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Keystone pipe dream, or pipeline?
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mac



Joined: 07 Mar 1999
Posts: 5386

PostPosted: Mon Mar 04, 2013 1:12 pm    Post subject: Reply with quote

mrgybe--how's that Tea Party thing working out for you? Not so well in California, or in Senatorial races. I hear that you are now committed to knowledge and understanding in governance. What happened to change your mind?
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mac



Joined: 07 Mar 1999
Posts: 5386

PostPosted: Mon Mar 04, 2013 1:40 pm    Post subject: Reply with quote

Why would anyone describe oil companies as "pig oil", a term used in a campaign about twenty years ago? Perhaps someone who has watched Chevron try to evade taxes and accountability for their Richmond refinery? See for example: http://www.pacinst.org/reports/tax_revenue_chevron/tax_revenue_fact_sheet.pdf

or from the councilmember: http://www.halfwaytoconcord.com/chevron-property-tax-appeal-exposes-raw-nerves/

Chevron, of course, has appealed the valuation of their property for property tax purposes. After losing on appeal, they have done everything possible to stall and disqualify all assessors.

Then there is their approach to fines levied by Cal OSHA for their safety practices after the big fire: http://www.halfwaytoconcord.com/chevron-property-tax-appeal-exposes-raw-nerves/

Of course that was for knowing violations, exposing Chevron to liability. The fines are rather trivial, given the amount of damage done to the refinery. Yet Chevron remains in full court press mode, fighting the air pollution control district, the City of Richmond, and Contra Costa County, and insisting that they have a right to repair the facility with no upgrades to improve either safety or air quality.

Mrgybe's arrogance is not unusual in the industry. But none is so ignorant as those who will not look.
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pointster



Joined: 22 Jul 2010
Posts: 223

PostPosted: Mon Mar 04, 2013 2:04 pm    Post subject: Reply with quote

Questions for MrGybe:

Why don't the Canadians build a refinery in Canada and ship the finished products South using existing pipelines? Is the cost of a transcontinental pipeline that much less than the cost of a refinery?

Wouldn't a refinery designed from scratch for the properties of the Alberta synthetic crude be more efficient and thus more profitable?

Also, I understand the synthetic crude from Alberta tar sands is difficult to transport safely, due to viscosity and corrosivness. Wouldn't any additional pipline capacity be cheaper and safer if it were transporting finished product?

I don't understand why I don't find these issues being discussed in the coverage of Keysone XL - it all seems to be White Hat vs. Black Hat stories.

Perhaps you can point me to some sources where these issues are dicussed.
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capetonian



Joined: 11 Aug 2006
Posts: 903
Location: Oahu

PostPosted: Mon Mar 04, 2013 3:11 pm    Post subject: Reply with quote

Poinster, a pipeline is a LOT cheaper than building a new refinery. There are existing refineries that are underutilized, so cheaper to retrofit those to handle heavy crude than to build a new one in Canada.

With current air quality regulations the economics of a new refinery just don't pencil out. Majority of the new refineries are being built today in India and China where they don't have the same air quality regulations. Personally I am glad we have those air quality regs, any one care to compare the air quality in Los Angeles today with the air quality in the 1960's?

Question of morality of exporting crude to locations with lower air quality regs is irrelevant. Crude coming from Keystone won't be shipped to China. It will displace Colombian/Venezuelan/etc crude currently imported into the US. The Colombian/Venezuelan/etc crude will be shipped to China instead. Net result is both we and the Chinese will benefit from lower global price of crude oil.
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mrgybe



Joined: 01 Jul 2008
Posts: 2731

PostPosted: Mon Mar 04, 2013 3:24 pm    Post subject: Reply with quote

You may also wish to investigate why a new oil refinery hasn't been built in the US since 1976. The same people that oppose the pipeline oppose new refineries.
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windoggie



Joined: 22 Feb 2002
Posts: 2406

PostPosted: Mon Mar 04, 2013 3:48 pm    Post subject: Reply with quote

mrgybe wrote:
You may also wish to investigate why a new oil refinery hasn't been built in the US since 1976. The same people that oppose the pipeline oppose new refineries.
That doesn't seem to be the case. I did a bit of google investigating and found several other reasons...mainly its because oil companies don't want to build them. This one in interesting...
http://www.usnews.com/opinion/blogs/on-energy/2011/07/29/no-new-oil-refineries-since-the-1970s-but-capacity-has-grown

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coboardhead



Joined: 26 Oct 2009
Posts: 1960

PostPosted: Mon Mar 04, 2013 3:53 pm    Post subject: Reply with quote

And this from factcheck

http://factcheck.org/2008/05/us-oil-refining-capability/

It is a bit more complicated than Mrgybe indicated.
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pointster



Joined: 22 Jul 2010
Posts: 223

PostPosted: Mon Mar 04, 2013 4:00 pm    Post subject: Reply with quote

Capetonian,

Could you provide any numbers to support your assertions? Or any sources for such numbers?
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capetonian



Joined: 11 Aug 2006
Posts: 903
Location: Oahu

PostPosted: Mon Mar 04, 2013 5:10 pm    Post subject: Reply with quote

Most of it is from meetings with oil company employees.

Since there hasn't been a new from the ground up refinery built in the US since 1976, hard to get an accurate data point on the cost of a new refinery. I remember back in early 2008 one of the companies (Valero?) estimated a new refinery would cost $10 billion. You can probably add >20% for inflation to that number. The cost to expand an existing refinery runs in the hundreds of millions, and the cost to retrofit an existing refinery to process heavy crude is probably $2-$4 billion depending on the existing facilities. In contrast Keystone XL will cost just over $5 billion and will supply multiple refineries.

Considering the volatility of the crack spread (currently >$35 / bbl, but the 5 year average is about $10 / bbl, and you still have to pay all your operating and capital costs out of that) would you want to risk $10 billion? Maybe if the gov insured the bonds and you only had to put up minimal equity?

A quick google search gave me this reference for new refinery locations - http://finance.yahoo.com/news/research-markets-planned-oil-refineries-133800038.html?desktop_view_default=true
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mac



Joined: 07 Mar 1999
Posts: 5386

PostPosted: Mon Mar 04, 2013 5:14 pm    Post subject: Reply with quote

A bit ago I opined:

Quote:
However, I don't think that the economics are a lock--Obama's approach of all of the above has resulted in more natural gas and domestic oil, both at a lower cost per BTU I do believe. So I don't think implementation of the project is a lock--and if not, pig oil executives will look for ways to blame enviros and Obama rather than markets.


triggering the typical scornful response--with no factual rejoinder, from mrgybe. He continues to blame enviros for oil companies not expanding refineries, avoiding entirely the game that oil companies play trying to keep the old air quality and safety rules for their refineries.

I only ventured my guess that there is competition for oil prices that might make the oil sand project pretty risky. It does pay to look at the economics in a little more detail--and of course mrgybe doesn't provide coherent arguments or facts, only snide comments. So soil companies in California, and the State, are looking at the potential of extracting oil from the Monterey shale formation through hydraulic fracturing. http://www.nytimes.com/2013/02/04/us/vast-oil-reserve-may-now-be-within-reach-and-battle-heats-up.html?pagewanted=all&_r=0 I've not seen any direct comparisons between Monterey Shale oil and Canadian oil sands, only analyses that indicate the latter is feasible at oil prices of $85/barrel and a huge profit center at $147/barrel. But like all speculative ventures, it involves risk, and the investors of $7 billion for a pipeline are going to want to see a revenue stream on the order of $350 million a year.

Certain assumptions were made when this project was initiated, and it is interesting to review them. From From Canada’s National Energy Board:

Quote:
The supply cost projections and project economic analysis presented in this chapter are based on operational and market assumptions. Significant changes to these underlying assumptions may alter the results of the analysis materially. The following are the key risks and uncertainties to the outlook:
• Crude oil prices: Oil sands are relatively expensive to produce; a significant drop in oil prices may lead to poor economics for many existing and potential projects. The persistence of wider than average light/heavy differentials will negatively affect project economics for those producers marketing heavy blends.
• Capital costs: Oil sands projects, particularly those involving upgrading facilities, are very capital intensive and project economics are extremely sensitive to capital costs. Continued escalation in raw material and labour costs will have a material impact on supply costs and project economics.
• Natural gas costs: Both integrated mining and thermal in situ operations are intensive users of natural gas. Over the past several years, the price of natural gas has increased substantially. The future price of natural gas and the development of alternatives, including fuel substitutes and gasification, will have a material impact on supply costs and project economics.
• Diluent availability: With WCSB supply of the traditional blending agent, pentanes plus, flat to declining, and demand from bitumen producers increasing, prices for diluent are rising. There are pipeline proposals to import diluent into Alberta. The future cost of blend stock will affect project economics.


Am I alone in surmising that the economics for Canada oil sands might not be so rosy? Well, there is the matching viewpoint of Greg Weston, a high ranking official in Canada’s Department of Natural Resources http://www.cbc.ca/news/politics/story/2012/11/01/pol-weston-oilsands-warnings-financial.html

Finally, all energy sources compete with each other to some degree. Fracking has driven the cost of natural gas down to below $4.50/MBTU, while at $85/barrel, oil prices are about $8.50/MBTU. That makes extraction of oil from coal sands more economical because extracting oil from oil sands requires natural gas, and the lower price of shale natural gas has actually increased oil sand production, according to http://www.technologyreview.com/news/423582/canadas-oil-sands-on-the-verge-of-a-boom-again/page/2/ The greenhouse gas concern comes because it takes one unit of energy—natural gas—to extract 5 units of energy from oil sands. For conventional oil, that is ten units of energy for one unit in production.

So in the market world, the oil companies will cry cheap on every issue--the mitigating the environmental impacts of pipeline construction, mitigating the increases in carbon dioxide, and so forth. But if the economics are good for the pipeline it will go forward. If the economics are bad, they will blame Obama and enviros. And the flacks like mrgybe will make snide remarks rather than explain. Their explanations are limited to talking points.
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