Nò Keystone? Your Loss, Sam

[Virgil Showlion]

A Symbiotic Relationship

Most Americans are well aware that Canada and the US have a rather "symbiotic" oil relationship. Canada ships crude oil down to US refineries, and the US ships the refined product back up to Canadian markets.

Fewer (but still many) Americans are also aware that Canadians pay markedly higher prices at the pump because of this relationship. Transport costs become a major factor, and the nation that controls the finished hydrocarbons controls the lion's share of pricing and profits. This applies not only to gasoline (which is only 15% of what crude oil is used for), but every other petrochemical product imaginable.

However, not many Americans know that the US enjoys a significant discount on Canadian oil. Not only because there is significantly less transportation overhead for importing Canadian crude, but because Uncle Sam doesn't buy Canadian oil at world prices.

There is a simple reason for this: the US is such a good customer that it's really the only Canadian customer. And as such, America has Canada by the cojones (so to speak) to demand lower prices on crude oil.

I mean: who else you gonna sell it to?


Enter the Obama Administration

"Who you gonna sell it to." went from hypothetical to very real when the Obama Administration blocked the Keystone XL pipeline.

As most here probably know, plans were immediately drafted to route a new pipeline through British Columbia to the Pacific Ocean, for shipping to Asian markets.

China, India, Russia may not be as good of customers as ol' Sam (morally speaking), but Sam has said "bugger off" and at least the BRIC nations will pay full price for Canadian oil. Of course, this will also render void the significant discount Sam enjoys on Canadian crude, as Canada is now a world exporter and the laws of supply and demand apply to the fullest.


Enter Pipeline 9B

But this is only one prong of the Canadian workaround. Enbridge has recently announced plans to reverse the flow of major pipeline 9B that runs through central Canada.

The purpose? Rather than ship foreign imported oil that arrives at Montreal down through Canada to the US, 9B will ship Alberta oil to refineries in Ontario and Quebec. Many refineries still exist here, but were either shut down or are being run at fractional capacity when the "Canada produces, US refines" symbiosis started. Enbridge is eager to partner with the refineries and make the whole operation "local" once again. Ontarians, minus some environmental groups that nobody cares about, are also enthused by the prospect.

Enbridge is by no means alone in their enthusiasm to "relocalize" Canadian oil refining. And why not? The US clearly doesn't want it.


Your Loss, Sam

Let us know how it goes with all those super-successful and definitely-not-20-times-as-expensive green energy initiatives, provided China doesn't buy up all the infrastructure first for pennies on the dollar.

Some have conjectured that when (not "if", when) Pres. Obama is elected for his second term, his first act will be to reverse the Keystone decision, which would (rather ironically) be both an incredibly wise and incredibly underhanded thing to do.

If he doesn't, enjoy paying $4.77/gal. at the pump, which is the equivalent of what we're paying here in Ontario.

And your oil refineries? Hey, it's not like the US needs jobs right now. You'll need workers to put up those 2.8 million wind turbines, and the State of Nevada won't bury itself in solar panels.

Not sure where you'll get the energy and hydrocarbons necessary to build those things, but I hear fracking the snot out of national wilderness preserves will ease the pain.

[wyouser]

Kudos to you Virgil!

[weltschmerz]

If he doesn't, enjoy paying $4.77/gal. at the pump, which is the equivalent of what we're paying here in Ontario.
---------------
We're paying $5.31.

[ChiTownVenture]

Some have conjectured that when (not "if", when) Pres. Obama is elected for his second term, his first act will be to reverse the Keystone decision, which would (rather ironically) be both an incredibly wise and incredibly underhanded thing to do.

Hasn't it always been "when"?? Obama is asking for a reroute not a cancellation.

"TransCanada, the company seeking to build the 1,700-mile Keystone XL pipeline from oil sands formations in Alberta to Gulf Coast refineries, received the final go-ahead from the federal government on Friday for the southern leg of the project.

The Army Corps of Engineers granted the final permits for a 400-mile portion of the pipeline that will run from the major oil depots of Cushing, Okla., to refineries on the Texas coast.

President Obama has blessed the southern portion of the pipeline, now dubbed the Gulf Coast Project, while withholding approval on the far more controversial section of the pipeline that runs from Canada through the northern Great Plains.

Mr. Obama has said that the company must reroute the pipeline to avoid sensitive lands and waters before he will consider granting a construction permit. That decision will not be made until after the November presidential election."

green.blogs.nytimes.com/2012/07/27/keystone-pipeline-advances/

[Virgil Showlion]

Hasn't it always been "when"?? Obama is asking for a reroute not a cancellation.

I was under the impression that "avoiding sensitive lands and waters" was not something the various stakeholders knew was possible. Other than that, fair point.

The BC pipeline and Line 9B reroute are now going ahead regardless of whether the Keystone decision is reversed.

[vandalshandle]

Having lived very close to "Cancer Alley" in Louisiana, which is a corridor between Baton Rouge and New Orleans, on the Mississippi River, where the heart of the Petrochemical industry is located, I wish Canada and Canadians, "Good Luck!" with their reinvigorated petroleum refining industry!

[skweet]

Romney will approve the pipeline day one of his term, and build it himself if he has to.

I thought Obama was stopping Keystone because it didn't fit his ideals of powering industry with rainbows and the dreams of small children, and powering cars with pixie dust and leprechaun farts. It is good to know he is more pragmatic and just trying to get that sweet Canadian at a discount.

[Virgil Showlion]

Aug 14, 2012 17:26:24 GMT -5 vandalshandle said:

Having lived very close to "Cancer Alley" in Louisiana, which is a corridor between Baton Rouge and New Orleans, on the Mississippi River, where the heart of the Petrochemical industry is located, I wish Canada and Canadians, "Good Luck!" with their reinvigorated petroleum refining industry!

Refineries can cause problems. Refinery technology has made leaps and bounds in the past few decades, however. In Canada, at least. It seems reasonable to think the same would be true for the US.

As for pipelines, Enbridge boasts a "99.9999%" safety record. I looked into this and discovered that it means 'of all the land affected by the installation of Enbridge pipelines, only 0.0001% (one one-millionth) of this land has ever, at any time, been contaminated by pipeline product (oil, gas, or what have you).

Line 9B has been operating since the early 1970's without incident.

I thought Obama was stopping Keystone because it didn't fit his ideals of powering industry with rainbows and the dreams of small children, and powering cars with pixie dust and leprechaun farts. It is good to know he is more pragmatic and just trying to get that sweet Canadian at a discount.

Maybe if the pipeline is rerouted under several orphanages? The orphans' dreams will leach into the crude and we'll have "dream enriched" oil.

[Deleted]

Where does the OP come from?

To be honest, I think a lot of the interpretations of the facts are not quite right. It also neglects the resurgent US oil industry and the fact that Canada relies heavily on US condensate to dilute it's crude into something that can be pumped down pipelines.

[vandalshandle]

Virgil,
Well, maybe Canadian refineries are safe. All I know is that when my wife's first husband came down with leukemia at the age of 49, the first thing his doctor wanted to know was how close he had lived to a refinery. The answer was, "3 miles east (downwind) of Tenneco for 30 years". He died at age 51.

[Don Perignon]

Stir it up, verge. Do your best.

meh.

[Virgil Showlion]

I wrote the OP.

If you take exception to the facts as presented, you'll have to point out which ones specifically. All of the info about Enbridge's plans to redirect Line 9B and restart (or more appropriately, make business deals that will make it profitable for the refinery owners to restart) decommissioned or underutilized Ontario refineries comes straight from an Enbridge PR man.

I'm not saying it's "game over" for the symbiosis, but the BC pipeline especially that opens up Canadian oil to world markets is something that Uncle Sam definitely doesn't want. And plans for the BC pipeline came about directly as a result of the Keystone XL block in the US. A lot of people had done a lot of preparation and sunk a lot of capital into that venture, and to have it blocked at the last minute (for what most feel is nothing but political reasons) did not sit well with them.

Virgil,
Well, maybe Canadian refineries are safe. All I know is that when my wife's first husband came down with leukemia at the age of 49, the first thing his doctor wanted to know was how close he had lived to a refinery. The answer was, "3 miles east (downwind) of Tenneco for 30 years". He died at age 51.

I won't say they're "safe", because safety is always a relative term.

They've caused "dead zones" in Canada, so I have no problem believing they can cause cancer.

I can tell you that the materials, engineering, designs, safety protocols, and plant efficiencies have improved by leaps and bounds since the 1970's, which was Canada's last oil refining heyday. I would suspect (although I have no statistics on-hand) that illnesses related to refinery operation are far less common today than a few decades ago.

In addition to this, soil testing, water testing, etc. for contaminants is done more frequently today, standards are much higher, independent testing is much more common, and (due to the overwhelming negative press when something goes wrong) companies are more willing to act when contamination is detected.

[Deleted]

Vandal--A refinery 30 years ago and a refinery today are probably nothing alike. And no disrespect, but who's to say that wasn't just coincidence. A refinery these days shouldn't be emitting a whole lot besides CO2 and water vapor.

[Deleted]

Virgil, for example:

I don't know a lot about the Canadian dowstream oil industry, but it looks like Canada refines most of it's own oil. The US doesn't really export much in the way of refined products to Canada.

I think the deal with 9B is that Canada produces a ton of it's own oil but still has to import expensive foreign crude because they can't get their oil to their refineries. Canadian refining capacity, like US refining capacity has grown over the years.

But that certainly doesn't negate the "Your loss, Sam" portion of what you wrote. They're going to sell their oil to the highest bidder. And they should.

[usaone]

Aug 14, 2012 20:47:15 GMT -5 @investorbob said:

Where does the OP come from?

To be honest, I think a lot of the interpretations of the facts are not quite right. It also neglects the resurgent US oil industry and the fact that Canada relies heavily on US condensate to dilute it's crude into something that can be pumped down pipelines.

Good points. We are now a NET OIL EXPORTER. Our oil industries are booming.

[Virgil Showlion]

My understanding of the pipeline going west to the Pacific is that it was planned for quite some time, and is independant of the current dust up over the Keystone pipeline.

It had always been a possibility. They had the plans in mothballs somewhere. The Keystone pipeline was the catalyst for pushing forward with it, make no mistake.

Good points. We are now a NET OIL EXPORTER. Our oil industries are booming.

You still import ~2,500 bl/day crude and ~3,000 bl/day petroleum from Canada.

This article by the US-based Business Insider explains why the "NET OIL EXPORTER" label is a myth.

In fact, it describes precisely the symbiosis I described.

I do know that Canada refines oil. Irving has a huge refinery in St. John New Brunswick. A quick look at wiki says they have a total of 12. Of course the tar sands oil is a new resource for them, and they need to either refine or export it.

Canada has refineries and export petroleum products to the US. My father headed up a major portion of an upgrader project before he retired, and I got to tour around massive refineries in Northern Alberta. But Canada's refining capacity is nowhere near our crude oil production capacity.

[Virgil Showlion]

Oh, I think it was well in the works by then

True. As the article says, though, progress had been slow to nonexistent since 2006. What I know is that several engineer buddies from Petro-Canada were called up on grueling shifts for the Northern Gateway pipeline straight from the stalled Keystone project. They said management had lit a fire under them. If nothing else, it suggests that engineering of the pipeline was accelerated by the decision.

[AgeOfEnlightenmentSCP]

Most Americans are well aware that Canada and the US have a rather "symbiotic" oil relationship. Canada ships crude oil down to US refineries, and the US ships the refined product back up to Canadian markets.

Most Americans are not well aware of anything.

[weltschmerz]

Most Americans are not well aware of anything.
--------------------
Nonsense! They're always aware of the latest comings-and-goings of the Kardashians, and always on top of Dancing With The Stars.

[Deleted]

"Good points. We are now a NET OIL EXPORTER. Our oil industries are booming."

No way. We import about 50% of the oil we use (down from 65%).

[Deleted]

"They said management had lit a fire under them. If nothing else, it suggests that engineering of the pipeline was accelerated by the decision."

They need a new outlet for their oil. If they can't make progress on their preferred option, the secondary option moves up on the list. The transportation bottlenec is resulting in the price of Canadian crude being maybe $20/bbl lower than it otherwise would be if they could get more oil out. It's not a "US price" vs "world price", though. Keystone XL would also drive up the price of Canadian crude (and drive down the price of all other types of crude).

[Deleted]

"Canada has refineries and export petroleum products to the US."

The us imports about 0.5MMbpd and exports about 0.3MMbpd, for a net import of 0.2MMbpd. This means that Canada is not getting any net barrels of refined products from the US. Canadian refining capacity has increased significantly over the past 30-40 years, and they're not getting any significant portion of their refined products from the US.

"But Canada's refining capacity is nowhere near our crude oil production capacity."

Of course not. That's why they want to export it all. But Canada IMPORTS expensive foreign crude oil on it's east coast rather than using it's own. That's why the pipeline is being built to the east. To reduce dependency on foreign oil.