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Why OPEC Wants to Put Oil-Sands Projects Out of Business

Bloomberg’s Alix Steel updates the latest commodities markets news. She speaks with Bloomberg’s Scarlet Fu on “Bloomberg Markets.”

24 Comments on "Why OPEC Wants to Put Oil-Sands Projects Out of Business"

  1. Ted Wilson on Wed, 30th Sep 2015 7:51 pm 

    Canada is officially World #3 in Oil reserves and much of their reserves are in Oil Sands.

    Saudis cannot afford to let Canada increase all the production and grab the share of Saudis.

    Hence this discounting of oil prices.
    But how long can Saudi’s keep producing at this low prices, if they run out of Oil, then both the Arabs and the World will be at serious problem.

  2. idontknowmyself on Wed, 30th Sep 2015 7:56 pm 

    An upgrader is a facility that upgrades bitumen (extra heavy oil) into synthetic crude oil. Upgrader plants are typically located close to oil sands production, for example, the Athabasca oil sands in Alberta, Canada or the Orinoco tar sands in Venezuela.

    Think about that. First you have to extract sand, wash it to get some kind of tar. But this tar is not good enough to be refined. So you have to upgraded it by adding hydrogen and carbon to it to make some kind of synthetic crude. Notice that they don’t call oil sand oil, they call it synthetic oils.

    Image how much energy is needed to first extract sand and then upgrade the tar into some kind of oil. Since we are short in net positive energy, for the good of the human specie the oil sand should be shut down immediately in order to preserve real energy that run societal complexity and keeps humans alive.

  3. idontknowmyself on Wed, 30th Sep 2015 8:00 pm 

    By the way nexen was sold to the Chinesse. I guess oil sand are not as profitable as some claim

  4. BC on Wed, 30th Sep 2015 9:45 pm 

    IDKM, yes, sir/madam, and the Chinese are desperate and will find themselves holding assets/reserves they cannot get when their hard landing plays out and they turn inward from the rest of the world to deal with their financial, economic, social, and political collapse.

    China has been here at least four times before, including the White Lotus Rebellion, Opium Wars and Taiping Rebellion, Boxer Rebellion, and WW II, civil war, and Mao’s rebellion/revolution.

    History is rhyming yet again, and China is going down and backwards, along with the rest of us.

  5. rockman on Thu, 1st Oct 2015 7:01 am 

    “…oil sand are not as profitable as some claim.” None of the oil production in the world is as profitable at $45/bbl as it is at $100/bbl. And that includes Saudi Arabia and Russia. As far as the oil sands go they are much more like a manufacturing process then exploration. And however much some projects are slowed or cancelled they’ll come back on line as oil prices justify them. The oil sands are there and recoverable with current technology…all they need is the right price point to be developed. I think folks forget or didn’t even know that the first 1 million bbls/day of production from the oil sands was developed when the inflation adjusted price of oil was less than $40/bbl. If someone wants to argue that the companies that did that were willing to lose money in the process: have at it but count me out of such a foolish debate.

    As far as the KSA protecting market share: protecting from whom? A year ago when oil was twice the current price the KSA was selling ever bbl they produced. I’ve asked before and have gotten no replies from the “protecting market share” crowd: point out even one specific example of when the KSA was unable to sell even a single bbl of oil. I don’t mean to insult anyone but to think that the KSA cares more about whom they sell their oil to then how much they are paid for is almost childlike naivety. After all what is the primary goal of increasing market share? Very simple: to increase cash flow and, hopefully, profit margin. By the KSA continuing to produce at a high rate they are not achieving all of such a goal. In fact they are causing just the opposite in one aspect: profit margin. But while they are hurting their profit margin they are maximizing their cash flow in response to lower oil prices.

    Just consider the headline of the story just below this one: “Saudi withdraws 70 billion from asset managers”. So some folks think that the KSA is willing to give up hundreds of $ BILLIONS in cash flow over the coming years so they can a bigger market share? They’ll give up all those $BILLIONS in revenue while depleting more $BILLIONS from their savings just for the bragging rights over market share? That’s exactly what the “protecting market share” crowd is saying whether they know it or not.

  6. Dave on Thu, 1st Oct 2015 7:29 am 

    When you see an article that calls the tar sands oil sands, you have quite a clue as to the bias of the author. The whole world will be better off when this fiasco ceases to operate. Competitive pressures alone may do the trick.

  7. paulo1 on Thu, 1st Oct 2015 7:38 am 

    When the mideast supplies are disrupted,(and it’s only a matter of time, North America will be very pleased to have and and all Canadian production available, from whatever source. Don’t kid yourself.

  8. paulo1 on Thu, 1st Oct 2015 7:39 am 

    Excuse my mistakes…tired. I meant to say any and all available production….


  9. Kenz300 on Thu, 1st Oct 2015 9:56 am 

    KSA has an increasing internal demand for oil that is driven by subsidies…… that increasing internal demand means that there will be less oil for export.

    The sooner the world moves away from fossil fuels the better. It is time to end our dependency on OIL for transportation fuels.

    Electric vehicles and bicycles are much better options.

  10. idontknowmyself on Thu, 1st Oct 2015 12:42 pm 

    My point is that Canadian tar sand and Venezuela tar sand are energy consumer not emery produce. Tar sand need LNG to transform the tar into synthetic oil making it a energy consumer. Plus they need to heat their building 7 mouth during the year because of the cold.

    Venezuela tar sand oil is shutting down now because they are an energy consumer and cannot outside energy to keep their operation running.

  11. energyskeptic on Thu, 1st Oct 2015 1:23 pm 

    The EROI of mined tar sands is at best 5, and in situ lower than that. This is before refining. After refining the EROI is about 3. If the minimum EROI to sustain civilization as we know it is 12 to 14 (Charles Hall), 10 (Murphy), or 7 (Weissbach), then it will be interesting to see how much is actually mined, especially if natural gas grows scarce. Money confuses the issue. I suspect that low EROI will make tar sands unavailable even if the apparent reason of lack of credit masks the true reason, lack of energy.

  12. Bob Owens on Thu, 1st Oct 2015 2:41 pm 

    The sooner the tar sands goes out of business the better. The forests and streams they have destroyed have existed for hundreds of thousands of years; the tar sands business has existed for 100 years. The sooner it is bankrupt the sooner Nature can try to repair the damage. That will take 1000 years.

  13. apneaman on Thu, 1st Oct 2015 5:04 pm 

    Water Source for Alberta Tar Sands Drilling Could Run Dry
    New research finds the Athabasca River might not be a sustainable source of water oil companies need for the tar sands.

  14. electrorail on Thu, 1st Oct 2015 10:16 pm 

    RE: Water

    Yes, around the coffee table a few years ago, we mentioned that Enbridge would be wise to double up the size of the pipelines, reverse the direction of one of the pipes and tap one of the 1,000’s of small streams in the Kitimat / Terrace / Prince Rupert area.

    Or just a small portion from 10 creeks dropping into the salt chuk…and Alberta could save themselves a lot of grief and AB could halt extraction from the Athabasca…and they’d be heroes.

    1-2 M bbls per day is all they need.

    The AB to AK G7G Railway will be back-hauling water if the Alaskans can spare it…

    But I digress.

  15. makati1 on Thu, 1st Oct 2015 10:54 pm 

    Paulo, when/if the ME erupts, there will be no demand for oil. The end will be in motion. The collapse will be heard around the world, and the TAR sands will stay where they are, forever.

    Why do you think they will be in demand when there will be no consumers left in the 99%?

  16. makati1 on Thu, 1st Oct 2015 10:56 pm 

    Bob, right on!

  17. Davy on Fri, 2nd Oct 2015 6:33 am 

    Energy Skeptic said “EROI to sustain civilization as we know it is 12 to 14 (Charles Hall), 10 (Murphy), or 7 (Weissbach)” I am not the energy expert on this board. My interest are more systematic. I agree with the EROI of tar sands being around 3 or so. I also believe in the 7-14 EROI for modern civilization is likely a requirement of growth.

    My view of oil is different in the measure of EROI for civilization. Since it is foundational and required for the transport and distribution side of our global complexity we can and will use a lower EROI oil source than is healthy for society. In fact it will be a poisonous relationship with low EROI oil used continuing with increasingly damaging effects to society.

    Oil will be used and its value will remain until subsidies from other sources cannot support oil and modern society. As long as you can draw EROI out of other energy sources along with excess capital and labor we will go after expensive oil. I want to add this is only a short term phenomenon of the bumpy descent. It is both irrational to some degree and dysfunctional. It is actually a marker of a decaying civilization that is dated.

    My point is in the end game of civilization when it enters the cannibalization phase when atrophy is consuming our vital infrastructure and resources we will see oil usefulness to society enter it terminal phase along with all the machines that depend on it. Increasingly just in time global trade, mass air travel, discretionary transport, and oil fired electricity are going to become problematic. The lowest efficiency basis of these modern activities will be abandoned systematically. At times this will happen irrationally and with dysfunction both with the abandonment and that what remains.

    A trip as simple as going to the mall for ice cream will increasingly become problematic with scarcity and a deflated economy from demand and supply destruction. When people do not have the discretionary income for ice cream on demand that oil component will decay away. Yet something as unimportant and vital as ice cream at the mall will remain. We are close to this point but it may not necessarily be a light switch event. This may unfold as a long emergency with a gradual decay.

    Since our complex global system is interconnected and irreversible and must grow and any logical degrowth policies will find it difficult to take hold. It is more like all activities will be driven to grow until all suffer a failure and begin the contraction process. Ice cream vendors will continue to try to sell their products to people that still have the wants but the system will be negatively pressuring those abilities and wants.

    It will be interesting to see what remains and what fails and the when and how. We may see a wide variability and randomness globally between all the far flung locals that react differently to decreasing EROI and failing complexity. This is going to be an amazing time for students of collapse which many of us here are.

  18. rockman on Fri, 2nd Oct 2015 7:37 am 

    DAVY – Some good points but once again let me remind folks that EROEI does not determine if a project is pursued. The economic value of the project makes that determination. A project with an EROEI of 10 won’t be drilled if the ROR isn’t satisfactory while a well with an EROEI of 5 would be drilled if the ROR is satisfactory. Oil companies drill oil wells and have never used, and never will use, EROEI to make that decision. Oil sand mining companies have never used EROEI to make decisions on which projects to go after…ROR makes that judgement. As a general rule of thumb EROEI of most drilling projects can’t go below a positive EROEI of 5 or 6 because the ROR of such projects will not be acceptable.

    And once more: folks greatly overestimate the amount of energy it takes to drill a well. Typically it amounts to less the 10% of the total well cost. And one cannot string EROEI together for the various phases of drilling, production, transport, refining and retailing. When my oil reaches a refinery nether the ROR or the EROEI of my drilling effort has any effect on the refining decisions. If my EROEI is 10 and the refinery can’t make a profit they won’t crack my oil. OTOH if I spent $10 million to drill a well that nets me only $9 million I lost money. And maybe the EROEI is only 1. But if the refiner can make an acceptable profit cracking my oil then they do so. Another simple example: I spent $10 million to drill a well that nets me only $1 million from the oil production: lost my ass big time. And the EROEI of the drilling phase truly sucked = 1. But I’m producing the well and it’s make a nice positive cash flow: I sell $20k/month of oil and it costs me only $2k/mth in operating cost. More important: I’m producing 30X as much energy as the energy used to produce that well: IOW EROEI = 30. And the refiner processing that oil makes an acceptable profit but uses I unit of energy for every 3 units produced: IOW EROEI = 3. But the gasoline retainer uses only I unit of energy to deliver 50 units of motor fuel energy: it costs very little energy to pump fuel into your car: IOW an EROEI = 50. So math wizards: what is the full cycle EROEI of a bbl of oil produced from my well? Something of a pointless question since what very that full cycle EROEI might be it still has no control over the dynamics.

    Folks are obsessed with EROEI. I assume that’s because it’s a much simpler concept to deal with then the complexities of the entire process from well head to a vehicle’s fuel tank. But that doesn’t make EROEI a pertinent metric when it comes to what’s actually done in the world of fossil fuels. But I know that won’t stop the obsession so carry on. But from time to time I’ll remind folks it’s a rather meaningless discussion.

  19. Davy on Fri, 2nd Oct 2015 7:57 am 

    I agree Rock in the field at the individual point of production the realities are at another level. My comment was mainly the summation of all those individual points and their effects on society as a whole.

  20. shortonoil on Fri, 2nd Oct 2015 8:09 am 

    “But that doesn’t make EROEI a pertinent metric when it comes to what’s actually done in the world of fossil fuels.”

    I’m afraid that this is a straw man argument. The simple reason that producers do not take into consideration ERoEI in initial evaluations is that there is no way to calculate it until after the well is drilled, and producing. That does not make it a non pertinent metric, it makes it an unavailable metric for the producer. They don’t use it because they don’t have it, and can’t get it until the well is drilled. When the WOR (water oil ration) reaches about 40 to 45:1 the ERoEI has reached its theoretical minimum of 1.43:1 and the well is shut in. As long as the well is flowing, and can cover its lifting cost it will be produced. That is until the ERoEI has reached 1.43 :1.

  21. joe on Fri, 2nd Oct 2015 8:23 am 

    As most people are aware higher prices means higher profit, more sources become profitable as tight oil comes into play. The downside is other sources includes renewable and non oil substitutes like gas. Saudi doesn’t have allot of gas. Iran and Russia does though. Iran wins on either side of the coin too because it has lots of oil. They also have a committed democratically elected leadership which excersizes sovereignty over its foreign policy. US oil companies are hooked on easy money now to replace it’s easy oil.
    As America decries the Russians bombing wahhabi jihadists in Syria it shows its true colours. These jihadists only want to be there because they want to use syria as a base to do another 9/11.

  22. idontknowmyself on Fri, 2nd Oct 2015 9:52 am 

    It is amazing how many people don’t understand what energy is and how it powered our society. Yet you can find plenty of people talking about money concept and how it is responsible for human being well being and comfort and surival. It is not. This society will go down thinking that money and debt caused its collapse when it is the lack of management of energy that is responsible

    I put this link but few will look at it and understand what it really means.

  23. idontknowmyself on Fri, 2nd Oct 2015 9:53 am

  24. Kenz300 on Fri, 2nd Oct 2015 10:19 am 

    We need to speed up the transition away from fossil fuels and move toward safer, cleaner and cheaper alternative energy sources.

    Climate Change is real….. we need to deal with the cause (fossil fuels)

    Listen Up: Pope Calls for the Replacement of Fossil Fuels, Renewable Energy and Solar Subsidies – Renewable Energy World

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