Maybe compared to 2008 when $150 oil allowed us to refine any kind of gunk we could get our hands on. However crude oil is still heavier and sour than it has been in decades past.
How Much Oil Does the World Produce?
One final note about oil production that gets very little attention is the fact that the 83.6 million barrels produced in 2011 is of a lower quality than the 32 million barrels produced in 1965. Crude oil is getting heavier, contains more sulfur (i.e., is more sour) and requires more energy both to produce and to refine. While BP does not track this information, a quick look at the EIA data on crude oil quality confirms it. They only track the data back to 1985, but since then the overall mix of oil going to U.S. refineries is 5.5% heavier and contains 54% more sulfur.
The implications from this are: 1). Refineries have to become more complex to process this oil; 2). The net energy that can be obtained from a barrel of oil is declining; and 3). As a result the costs to process it are higher. This trend will continue as the world uses up the remaining supplies of light, sweet crude oil.
Also, I wonder how much of these refinery problems are more political in nature. After all of the money the US poured into upgrading it's refineries, then Hugo Chavez decies to give the US the finger and ship his heavy sour oil off to China instead. Nevermind that he gets far below market price from the Chinese, and the Chinese have to spend billions on building those same refineries capable of refining heavy and sour crude. It is all worth it to Hugo if it means selling less oil to the evil US. Seems a bit like cutting off your nose to spite your face to me though. Oh well, I think the US will do just fine in this situation. We spend less money importing Venezuelan oil and refine more of our own oil. Meanwhile Venezuela buys it back from us in the form of refined produces like gasoline. I think is is Venezuela and China are in a less than ideal situation because of this. Venezuela gets well below market prices from China for it's oil, hurting Venezuela. Meanwhile political snafus inside Venezuela slow new oil coming online from the Orinoco Tar Belt. China is spending billions building a new refinery capable of refining the heavy sour crude. But it seems unlikely the oil will be there for the refinery anytime soon.
Venezuela After Chávez, a Very Uncertain Place
Beijing has taken a keen interest in keeping the Chávez regime afloat, principally to keep alive the sweetheart deals for Venezuelan oil that Chávez signed away to China. Since coming to power in February 1999, Venezuelan President Hugo Chávez has campaigned against American and Western “imperialism” in Latin America. He has entered into agreements that allow China to purchase Venezuelan oil well below market prices. By 2014, Venezuela will be obligated because of Chinese loans to produce over 500,000 barrels per day, at well below market prices. “China has contributed $24 billion to Chávez’s secretive slush fund over the past year and half.” The Chinese want assurances that a “post-Chávez government will honor its sweetheart deals.”
The opposition is united around Miranda State Gov. Henrique Capriles, who won his party’s primary convincingly in February. He said that contracts with China, Russia, and other nations would be revised to be in keeping with Venezuelan interests.
The Red Apertura
That’s right, the only Orinoco Tar Belt project that’s actually ready to start work (i.e., project finance in place, basic engineering worked out, permits cleared, work ready to start this year) is the construction of a massive new refinery in Guandong province.
This way of managing the Faja is storing up an enormous amount of future trouble in terms of Venezuela relationship with China, our soon-to-be economic overlords. Because, remember, within a few years, the Chinese will have built their big refinery in Guangdong, and the Venezuelan side is going to be late. Very late. The shiny new $8.6 billion piece of kit is going to just sit there.
Except, don’t forget, China’s already paid for that oil! That’s where the Fondo Chino money comes from. If Venezuela doesn’t ship it, we’re looking at defaulting on bilateral debt with a country that will soon be as globally economically dominant as the U.S. was in the early 70s. That Chinese Refinery is an atomic bomb in the making. Pity the poor Capriles minister who gets called in to deal with it.
The oil barrel is half-full.