[SamInNebraska]

Starting tomorrow, nobody will really five a damn if that pipeline gets built at all. Election is over. Move along. Next topic. Reality and rational thought have no place in the discussion.

Certainly tomorrow I will still care. The concept of the politicians not revealing their true agenda until after election I will grant you.

[shortonoil]

The energy costs to produce tar sands crude is almost twice that of conventional crude; 25K BTU/gal verses 14K BTU/gal for conventional. It is likely that Syncrude contributes almost no energy to the end consumer; it is mostly consumed in the production process. Conversion is only about 20% efficient. Syncrude will have no future past the age of conventional oil. It is not a substitute for C&C and never was; it is the conversion of NG into a liquid fuel, at a very high energy cost.

[Graeme]

Exxon Mobil Begins Production at Kearl Oil Sands After Delays

Exxon Mobil Corp. (XOM), the world’s largest company by market value, began production at its Kearl oil sands project in Alberta, which is projected to produce 4.6 billion barrels of recoverable oil in the next 40 years.

The project will produce 110 barrels per day later this year and that’s expected to double by late 2015, the company said in a statement. The Kearl site is 46 miles (75 km) northeast of Fort McMurray, Alberta, and is operated by Imperial (IMO) Oil Ltd., which is 70 percent owned by Exxon Mobil.

“Kearl is a historic development for Imperial,” Richard Kruger, Imperial Oil’s chief executive officer, said in a statement. “Kearl is the largest project we’ve ever undertaken and the beginning of a period of substantial growth for the company that will see us double production to more than 600,000 barrels per day by about 2020.”


Imperial plans to avoid the impact of selling Kearl’s output at lower prices for oil-sands crude relative to the U.S. benchmark by transporting it to refineries owned by Imperial and Exxon, Kruger said April 25. Imperial also is looking to secure rail cars for transporting some of the crude, to avoid a pipeline shortage from western Canada that’s depressing prices.

bloomberg

[ROCKMAN]

Graeme – Interesting update. Thanks. A couple of interesting tidbits I found. Unlike much of the other oil sand development being done with wells and the SAGD process Kearl will be open pit mined. And XOM put this project on the board over 16 years ago.

[vtsnowedin]

The project will produce 110 barrels per day later this year and that’s expected to double by late 2015, the company said in a statement. The Kearl site is 46 miles (75 km) northeast of Fort McMurray, Alberta, and is operated by Imperial (IMO) Oil Ltd., which is 70 percent owned by Exxon Mobil.

Bloomberge left off a few zeros on the daily production estimate.
I would like to know what their projected FOB cost of finished product is. At anything like 600,000 barrels per day their cost would set the floor price for US crude.

[SilentRunning]

Another demonstration of the validity of peak oil. If conventional oil was able to keep up with demand, there is absolutely no way that the oil companies would even consider these very marginal methods that have abysmal ROI and EROEI numbers.

[PrestonSturges]

It's significant that they call it "oil sands" because there is so much stuff that is NOT oil that pundits and PR people try to lump into proven reserves of crude oil. That's how the popular press comes up with BS about the "US has more oil than Saudi Arabia" - by counting unrecoverable kerogen as recoverable oil.

Presumably these "oil sands" are the 10% of the total that can actually be called OIL rather than "tar sands."

[shortonoil]

On Kearl, straight from XOM and Imperial:

Kearl Oil Sands

The author of the article makes two comments that I can't find any substantiation for:

1) That Imperial intents to "rail" the product to market; the XOM and Imperial sites say it is going out by pipeline (Market Acess page 4). Keystone delay?

2) That the dilbit is going to XOM and Imperial refineries. The only significant refinery upgrades for heavy crude reported lately for the US is BP's Whiting in Indiana.

Without published steam to bitumen ratios it is impossible to estimate the ERoEI for Kearl. But the Kearl Detailed Assay page 8, gives heat of combustion numbers for light and heavy naptha. These are for some reason about 500 BTU/lb less that what would be expected for naptha of the specified API.

Considering that XOM's reserves have been in decline for a very long time, and the only thing that Wall Street can comprehend is Reserves, Reserves, Reserves this project will have great PR value for them -- if nothing else!

[ROCKMAN]

I agree about the advantage XOM gains by going forward on this project if for no other reason than to add booked reserves. I've seen them pay premium prices for other production acquisitions where they left a good bit of the profit on the table. Their profit margin on the oil sand project may be minimal but that may not have been the primary goal. There’s very little a company the size of XOM can do to change their profitability of their operations. There’s even less they can do to change their reserve base with a drill bit. But the magnitude of the proved reserve gain seen by putting their oil sand project on the books is a huge gain they could never do with the drill bit.

[Graeme]

Alberta sinking billions into pipeline plan to send oil east

Alberta is pumping billions into a plan to send oil to Canada’s eastern provinces. And it will pay hundreds of thousands of dollars more in annual fees to support a domestic refinery.

The apparent mismatch of a free-market touting province with deep conservative roots underwriting energy infrastructure has emerged as international scrutiny and political wrangling sideline pipelines and competition makes upgrading bitumen into refinery-ready oil uneconomic.

Alberta, which derives one-third of its overall revenue from the energy industry, is counting on a program that lets it collect Crown royalties as bitumen instead of cash to create value-added jobs and build consensus for east-west pipelines that, if built, stand to open an important new market for Canadian oil.

The government is “fundamentally part of the market,” from selling leases to approving projects, setting tax policies and marketing crude, said Andrew Leach, associate professor of energy and environmental management at the University of Alberta’s School of Business.

“The real question is, does the province take that into account and act strategically or do they sort of ignore it and make decisions which don’t take into account the size of their role or the way it’s integrated across all these aspects?”

Alberta has the option to collect 400,000 barrels a day of bitumen instead of cash royalties. It signed an agreement in March to purchase up to 100,000 barrels a day of firm service on TransCanada Corp.’s proposed Energy East pipeline.

Calgary-based TransCanada wants to convert portions of its Alberta-to-Quebec natural gas system to carry oil and extend it 1,400 kilometres to Saint John, N.B., home to Irving Oil Ltd.’s 300,000-barrel-a-day refinery.

financialpost

[Blacksmith]

You would think Alberta would remember The National Energy Policy.

[Plantagenet]

The apparent mismatch of a free-market touting province with deep conservative roots underwriting energy infrastructure

???

You can't have a free market without energy infrastructure and it is the job of the government to build and maintain the infrastructure.

Alberta, which derives one-third of its overall revenue from the energy industry, is counting on a program that lets it collect Crown royalties as bitumen instead of cash to create value-added jobs and build consensus for east-west pipelines that, if built, stand to open an important new market for Canadian oil.

This is nothing new. Alaska takes 1 in 10 barrels of oil as "royalty oil" from Prudhoe Bay, in addition to the taxes the oil companies pay and Alaska is partnering with pipeline companies to build a NG pipeline.

----------

[ROCKMAN]

"This is nothing new. Alaska takes 1 in 10 barrels of oil as "royalty oil" from Prudhoe Bay." And the US govt has the same option and has done so in the past. Much of the SPR oil came from in-kind royalty payments from production in the GOM.

[FoxV]

Personally I'm a fan of the "Oil East" pipeline. But wow, Alberta is really whoring itself to big oil in this scheme.

They would rather take on the responsibility of holding, upgrading, marketing and distributing the world's worst quality oil than just take cash. I guess that's of course because Governments make such great entrepreneurs.

And why does big oil need this kind of public coddling anyways?

I hope Albertans are sufficiently embarrassed, and worried, by this.

[ROCKMAN]

Fox - I'm not sure what you see as coddling. These marketing rights of any oil production is a significant asset. The companies would much prefer the govt just take a check. As far as the responsibilties I assume the Alberta govt will use third parties for hire just as most companies do. Given how sophisticated Alberta is they may have their own marketing division. By taking the oil in kind the Alberta govt will have much greater control then otherwise. How valuable are the marketing rights Alberta is taking from the companies? I'be seen tens of $millions paid for such rights as Alberta is taking for free from the oil companies.

[rockdoc123]

They would rather take on the responsibility of holding, upgrading, marketing and distributing the world's worst quality oil than just take cash. I guess that's of course because Governments make such great entrepreneurs.

And why does big oil need this kind of public coddling anyways?

I hope Albertans are sufficiently embarrassed, and worried, by this.

Alberta will see it's share of the prize through increased revenues from royalties. Currently the price for Alberta heavy crude is heavily discounted and seeking other egress such as eastern Canada or through a western port would allow for higher commodity sale prices and hence greater royalties to the province. In Canada the federal gov't has final say on pipelines but the lobbying between provincial gov'ts is important as pipelines generally mean jobs along the way, not just in Alberta.

It's a win/win for oil companies and the province and the direct royalty effects benefit the people of Alberta as well (more provincial revenue available for capital projects which have been delayed).

[FoxV]

Fox - I'm not sure what you see as coddling. These marketing rights of any oil production is a significant asset

Alberta will see it's share of the prize through increased revenues from royalties.

Oh, I'm not saying it isn't. 400,000bpd (currently 1/4'ish of alberta's total production) is a Huge and valuable asset. However so is a 400,000bpd equivalent pile of cash. Unless I'm missing something, this receipt of oil is in lieu of cash royalties.

I've been around Alberta and I've worked for the government. I don't see anything different in Alberta that I didn't see in Ottawa. So the thought of a government body becoming an active Corporate entity in any market should raise alarm bells. What is the business model for this enterprise? If all this will just be handed off to third parties to manage, why deal with the headache and risk and just take the cash anyways? Let the third parties deal with the oil directly. That's what they are there for.

It doesn't matter how you slice it, this is an implied price guarantee, and thus a subsidy, for big oil. It's as if Alberta is saying "you produce the oil but don't care about profitability or marketing, that will be our problem." That is not the roll of government.

If they want to sooth producer's concerns about profitability of a project, just negotiate with the royalties. Stepping up and saying they will be the buyer of first resort is shocking and unheard of. At best it will cost tax payers a lot in lost revenue, at worse it will ruin the entire Alberta oil market.

Albertan's have may examples of government ruining their businesses over the years. Just because it's their own government doing it doesn't change the irrefutable fact that GOVERNMENTS MAKE BAD BUSINESSES

And all this at a time when the US is bragging about becoming the next Saudi in 6 years? A cocky and foolish statement maybe, but Alberta would be foolish to blithely dismiss that notion as well.

[ROCKMAN]

Fox - I appreciate your concern. If it were a US govt agency I would be very concerned. LOL. But I still not sure I see were you see risk. Maybe you're not aware but the ownership change is all on paper. Alberta doesn't physically recieve the oil. The oil still moves through the same system. But it gives the govt negotiating abilities it wouldn't have otherwise. For instance the may be able to negotiate lower transport fees and maybe a better price. More important they can direct the oil to end users of their choice. If you control enough oil that gives you a leg up cutting deals with refiners

[FoxV]

hmm, starting to sound more like socialism and command economy now. Is the Alberta governement to become the Canadian Nymex?

The risks I'm seeing are all the risks that are stopping all these bit players from getting the money to finance what are essentially speculation projects. A wave of "cheap" oil is about to wash up from the south right as we head in to Great Recession 2.0. Canada is also starting up its own Fracking plays. When this flash in the pan hits the market, bitumen is going to be going for pennies on the dollar.

Don't get me wrong, I think Canada needs the Eastern pipeline. It just doesn't sound right for the Alberta Gov to underwrite it while at the same time diminishing the value their royalties. If it's about negotiating terms or prices for producers, then I could see them sponsoring a cooperative or something similar. But to be custodian of what is essentially 50% of the capacity of the new pipeline, that just seems too much like Government trying to be a business man when we all know that always ends badly.

btw, on a personal note, the Eastern pipeline will basically be coming through my back yard and along a river I kayak on. So maybe I'm being an advocate for my own devil, but I still see it as a good thing.

[ROCKMAN]

Fox - I think I get it now. More concern about the p/l investment I gather. Very valid concern. Typically p/l's can take 5 to 7 years to recover the initial investment. But that assumes the nominal flow rate. If demand goes down and the volume is reduced it will have a negative impact. Won't usually lose money but will get a very poor ROR. Which is one reason Alberta taking the royalty oil in kind can reduce the risk somewhat: they can dictate the oil be transported thru any p/l they help pay for even if someone else offers a lower rate.

I don't know much about the Alberta govt but from chatting with some Canadian geologists they are pretty good at the game. A very different breed than our USGS. That doesn't mean they can't make bad bets. There is nothing certain about the oil business. There's always a risk whether one recognizes it or not.