Gas Prices

[WestCoastEcho]

Originally Posted by whatnext

Hmm, not according to the Financial Post or Global:

'A devaluation of oilsands assets': New rules on sulphur will make a fifth of output uneconomic within two years

From the lack of available pipeline capacity to the potential adoption of electric cars, there is no shortage of threats facing the Canadian oilsands. But the latest menace lies in a seemingly innocuous and highly common element: sulphur.

Long a byproduct of the heavy oil industry, sulphur is so common that it’s become a part of the general landscape at mining sites such as Syncrude Canada Ltd.’s Mildred Lake facility (now majority owned by Suncor Energy Inc.), where massive blocks of sulphur byproduct are stacked several storeys high, like a kind of yellow-stained low-rise apartment complex.

But global regulators are now trying to stem sulphur-dioxide emissions in a widespread crackdown, one that could shrink the market for heavy crude and force Canadian oilsands companies to stomach an even steeper discount for their product...

...CERI released a report at the end of July that found as many as 574,000 barrels per day of oilsands production, or roughly 20 per cent of unconventional oil projects, would not be economic under a scenario where sulphur levels are lowered to the new IMO standards...

https://business.financialpost.com/commo...ate-threats-to-canadas-oilsands-industry

New marine fuel standards expected to tank oilsands crude prices in 2020

Canada’s oilsands industry, hard hit by a price storm this year, could be sailing straight into a pricing typhoon stirred up by new fuel standards for the international shipping industry.

The tighter pollution rules by the International Maritime Organization, dubbed IMO 2020, are set to take effect Jan. 1, 2020, resulting in the sulphur content limit of “bunker” fuel on ships dropping from 3.5 per cent to just 0.5 per cent.

The switch is expected to wallop prices for heavy oil containing high levels of sulphur — exactly the kind of the raw bitumen that makes up about half of Canada’s 4.4 million barrels per day of crude oil production...
https://globalnews.ca/news/4259018/2020-marine-fuel-standards-oilsands-crude-price/

This analysis is better:

https://www.schroders.com/en/sysglobalassets/digital/insights/2018/pdf/imo-report2.pdf

See page 6 and 7:

Lack of refiner investment:

Unlike previous investment cycles, the prospect of growing electric vehicle demand reducing future gasoline and diesel demand, coupled with shareholder demands for return of capital, has prompted greater capital discipline amongst refiners. Consequently fewer large new refineries (designed to take more light crude) have been sanctioned over the last three years(apartfrom the Middle East). Instead a greater amount of capital is being returned to shareholders by refiners (for example 60% of FCF generated by Phillips 66 and Marathon this year will be returned through buybacks or dividends). Likewise, the downstream segment has been a significant FCF generator for integrated energy companies, and is subject to the same capital discipline applied to the upstream business.

Global crude slate:
Venezuelan production (previously a source of heavier crude) has fallen around 0.8mb/day since 2016 and US onshore light shale crude has increased its share of the global market. PDVSA’s cash flow issues has resulted in many US refiners being unwilling to transact with them.This means that there will be less heavy and medium grade crude, just when more is required. Most refiners are already taking the maximum light crude they can whilst maintaining their product split. Refiners in the US are now focused on increasing their imported volumes of heavy crude from Canada and Maya(Mexico).

Discussions with refining managers suggest that at current utilisation rates European refiners are maxed out in terms of distillate production. They therefore cannot bring much production online in reaction to any change in demand and price, without changing their crude slate or upgrading their facilities.

The first thing refiners will do in reaction to higher distillate demand is increase utilisation in Asia and Europe (where there is spare capacity). However, incremental distillate production beyond that will require investment in refineries to increase cracking capacity, or greater desulphurisation capacity. The more complex refiners with morehydrotreating/coker/hydrocracking capacity are in a better position for a post IMO 2020 market, because they have flexibility on what crudes they take, and can even take in HSFO and crack this into distillate (through cokers)and hydrotreat to remove sulphur (below the 0.5% threshold).