitumen to the United States and Pacific Coast, respectively, there have been growing calls for increasing the capacity in Alberta to upgrade and refine oilsands into products like synthetic crude, gasoline and diesel.” “Redford said it is up to the market and energy industry to determine opportunities for more processing (if it makes economic sense) — not the government. “Redford remains committed to the planned North West upgrader, but there are no other projects in line for provincial involvement.” “If we have wheat, we’re not going to say to people you can only export bread.” (Wood 2012-01-26).” Critics claim that the metaphor is inappropriate. If we have good top soil than we can export wheat, flour and baked goods. If we give away our top soil we have no wheat.
2012-02-13 The price for a barrel of WTI crude broke above $100 U. S. a barrel. “West Texas Intermediate (WTI) crude oil is of very high quality, because it is light-weight and has low sulphur content. For these reasons, it is often referred to as “light, sweet” crude oil. These properties make it excellent for making gasoline, which is why it is the major benchmark of crude oil in the Americas. WTI is generally priced at about a $5-6 per barrel premium to the OPEC Basket Price and about $1-2 per-barrel premium to Brent (Amadeo February 13, 2012).” Alberta Oil Sands Royalties are tagged to the price of West Texas Intermediate (WTI) crude oil.
2012 “Most fundamentally, shipping unprocessed bitumen crude out of Canada has been attacked by the biggest of Canada’s energy labour unions, the Communications, Energy and Paperworkers Union of Canada, as a bad idea. The CEP estimates it means exporting 40,000 jobs out of Canada (figure based on jobs lost through the Keystone Pipeline). They prefer refining the crude here in Canada. (The CEP is also not a group to which your allegation that opponents of Gateway also oppose all forestry, mining, oil, gas, etc is anything but absurd (May 2012-01 “An Open Letter to Joe Oliver“.)”
2012-01 “Compared to 2010, Suncor’s annual operating earnings next, and as Firebag Stage 4 is expected to begin its own more than doubled in 2011 to a record $5.7 billion. Cash ramp up in 2013. Flow from operations was also the highest ever, at nearly $10 billion. While the results primarily reflected increased It’s estimated that some 80% of Canada’s oil sands production from our Oil Sands business and a strong reserves are buried too deep to be reached by crude pricing environment, we also saw increased price conventional mining. Of Suncor’s proved plus probable Oil realizations due to our capacity to upgrade bitumen and Sands reserves, nearly 60% are associated with the refine crude oil in-house (Suncor Annual Report 2011).”
2011-12 Refining capacity in the U.S. has been steadily increasing, climbing 0.8 percent, to 17.7 million barrels a day in December, 2011 compared to December 2010 (Philips 2012-03-02).“
2011-11 In a joint business venture Cenovus and ConocoPhillips completed a new four-drum coker as part of the coker and refinery expansion (CORE) project at Wood River (Illinois). The new coker has a capacity of 65,000 barrels per day and is expected to expand our heavy oil processing capacity to approximately 200,000 – 220,000 barrels per day, increasing the production of clean transportation fuels for the U.S. Midwest market, including St. Louis and Chicago. The CORE project took about three years to build, with a total cost of US$3.8 billion (US$1.9 billion to Cenovus), and has increased clean product yield by 5% to approximately 85%. Cenovus is involved in a business venture with ConocoPhillips in upstream enhanced oil operations and downstream refining. Cenovus has a 50% interest in the Wood River (Illinois) and Borger (Texas) refineries. ConocoPhillips has a 50% interest in our Foster Creek and Christina Lake Steam Assisted Gravity Drainage (SAGD), enhanced oil recovery technology for producing heavy crude oil and bitumen. These two extraction upstream projects in the Athabasca region in northeast Alberta. This interest in two quality refineries is a strategic fit for Cenovus and allows us to capture the full value from crude oil production through to refined products such as diesel, gasoline and jet fuel (Cenovus).” “The Foster Creek project began in 1996 and in 2002 became the industry’s first commercial SAGD project. It has grown in five phases with an expected production capacity of 120,000 gross barrels per day. In the first quarter of 2010 Foster Creek achieved a significant milestone in becoming the largest commercial SAGD project in Alberta to reach royalty payout status. For a project to reach payout its cumulative revenues exceed cumulative allowable costs.” Cenovus is Alberta’s sixth largest energy company with more than 3,000 staff (Cenovus Energy). It’s a sign of commercial success for Cenovus and ConocoPhillips but what does it mean in terms of Alberta’s oil sands royalties if a project can reach royalty payout status?
2011-10-31 In a report commissioned by the The Canadian Petroleum Products Institute (CPPI), Todd Crawford claimed that Since the 1970s, the number of operating refineries in Canada dropped from 40 in the 1970s to 19 in 2011 although this was more from increased refinery productivity/efficiency than from a decrease in quantity. Crawford also predicted that there will be a decline in demand for refined petroleum products in the North American and other OECD markets as alternative greener forms of energy become competitive. The a strong dollar, tight labour markets, and rising wage pressures make it more difficult for Canadian refineries to compete on the global market. It would be difficult for Canada to upgrade aging refineries or to build new ones that could compete with the newly-operational U. S. oil refineries built to process Alberta’s bitumen that are already processing 2 million barrels per day of Canadian crude piped from Hardisty, Alberta. As well, Canada’s oil refineries would be competing against modern super-refineries in China and India to export gasoline to North America ( Crawford, Todd. 2011-10-31. “Canada’s Refining Sector: An Important Contributor Facing Global Challenges.” The Conference Board of Canada. Commissioned by The Canadian Petroleum Products Institute (CPPI). 52 pages).
2011 In Alberta’s fiscal year 2010-11, synthetic crude and bitumen royalties totaled $3.72 billion, or 38% more than the $1.42 billion in royalties derived from natural gas – the province’s traditional cash cow (Alberta Oil 2011-10-11).
2011 “According to the Energy Information Administration, the United States crude oil imports fell to 8.9 million barrels a day, the lowest level since 2001. Since 2005, foreign imports dropped from 60% of U.S. consumption to 45% in 2011, according to U.S. Department of Energy data (Philips 2012-03-02.)”
2011-10-11 “Sunoco Inc. shut a fluid catalytic cracker for repairs at its Marcus Hook refinery in Pennsylvania. Gasoline rose to a three-week high on speculation fuel output will decline as refinery shutdowns and maintenance curb supply on the U.S. East Coast. Futures gained as refinery rates probably fell 0.78 percentage point to 86.9 percent last week, according to the median estimate of 14 analysts in a Bloomberg News survey.”Powell 2011-10-11).
2011-09-30“ConocoPhillips stopped production at its Trainer, Pennsylvania, refinery saying if it couldn’t find a buyer, the plant would be shut permanently in six months Powell 2011-10-11).” The Trainer plant is one of three oil refineries recently closed in the Eastern states.

“Unlike their counterparts in the U.S. Midwest and on the Gulf Coast, most U.S. East Coast operations are built to refine only light, sweet oil such as Brent crude. Since this oil is largely imported from such countries as Nigeria, its price is heavily affected by global events. The Arab Spring and threats of Iranian oil disruption have driven the price of Brent from $94 a barrel to over $120 in the last year, costing the U.S. East Coast refineries dearly. Demand for gasoline in the U.S., meanwhile, is close to a 15-year low, so refineries have been unable to pass on all their costs to customers. True, gasoline prices have been climbing—gas in New York State will probably hit $4 a gallon soon—but not enough to keep these refineries profitable. “The golden age of U.S. East Coast refineries is over,” says Fadel Gheit, an analyst with Oppenheimer (Philips 2012-03-01).”
2011-09-17 Thomas Golembeski, spokesperson for Sunoco claimed their oil refineries lost 8 out of the last 10 quarters between 2009 and 2011 to a total of $772 million. Philadelphia-based Sunoco announced in September that they intended to exit the refinery business. They were planning on selling the last of its refineries, in Philadelphia and Marcus Hook. The refineries have a combined capacity to process more than a half million barrels of oil a day. Sunoco, which has 150 gas stations in the Pittsburgh region (Nixon 2011-09-17).”CBC.
2011-09-13 “Former Alberta Premier Peter Lougheed, who championed and invested in the early development the oilsands in the 1970s opposed the Keystone pipeline.” In an interview with Anna Maria Tremonti of CBC Radio’s The Current September 13, 2011, Peter Lougheed argued, “We should be refining the bitumen in Alberta and we should make it public policy in the province [. . .] I would prefer…we process the bitumen from the oilsands in Alberta and that would create a lot of jobs and job activity […] That would be a better thing to do than merely send the raw bitumen down the pipeline and they refine it in Texas that means thousands of new jobs in Texas.”
2011 “Within the U.S. market, the price of oil, (which is set globally) compared to the price of natural gas (which is set regionally) is very important in determining market share when there is the opportunity for substitution. Over the last decade or so (2001-2011), when oil prices have been high, the ratio of the benchmark West Texas Intermediate oil price to the Henry Hub natural gas price has been consistently higher than any of the standard rules of thumb (MIT 2011).”
2011-04 and 2011-05 The price of gas ($3.90 a gallon) and oil prices ($113 a barrel) peaked for the year (Amadeo February 13, 2012).
2011-02-16 Government of Alberta (GA). 2011-02-16. “Bituman refinery agreement promotes value-added development.” The Way Forward.
2011-03-20 The Canadian federal budget introduced changes to taxation that was essentially a subsidy for the oil sands. “Under the current policy, the cost of an oil sands lease can be written off at a rate of 30% a year; the budget proposes narrowing that to 10%. The change on mining expenses is more dramatic. Instead of writing off the entire cost of developing a mine in the years the costs were incurred, the budget calls for forcing those costs to be written off at 30% per year. That will align oil sands mines with other sectors of the energy industry (Vanderklippe, Nathan; Tait, Carrie. 2011-03-22. “Oil sands tax incentives targeted.” Globe and Mail).” oil sands subsidies
2011-03-02 The price for a barrel of WTI crude broke above $100 U. S. a barrel. “West Texas Intermediate (WTI) crude oil is of very high quality, because it is light-weight and has low sulphur content. For these reasons, it is often referred to as “light, sweet” crude oil. These properties make it excellent for making gasoline, which is why it is the major benchmark of crude oil in the Americas. WTI is generally priced at about a $5-6 per barrel premium to the OPEC Basket Price and about $1-2 per-barrel premium to Brent (Amadeo February 13, 2012).” Alberta Oil Sands Royalties are tagged to the price of West Texas Intermediate (WTI) crude oil.
2011-01-31 The U. S. Federal budget included a proposal to eliminate roughly $4 billion a year in subsidies and tax breaks for oil companies, in his third effort to eliminate federal support for an industry that remains hugely profitable (Broder, John M. 2011-01-31. “Obama’s Bid to End Oil Subsidies Revives Debate.” ).
2010-12 Sunoco sold a refinery in Toledo, Ohio, “for $400 million to PBF Energy Co. LLC. Golembeski said the sale has not affected Sunoco retail stations in the Midwest. (Nixon 2011-09-17).”
2009-02 Oil prices dropped to $39 a barrel (Amadeo 2012).
2010-04-13Sinopec, China Petroleum & Chemical Corporation, a state-owned company and China’s second-largest oil producer and top refiner, announced acquisition of ConocoPhillips’ 9.03% interest in Syncrude — the largest oil sands project — with seven other partners controlling the rest. Canadian ownership of Syncrude remains at nearly 56%. The Canadian government granted regulatory approval on on June 25, 2010.(Reuters). Sinopec Group, parent of Asia’s largest refiner Sinopec Corp, has launched at c. 74 acquisition deals worth $48.1B since 2005, as part of China’s attempts to secure resources to feed the country’s rapid growth (source). CEO Wang Tianpu,
2008-12 The price of WTI crude oil plummeted to a low of $30 per barrel (Amadeo February 13, 2012). The price of gasoline also dropped to $1.68 a gallon. (Source: EIA Oil Price Trends,EIA Gas Price Trends)
2010-07-26 “Enbridge Energy Partners LLP (Enbridge) reported a 30-inch pipeline ruptured on Monday, July 26, 2010, near Marshall, Michigan. The release, estimated at 819,000 gallons, entered Talmadge Creek and flowed into the Kalamazoo River, a Lake Michigan tributary. Heavy rains caused the river to overtop existing dams and carried oil 30 miles downstream on the Kalamazoo River.” Cleanup by the numbers: 1,148,411 gallons of oil collected; 17.1 million gallons of oil/water collected and disposed; 187,276 cubic yards soil/debris disposed. Total Est. Oil Spill Cost $US 44,833,205. (From July 20, 2012, Situation Report) (source)
2008-06 The price of WTI crude oil hit $145 per barrel which was an all-time high. The U.S. average retail price for regular gasoline also hit a peak in July 2008 of $4.10, rising as high as $5 a gallon in some areas [. . .] During 2008, there was fear that economic growth from China and the U.S. would create so much demand for oil that it would overtake supply, driving up prices. However, most analysts now realize that such a sudden increase in oil prices was due to increased investment by hedge fund and futures traders. (See What Causes High Oil Prices?) (Amadeo February 13, 2012). (Source: EIA Oil Price Trends,EIA Gas Price Trends)
2008-06 According to the publicly-available Commitments of Traders (COT) reports, activity in the West Texas Intermediate (WTI) light sweet crude oil contracts has grown markedly since 2000. In the last three and a half years alone, open interest across all available contract maturities (the number of contracts open at the end of each day) in WTI futures and futures-equivalent (or “adjusted”) option contracts traded on the New York Mercantile Exchange (NYMEX) has more than tripled from around 900,000 contracts in January 2004 to more than 2.9 million contracts in June 2008. During the same period, the number of large traders has also grown – almost doubling since January 2004, from approximately 220 to just under 400 reporting traders. These figures speak to the competitiveness and depth of the crude oil futures markets in the U.S. (CFTC 2008-06).”
2007
2008-05 The price of West Texas Intermediate (WTI) crude oil passed the $123 mark for the first time (BBC).
2007-05-24 West Texas Intermediate (WTI), also known as Texas light sweet crude oil was priced at $63.58 per barrel as against $71.39 per barrel for Brent (Bloomberg). The anomaly occurred perhaps because of a temporary shortage of refining capacity. On April 13, WTI Crude at Cushing may have temporarily lost its status as a barometer of world oil prices.[2] A large stockpile of oil at the Cushing, Oklahoma storage and pricing facility (mainly due to a refinery shutdown[3]) caused price to be artificially depressed at the Cushing pricing point. As stockpiles decreased, the WTI price increased to exceed the price of Brent once again.[4] (West Texas Intermediate (WTI), also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing. This grade is described as light because of its relatively low density, and sweet because of its low sulfur content. It is the underlying commodity of Chicago Mercantile Exchange’s oil futures contracts. The price of WTI is often referenced in news reports on oil prices, alongside the price of Brent crude from the North Sea. Other important oil markers include the Dubai Crude and the OPEC Reference Basket. Brent Crude is a major trading classification of sweet light crude oil comprising Brent Blend, Forties Blend, Oseberg and Ekofisk crudes (also known as the BFOE Quotation). Brent Crude is sourced from the North Sea. The Brent Crude oil marker is also known as Brent Blend, London Brent and Brent petroleum.) wikipedia
2007-03-20The Conservative government of Canada announced it would gradually phase out some oil sands tax incentives including provisions allowing accelerated write-off of oil sands investments. The New Democratic Party, which had enough votes to keep the Conservatives in power, made eliminating accelerated capital cost allowances for oil sands a price for its support (“Canada to end oil sands aid, add green-car rebates“. Angola Press. 20 March 2007).
2007Alberta`s oil sands, which rival Saudi Arabia`s conventional oil reserves in size, were the target of an unprecedented development rush as companies looked to cash in on North America`s thirst for secure energy supplies (“Canada to end oil sands aid, add green-car rebates“. Angola Press. 20 March 2007).
2007 Crude oil prices were significantly in excess of the average cost of production, which was about $28 per barrel of bitumen. However, bitumen production costs were rising rapidly, with production cost increases of 55% from 2005 to 2007, due to shortages of labor and materials (“Oil sands costs up 55 percent“. UPI. 6 March 2007.)
2007-01-31The European Commission announced plans to force energy companies to produce greener fuels. It says it will propose amendments to a directive on fuel quality, which will require a 10% cut in the CO2 released during production and use of the fuel (BBC News “Brussels presses for greener fuel.”)The changes would make companies use more biofuel, and develop greener biofuels where the production process results in lower CO2 emissions.
2006 The Government of Alberta had “a vision for its hydrocarbon upgrading industry: “Alberta will achieve a competitive hydrocarbon upgrading industry through refining and petrochemical plants that expand the market for Alberta’s bitumen resource and produces higher value products in Alberta.” The vision for hydrocarbon upgrading is a key component in the development of an integrated energy strategy that looks beyond extraction to ensure both the highest value and best use of our resources for the benefit of all Albertans (executive summary) The returns to Alberta and Canada from a fully integrated system could be significant. Successful upgrading to finished products could add billions of dollars to the Alberta and Canadian economy and broaden Alberta’s markets for value-added products, ultimately helping Alberta companies to increase their global competitiveness. As well as the value-added consideration, the high level of activity in the oil sands has raised a concern among industry stakeholders. With the large number of project proposals to develop the oil sands within the next 10 to 15 years, production of the bitumen and synthetic crude oil from the oil sands may exceed current refinery capacity resulting in the value of these products declining over time. Increasing Alberta’s capacity to produce finished products would mitigate this potential problem and serve the North American market better. In addition, the lower cost bitumen derived feedstocks would help sustain Alberta’s worldclass petrochemical industry, which is currently based on higher-priced natural gas feedstocks (Natural Gas – Alberta Plant Gate – C$/MMBtu 2006:10.35).” … The vision for hydrocarbon upgrading [was] a key component in the development of an integrated energy strategy that looks beyond extraction to ensure both the highest value and best use of our resources for the benefit of all Albertans … As well as the value-added consideration, the high level of activity in the oil sands has raised a concern among industry stakeholders. With the large number of project proposals to develop the oil sands within the next 10 to 15 years, production of the bitumen and synthetic crude oil from the oil sands may exceed current refinery capacity resulting in the value of these products declining over time. Increasing Alberta’s capacity to produce finished products would mitigate this potential problem and serve the North American market better. In addition, the lower cost bitumen derived feedstocks would help sustain Alberta’s worldclass petrochemical industry, which is currently based on higher-priced natural gas feedstocks (p.6) . . . The growing demand for refined petroleum products in North America has resulted in constrained refinery capacity and increasing product prices. While refinery capacity expansions are being planned, the demand for refined products is expected to continue to exceed available domestic supply.” Both the natural gas price and the West Texas Intermediate crude oil price forecasts used in the economic model are from a published source, GLJ Petroleum Consultants Ltd. and are summarized here: Crude Oil – West Texas Intermediate – US$/bbl 2006:57.00 2007:55.00 2008:51.00 2009:48.00 2010:46.50 2015:47.75 2020:52.77; Natural Gas – Alberta Plant Gate – C$/MMBtu 2006:10.35 2007:9.00 2008:7.75 2009:7.25 2010:6.95 2015:7.15 2020:7.90 (Netzer 2006-03.”
2005 The price of crude oil soared from $45 a barrel to above $70 a barrel. BP reported a 25% increase in annual profits “magnified enormously by the high price of oil, high refining margins, and high gas prices”. Profits for 2005 went up to $19.31bn with profits for the last three months of the year increasing by 26% to $4.43bn. Shell’s record profit was $22.94bn in 2005. (BBC 2005).
2004 There was a large, unexpected jump in world oil consumption growth, fostered by strong growth in economic activity in Asia, reduced excess production capacity significantly (CFCT 2008-07).
2003 Between 2000-12 and 2003 there were four gasoline price spikes caused by domestic refining and marketing that resulted in an increase of over $30 billion in gasoline prices. (Cooper 2003).”
2003 Reductions in storage capacity and the number of gasoline stations of over ten percent have also taken place in just the past half-decade. These reductions in capacity have been driven in part by a merger wave that has resulted in a significant increase in the concentration of ownership of refinery capacity and gasoline outlets. Four-fifths of regional refinery markets have reached levels of concentration that trigger competitive concerns, even by the standards adopted by the antitrust division of the Reagan administration’s Department of Justice. In these markets, the largest four firms account for at least one-half and as much as three quarters of the refined product output. A similar trend has been in evidence at the level of gasoline stations (Cooper 2003).”
2003-03-11 “Consumer Groups Seek Energy Price Probe,” Energy Daily, March 11, 2003, p. 4.
2003 OECD oil stocks were at record lows in 2003, following a major strike by oil workers in Venezuela (CFTC 2008-07).
2003 In the United States alone, 75 refineries were closed between 1988-2003 and no new refineries were constructed ( Cooper, Mark. 2003-10. “Spring Break in the US Oil Industry: Price Spike, Excess Profits and Excuses.” Consumer Federation of America.
2002 In 2002, 58 firms were engaged in refining in the United States, down from 189 firms in 1981 (source).
2001-05-21 Public Citizen, Record Oil Company Profits Underscore Market Consolidation, May 31, 2001; Fortune 500, July 18, 2001; Business Week First Quarter Results, May 21, 2001
2000 Between 1985 and 2000, average refinery utilization increased from 78 to over 92 percent (source).
1998 A wave of mergers, acquisitions, joint venture alliances, and selective divestitures started in 1998. The aim was cutting costs, gaining economies of scale, increasing returns on investment, and boosting profitability (source). Exxon and Mobil merged allowing both companies a larger share of the oil and gas market (horizontal merging).
1990s “The 1990s were widely viewed by the industry as a period of unprecedented economic volatility and hardship, characterized by poor profit margins as a result of substantial excess capacity, the increasing cost of compliance with environmental regulations, and unfavorable crude oil price trends. At the same time, the refining industry in the United States has been dramatically changed by corporate restructuring and consolidation (RAND).”

Webliography and Bibliography

There are major challenges in locating reliable sources of useful, comprehensible information on the oil industry. The following sources are not necessarily neutral. Wikipedia entries on concepts and organizations related to the oil industry constantly include warnings to readers that the entries may not be neutral and indeed reflect advertisement more than unbiased, information based on reliable sources. Citations often lack references.**

2012-01-21. “The rise of state capitalism.” The Economist.”The spread of a new sort of business in the emerging world will cause increasing problems … [T]he world’s ten biggest oil-and-gas firms, measured by reserves, are all state-owned. State-backed companies account for 80% of the value of China’s stockmarket and 62% of Russia’s. And they are on the offensive.”
Alberta Oil. 2011-10-11. “Analysis: Oil sands royalty fix proves elusive: Performance measures needed to gauge regime’s effectiveness.”
CBC. 2011-09-13 “Peter Lougheed opposes Keystone pipeline.“
CBC. 2012-01-25. “Canada imports oil while battling over pipeline exports.
CBC. 2012-02-21. “Vancouver gasoline price rising sharply: Record levels at the pump forecast for the summer months.” Canadian Centre for Energy. “About Energy: Oil & Natural Gas: Oil: What is crude oil?” **
Caulkin, Simon. 2008-02-10. “The rule is simple: be careful what you measure.” The Observer.
Cooper, Mark. 2003-10. “Spring Break in the US Oil Industry: Price Spike, Excess Profits and Excuses.”
Consumer Federation of America. Editor. 2012-02-12. “Go with the flow: Sending western oil to Eastern Canada shouldn’t be this difficult.” Calgary Herald.
Environmental Commissioner of Ontario. 2010. “Mandatory GHG Reporting: What gets Measured gets Managed.” Redefining Conservation, ECO Annual Report, 2009/10. Toronto, ON : Environmental Commissioner of Ontario. 24-27.
Energy Resources Conservation Board (ERCB). 2011-06. “ST98-2011 Alberta’s Energy Reserves 2010 and Supply/Demand Outlook 2011-2020.” p. 6.
Energy Resources Conservation Board (ERCB). 2011-11. ST57-2011 “Field Surveillance and Operations Branch Provincial Summary 2010” p. 16 http://www.ercb.ca/docs/products/STs/ST57-2011.pdf
Jaganathan, Jessica. 2012-03-05. “Brent back near $124 on supply concerns over Iran.”
Government of Alberta (GA). 2011-02-16. “Bituman refinery agreement promotes value-added development.” The Way Forward.
Gary, James H.; Handwerk, Glenn E. 2001. Petroleum refining: technology and economics.
Gary, James H.; Handwerk, Glenn E. 2001. Petroleum refining: technology and economics. Taylor & Francis. CRC Press. 2001 – Technology & Engineering New York:Marcel Dekker. 441 pages.

“Continuing the high standards set by earlier editions, Petroleum Refining, Fourth Edition summarizes recent developments in oil refining processes, addressing topics ranging from basic applications to the implementation of viable operations that meet environmental and economic requirements. The authors maintain the clear, systematic style that made previous editions so popular. This edition reviews petroleum-refining technology and refining processes, incorporates recent statistics on utility data, investment, and operating costs, and considers environmental factors, the place of reformulated fuels in product distribution, and uses for heavier crude oils and those with higher sulfur and metal (Review).”

Notes: Introduction: profitable products of refineries: transportation fuels gasoline, diesel, turbine (jet) fuels, light heating oils No 1. and No. 2 less profitable: lubricating oils, refrigeration and transformer oils, petrochemical feedstock; conversion of crude oil into transportation fuels economically practical represents only 5% of total crude charged to US refineries. Kanellos, Michael. 2011-06-09. “In Natural Gas, U.S. Will Move From Abundance to Imports.“
Kaminska, Izabella. “From heavy to light and back again.” FT Alphaville.
Laureshen, Catherine J. 2006. “From Oil Sands Bitumen to Petrochemical Feedstock.” Senior Research Manager, Alberta Energy Research Institute Originally printed in: Oil & Gas Processing Review . 2006.
Laureshen, C. J.; Clark, P. D.; Du Plessis, M. P. 2005. “Adding Value to Alberta’s Oil Sands.” Alberta Energy Research Institute/Alberta Economic Development.
Lindell, Rebecca. 2012-01-31. “Canada needs pipelines, not new refineries: experts.” Global TV. Abstract:

“A rapidly expanding oil sands industry and a dwindling supply of feedstock for Alberta’s ethane-based petrochemical industry have stimulated interest in evaluating bitumen for producing a broad slate of refined products, including petrochemicals. Two industry/government studies evaluated different process schemes for integrating oil sands, refining, and petrochemical operations and convert heavy gas oils into both refined products and petrochemicals. Since market demand for fuels and refined products far exceeds that for petrochemicals, the performance characteristics of the heavy oil conversion processes are important to optimize the volume ratios of the products to meet market volume demands. The paper reviews different heavy oil processing technologies focusing on olefin to fuel product ratios and flexibility to change these ratios. The review includes conventional noncatalytic thermal (steam) cracking, as well as catalytic processes. These technologies are at different stages of commercial development for production of fuels and olefins, and must be evaluated and adapted to meet Alberta’s aromatic bitumen-derived heavy gas oils. Work is underway in an industry/government study towards developing an integrated process for the combined production of refined fuels and petrochemical feedstocks. In addition, two workshops were held in February 2005 to address the business and regulatory gaps that needed to be addressed before such a process can be commercialized; the results from the workshops will also be discussed in the paper (Laureshen, Clark and Du Plessis 2005:15).“

“Introduction: Alberta has an enviable position as a North American energy hub, providing oil and gas to United States markets through an extensive pipeline network. In addition to conventional oil and gas, Alberta has large reserves of coal and coal bed methane, as well as the massive oil sands deposits that underlie 140,800 square kilometres of the province. The oil sands have outstripped conventional oil reservoirs as the primary source of oil in the province. According to the Alberta Department of Energy, production of bitumen and synthetic crude oil was close to 158,987.3 million m3/d (one million BPD) in 2003, as opposed to 100,162 m3/d (630,000 BPD) of conventional oil production. If all new projects, and expansions to existing projects currently planned, take place as scheduled, Alberta’s bitumen production is expected to triple by the year 2030. However, the continued expansion of Alberta’s oil sands faces significant challenges. Diluent availability is already a problem, water use is facing restrictions, and natural gas is becoming more costly and less available. A further problem is the ability of Canadian and U. . . . (Laureshen, Clark and Du Plessis 2005:15).“
May, Elizabeth MP. 2012-05-09. “An Open Letter to Joe Oliver.“
Miga, Andrew. 2012-02-16. “Penn. lawmakers rally support for refineries.”
AP. MIT. 2011. Study on the Future of Natural Gas.
Netzer, David. 2006-03. “Alberta Bitumen Processing Integration Study. Consulting Chemical Engineer for The Province of Alberta, Economic Development Department Investment and Industrial Development Branch, Department of Energy, The Alberta Energy Research Institute And Industry Sponsors.
Nixon, Alex. 2011-09-17. Sunoco refineries could be closed).” Pittsburgh Tribune Review.
Philips, Matthew. 2012-03-02. “How the U.S. Became ‘The China of Refined’ Gasoline.” Bloomberg.
Philips, Matthew. 2012-03-01. “East Coast Gas Squeeze Expected.” Bloomberg Business Week.
Penty, Rebecca. 2011-11-25. “Alberta caught in `heated’ upgrader debate.” Postmedia News.
Peterson, D. J.; Mahnovski, Sergej. New forces at work in refining: industry views of critical business and operations trends, Issue 1707. National Energy Technology Laboratory United States Department of Energy. RAND: Science and Technology.
Powell, Barbara J. 2011-10-11. “Gasoline Advances as Refinery Outages Curtail East Coast Supply.” Bloomberg.
Statistics Canada. 2011. Petroleum products — Refined petroleum products, refinery production by type. Statistics Canada Energy Statistics Handbook.
Wood, James. 2012-01-26. “Redford says government to stay out of bitumen upgrading.” Calgary Herald.

Who’s Who?

Bitumen Royalty-in-Kind (BRIK):”In Alberta, royalties are a share of production from resources the government owns on behalf of Albertans. Under the Mines and Minerals Act, the government has the option to take its royalty share either in cash or in kind. Currently, the government takes its share of conventional crude oil production in kind and collects its royalty share for other resources in cash. The decision to exercise the in-kind option for bitumen was identified in October 2007 as a way for the Crown to use its share of bitumen strategically to supply potential upgraders and refineries in Alberta, and to optimize its royalty share by marketing those volumes (Government of Alberta. Energy. BRIK. FAQ.”
China National Offshore Oil Corp (CNOOC)CNOOC is “an $89 billion company with oil and gas assets in Indonesia, Iraq, Australia, Africa, North and South America, as well as China… The $15 billion bid by China National Offshore Oil Corp (CNOOC) to buy Canada’s Nexen, Inc will help the Chinese state giant gain the expertise to drill in deep, disputed waters of the South China Sea without relying on risk-averse foreign firms (Eckert, Paul. 2012-08-04. CNOOC-Nexen deal seen helping China’s South China Sea thrust. Reuters).” By 2018-2023 China would probably have the experience, knowledge and technologies like those Nexen already has to “set up and maintain stable rigs in 5,000-10,000 feet of ocean water” and “drill 10,000-18,000 feet deep in sediment (Eckert 2012-08-04)”. How might China’s access to an expanded South China Sea deep drilling, affect the future of oil sands bitumen market and the Northern Gateway pipeline in five or ten years?
Conference Board of CanadaAn independent, not-for-profit, applied research organization in Canada, self-describes as non-partisan.
“Experts in running conferences but also at conducting, publishing, and disseminating research; helping people network; developing individual leadership skills; and building organizational capacity. Specialists in economic trends, as well as organizational performance and public policy issues. Not a government department or agency,
although we are often hired to provide services for all levels of government.” Published report entitled “Canada’s Petroleum Refining Sector: An Important Contributor
Facing Global Challenges” in 2011 by Todd Crawford.
Council of Canadians“Founded in 1985 by a handful of citizens including Maude Barlow, Farley Mowat and Margaret Atwood, the Council of Canadians is Canada’s largest citizens’ advocacy organization; with 72 chapters across the Canada who work to protect Canadian independence by promoting progressive policies on fair trade, clean water, energy security, public health care, and other issues of social and economic concern to Canadians.” They produce promotional material such as “Take Charge! A National Day of Action in support of a Canadian Energy Strategy” encouraging Canadians to “write their Prime Minister Stephen Harper and demand a National Energy Strategy that puts people and the environment ahead of corporate interests.”
Ferguson, Brian is President & Chief Executive Officer of Cenovus Energy’s strategic and operational performance. He is also a Director of Cenovus Energy. His background is in finance, business development, reserves, strategic planning, evaluations, communications and accounting. Brian is a member of the highly influential Canadian Council of Chief Executives who are considered by some to be an unofficial arm of the federal government. Brian is currently serving a two-year term on the Canadian Association of Petroleum Producers (CAPP) Board of Governors. In November 2011, in a joint business venture Cenovus and ConocoPhillips completed a new four-drum coker as part of the coker and refinery expansion (CORE) project at Wood River (Illinois). The new coker has a capacity of 65,000 barrels per day and is expected to expand our heavy oil processing capacity to approximately 200,000 – 220,000 barrels per day, increasing the production of clean transportation fuels for the U.S. Midwest market, including St. Louis and Chicago. The CORE project took about three years to build, with a total cost of US$3.8 billion (US$1.9 billion to Cenovus), and has increased clean product yield by 5% to approximately 85%. Cenovus is involved in a business venture with ConocoPhillips in upstream enhanced oil operations and downstream refining. Cenovus has a 50% interest in the Wood River (Illinois) and Borger (Texas) refineries. ConocoPhillips has a 50% interest in our Foster Creek and Christina Lake Steam Assisted Gravity Drainage (SAGD), enhanced oil recovery technology for producing heavy crude oil and bitumen. These two extraction upstream projects in the Athabasca region in northeast Alberta. This interest in two quality refineries is a strategic fit for Cenovus and allows us to capture the full value from crude oil production through to refined products such as diesel, gasoline and jet fuel (Cenovus).” “The Foster Creek project began in 1996 and in 2002 became the industry’s first commercial SAGD project. It has grown in five phases with an expected production capacity of 120,000 gross barrels per day. In the first quarter of 2010 Foster Creek achieved a significant milestone in becoming the largest commercial SAGD project in Alberta to reach royalty payout status. For a project to reach payout its cumulative revenues exceed cumulative allowable costs.” Cenovus is Alberta’s sixth largest energy company with more than 3,000 staff (Cenovus Energy). It’s a sign of commercial success for Cenovus and ConocoPhillips but what does it mean in terms of Alberta’s oil sands royalties if a project can reach royalty payout status? ConocoPhillips and Cenovus are in a shared business venture involving 2 high quality refineries (Wood River Refinery near St. Louis which is the largest of the 12 refineries operated by ConocoPhillips and Borger in Borger, Texas) and in upstream extraction projects in Alberta, ConocoPhillips has a 50% interest in our Foster Creek and Christina Lake Steam Assisted Gravity Drainage (SAGD).
Steve Williams, Suncor’s president and COO has a background in strategy development, company performance improvement, refinery & chemical company management. He has also provided leadership in the areas of environment, health and safety, finance, sales and marketing, human resources, and information technology. Bloomberg’s Jeremy van Loon about an industry-led effort to reduce the environmental impact of oil-sands production. Encana was formed in 2002 merging two Canadian oil and gas companies, PanCanadian Energy Corp. and Alberta Energy Company (AEC). Encana Corporation split into two distinct companies on December 1, 2009: one a pure play natural gas company (Encana) and the other an integrated oil company (Cenovus) which absorbed the assets formerly belonging to PanCanadian Energy Corp. and Alberta Energy Company (AEC), the two Canadian oil and gas companies that merged to form Encana in 2002 as well as a stake in 2 high quality refineries (Wood River Refinery near St. Louis which is the largest of the 12 refineries operated by ConocoPhillips and Borger in Borger, Texas).
The Energy Resources Conservation Board (ERCB) is an “independent, quasi-judicial agency of the Government of Alberta. They regulate the safe, responsible, and efficient development of Alberta’s energy resources: oil, natural gas, oil sands, coal, and pipelines. Their mission is to ensure that the discovery, development and delivery of Alberta’s energy resources take place in a manner that is fair, responsible and in the public interest.”
Premier Alison Redford says her government will take a hands-off approach to the increased upgrading of bitumen in the province as Alberta’s oilsands production continues to ramp up. (Wood 2012-01-26).”
Neil Shelly, “executive director of the Alberta Industrial Heartland Association, said the pipeline is a mixed blessing because it does open up the area to opportunities in a whole new market. But he echoes Rigney’s concerns that the pipeline represents more Alberta bitumen being shipped away without any upgrading. “We definitely need to diversify the market for Alberta. Just shipping out raw bitumen, even if it is to an upgrader in China or India or wherever, does (diversify) a little bit, but it doesn’t really.” Shelly said more upgrading and refining in Alberta would give the province a lot more options when it came to selling its products, along with all the jobs and benefits from the industry. “What if we extract the bitumen in Alberta, turn into synthetic crude oil and then we could supply eastern Canada with the fuels they need?”(Gateway a Potential Blow to Upgrading Industry.)
“Don Rigney is Mayor of Sturgeon County, town through which the proposed Gateway Pipeline will pass. Several upgraders were once proposed for Sturgeon County and Mayor Rigney argued that the Pipeline represents another example where Alberta will sell raw bitumen rather than upgrade it. “We would get far more value for our resources if we were to ship refined product.” Sturgeon was once projected to be home to four upgraders, but only one — North West Upgrading’s 50,000 barrel per day project — is currently expected to go ahead. Rigney said he would rather have the pipeline carry raw bitumen than not have the pipeline at all, but he would like to see more effort made to encourage more upgrading in Alberta.” “The Canadian Centre for Energy Information (
Centre for Energy) is a non-profit organization created in 2002 to meet an urgent need for information on all aspects of the Canadian energy system from oil, natural gas, coal, thermal, and hydroelectric power through to nuclear, solar, wind, and other sources of energy. More recently, the Centre for Energy has taken steps to broaden its reach to encompass energy end use in Canada (“About: Centre for Energy’s web page)” Wikipedia editors cautioned that the Wikipedia article on the Centre “may be written like an advertisement with promotional content that was not written from a neutral point of view (October 2009). Wikipedia editors expressed concerns that citations provided no reliable references or sources (October 2009).**
Catherine J Laureshen “is a Senior Research Manager, responsible for the upgrading and university research programmes of the Alberta Energy Research Institute (AERI). Prior to joining AERI, she taught in the Department of Chemical and Petroleum Engineering at the University of Calgary, and was a member of the In Situ Combustion Research Group. Dr Laureshen is an active member of the Petroleum Society of the Canadian Institue of Mining, Metallurgy and Petroleum (CIM), sitting on the national board and chairing the publications board. She is the Technical Chair for the 2006 Canadian International Petroleum Conference and will be the Conference Chair in 2007. Dr Laureshen is also a member of the Canadian Heavy Oil Association (CHOA), the Society of Petroleum Engineers (SPE) and the Association of Professional Engineers, Geologists, and Geophysicists of Alberta (APEGGA). She has a PhD in mechanical engineering, with a specialisation in fluid dynamics.” The
Consumer Federation of America (CFA) is an association of non-profit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization’s Board of Directors (CFA about). Peter Boag, president of the Canadian Petroleum Products Institute, argues that “Canada’s 19 refineries produce two million barrels of day, but they are only operating at 80 per cent capacity. The ideal, according to the industry, is to be operating at 95 per cent. Canadians consume about 1.8 million barrels of oil a day.” Mark Corey, the Assistant Deputy Minister of Natural Resources Canada’s Energy Sector agreed. Lindell, 2012-01-31). Brenda Kenny, president of the Canadian Energy Pipelines Association, said that using imported oil eliminates certain costs (CBC 2012-01). In the pipeline versus refinery debate her interests are clearly on the side of pipelines.
Rep. Patrick Meehan, R-Penn., said the U.S. House Homeland Subcommittee on Counterterrorism and Intelligence he chairs will launch a hearing entitled “The Implications of Refinery Closures for U.S. Homeland Security and Critical Infrastructure Safety” on March 19, 2012 (Meehan 2012-02-24), into how nationwide refinery closures, including the three Philadelphia-area refineries, could increase risks to the nation’s critical infrastructure and threaten supply shortages in the event of a global crisis. Meehan said the three imperiled refineries in the Philadelphia area account for 50 percent of the Northeast’s refinery capacity. He said more than 30 U.S. refineries have closed in the past decade. “This hearing will help us understand the homeland security consequences of our declining domestic refining capacity, both in terms of threats to critical infrastructure and our dependence on imports from unstable parts of the world,” said Meehan, adding he would schedule the hearing as soon as possible. Casey has called for a Senate hearing on the impact that the possible refinery closures could have on energy prices. He has warned that if no buyer is found and the refineries are permanently shuttered, the closures could drive up energy prices on the East Coast (Miga 2012-02-16).” “SPRINGFIELD, PA – U.S. Representative Patrick Meehan (PA-07) today announced the House Homeland Security Subcommittee on Counterterrorism and Intelligence will hold a hearing on Monday, March 19 at Neumann University in Aston entitled, “The Implications of Refinery Closures for U.S. Homeland Security and Critical Infrastructure Safety.” The hearing will examine the homeland security consequences of nationwide refinery closures – including three in the Philadelphia area – both in terms of threats to critical infrastructure and our dependence on imports from unstable parts of the world. “The closure of two refineries and the expected closure of a third in our area not only mean significant job and economic loss,” said Meehan. “They’ve also resulted in a significant decline in our country’s refining capacity, causing our country to have greater reliance on foreign oil imports from the Middle East, Africa and Venezuela. This brings up important questions about how this could increase the risks to domestic critical infrastructure and threaten supply shortages in the case of a global crisis.” Meehan noted that the three Philadelphia area refineries account for 50 percent of the Northeast’s entire refinery capacity, and more than 30 U.S. refineries have closed in the last decade. Meehan said the subcommittee is in the process of finalizing the witnesses expected to testify at the March hearing (Meehan 2012-02-24).”
Will Roach, was chief executive of UTS Energy Corp., which held a 30% stake in Petro-Canada`s planned Fort Hills oil sands project, one of numerous multibillion-dollar projects on the drawing board in 2007.

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Posted by Maureen Flynn-Burhoe
Filed in Canadian Studies, Economics, Human Geography, Public Policy
Tags: Alberta, dilbit, dilbit corrosivity, energy, oil industry, oil pipelines, oil refineries, oil refinery implosion, oil sands, State Owned Enterprise (SEO)

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2 Responses to “Refining the process: Canada’s oil and the risk-averse nature of the oil industry”

Refining the process: Canada’s oil – a webliography | Speechless Says:

February 26, 2015 at 12:07 am
[…] Webliography for Refining the process: Canada’s oil and the risk-averse nature of the oil industry […]

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Refining the process: Canada’s oil and the risk-averse nature of the oil industry 2015 | Speechless Says:

February 26, 2015 at 2:24 am
[…] Pipelines and/or refineries? What are the environmental costs for both? […]

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