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Remember this piece of business?
Spend $9.3 billion to have a refinery worth $1.0 billion. Then commit provincial royalty volumes which may cost another $26 billion over 30 years? http://www.nationalpost.com/north%20...938/story.html Quote:
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The article confuses the small portion with the whole portion of the project.
The sources of opposition to this project probably go back to the main players in the alberta fuels market. 40-50 thousand barrels of diesel per day is going to be a downer for esso, shell and petrocans grip on the alberta fuel oil market. I think anyone who buys significant amounts of diesel will appreciate the supply boost. There has been alot of trouble finding diesel for alot of people/companies over the years. People generally dont get refining when they say things like refineries have been shutting down etc. Those refineries were old and capacity expansion at other operations has picked up the difference and then some. Like the esso refinery, yeah winnepeg, calgary shut down but strathcona was built and strathcona produces more than calgary and winnepeg combined.... also, since strathcona esso was built they have increased production by 50 000 barrels per day which is more than the capacity of Ioco which shuttered in the 90's. Petrocan has gone from 14000 barrels/day in the 50's to 144 000 thousand barrels now. It is silly to say companies dont invest in production increases and building new units/debottlenecking etc. When alberta goes from a million to four million people in the last thirty years where do people think the fuel came from?lol capacity to create fuel has had to quadruple over the years. NWR is the answer to future diesel demand in alberta and the economic growth that depends on diesel. |
There is no shortage of diesel in Alberta. Alberta is already a net exporter of diesel. Most of it going to the Pacific Northwest.
Changing bunker fuel rules in 2020 may be the only additional demand for diesel. https://www.bloomberg.com/news/artic...ed-fuel-market |
So what do these people suggest to do as an alternative to manufacturing 120$ barrels of diesel?
Deconstruct the refinery, then Sell bitumin at a loss for 32$ a barrel instead? Lol |
If the 50% part owner wants out just months before completion, I suggest it's not far from being over before it's started
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The refinery/upgrader is already built, it is already here, may aswell make the best of it and if you look at the fact CNRL/murray edwards is involved in the other half i am sure these guys will probably let the nwr guys concede their share for the right price:)
The down turn has proven the model of bitumin producing and upgrading vs just hewing the bitumin for dirt cheap. |
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I wouldnt call it wanting out, it is more the nwr guys not being able to hold their end of the bargain so they will probably end up selling their stake to cnrl or some one else at a discount because they can no longer meet their financial obligations. |
It's small. Overspent. Behind schedule. Surplus of diesel around.
It won operate profitably in this environment. The government will step in when this refinery causes its 40$/bbl oil royalty volumes to be worthless. Or worse, cost us more money for every barrel ran through this refinery. |
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When you consider diesel production is flat out even right now and the price is still higher than gasoline you can see there is demand for the product. Northwest has to take bitumin which is worth 30$ per barrel currently and turn it ito diesel which is selling for 100$ per barrel-130$ per barrel. The diluent that is recovered from the bitumin can be resold for higher than wti prices per barrel and the naptha stream from hydroprocessing can be sold for diluent at a similar higher price than wti as diluent. Since it takes a barrel of diluent to ship three barrels of bitumin almost a third of the recieved v volume will be recovered as diluent which can be resold for above wti pricing. That is usually a 20$ spread in price when diluent recovery costs about 7$ per barrel. The project after wringing out diluent then processes the bitumin into diesel, vaccum gas oil and naptha. Naptha can be sold as diluent for a decent price-usually above wti. Diesel is well worth 100$ per barrel or more usually. Where there is diesel there is jet fuel in the future. Other products like pitch and heavy oils can go to asphalt production somewhere. Propane and butane etc can go right into adjacent facilitys or pipelines for marketing. Think of northwest as a diluent recovery unit that makes diesel and diluent.... it is freakin brilliant assuming cnrl doesnt blow it up |
As a guy who is actually somewhat in the "know" on this subject, I have to say 79Ford is bang on! High five!
Anyways Some people would rather not actually understand the fundamentals and just act mental. |
79Ford
Thanks for the great write up/explanation on the refinery. That is the first time I have clearly understood what exactly this refinery makes and how they can expect to be profitable. Actually makes sense as a project the way you explain it. I have a lot of respect for Murray Edwards, have known him since he was just starting out, so figured if he was involved in owning half, there had to be pretty good economic upside. |
79Ford, what a brilliant explanation of the economics and value adding to our Alberta bitumen. In addition we have had many tradesmen working through a major down turn in the Alberta economy. 79 Ford you are one of the wise ones on the AO forum, I will look forward to your posts in the future.
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The whole point of the Northwest "Upgrader", was that Houston refused to do Value Added refining in Alberta, and decided to take the CHEAP bitumen south of the Border so that the profits from the value added was taken in the US.
There was a considerable spread between WTI and our Bitumen then, and there still is today. That is why the Tidewater pipeline is so important. It gives an alternative market other than the US that simply rigs the pricing because they are the only refiners equipped to take and process our production. The truth of the matter is that the US lost the heavy oil supply from Venezuela for political reasons, and they really NEEDED our feedstock for the Gulf of Mexico refineries. But why pay a reasonable price if you don't have to? A lot of the US Companies who invested in the oilsands really got took to the cleaners by the boom of the 2000's, and cost overruns of 100 % was the norm. They want to get their money back, and they want to get it back in their jurisdiction. The price spread and refining in the US is how they are doing it. As such, here we are. BUT Its relatively easy to ship Diesel by pipeline as opposed to Gasoline. The stuff will sell. Its just that this refinery has been so poorly managed in all of its stops and starts since it was first proposed. It has a high investment cost that will take time to recover. But it is a CANADIAN company, and not a foreign company, so that is an economic benefit to Alberta and Canada. It is also a show of resolve to Houston that we will not be held hostage on our resource development. Heck even Justin Trudeau has learned the value of an alternative market to the US. Drewski |
12$/bbl processing cost is a far cry from the 35$/bbl quoted here
https://www.albertaoilmagazine.com/2...finery-primer/ Quote:
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The cost to build this refinery is outrageous.
https://www.albertaoilmagazine.com/2...finery-primer/ Quote:
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http://www.energy.alberta.ca/Org/Pub...ons/AR2016.pdf
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At 37,500 bbls/d which is the committed govt royalty volumes The fees are 2017-18 $19.06/bbl 2018-19 $47.92/bbl 2019-20 $55.74/bbl 2020-21 $66.05/bbl |
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Processing a barrel of diesel runs 40$ish. That is pretty normal that is why diesel is worth 100+ per barrel or more usually. The major value add in refining is the shear amount of effort that goes into what some one thinks is a simple barrel of diesel or gasoline. Oil refiners pump more money into the local economy to process each barrel of fuel than they spend on the feed stock. Oil refiner pumps 50$ into the oil producer for the resource, the refiner then spends money on buying natural gas for furnaces, buying hydrogen from a nearby facility to hydroprocess the fuel, buying parts, maintenance, inspections, truckers haul and trains pull the fuel, operators and teams of engineers keep the plant running. When some one says it costs 40$ to process a barrel into fuel all that money is going into the area around that refinery. So instead of selling a 30$ barrel of bitumin to china with a third of a barrel of valuable diluent in it for a grand total of 30$ added to the alberta economy for one barrel.... A refinery in alberta plugs thirty 30$ in for the barrel, spends another 40$ converting it, then sells it for 100$ or more and spends alot of that revenue on maintenance and labour, parts, supplies, additives etc. Why do you think edmonton is always ticking along? We got 460 000 barrels of refining capacity plugging 90$ or more per barrel into the local alberta economy. Refiners make maybe 10- 20 cents a liter on the upper end, the rest of that money....alll that fuel being burnt in western canada is getting slugged into processing the stuff. Thats wages, pumps, valves, inspections, engineering, quality control, manufacturing, transporting 460 000 barrels of fuel per day to everyone who burns fuel. Which is pretty much everyone. What do you think the guys down in texas are doing with our oil? They are refining the resource to make money, we can do that in alberta too. No one burns bitumin in their car, every barrel out there is getting refined and some one is benefiting on that end. |
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:scared0015: |
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This thing lime every other project in alberta that was a product of the boom times is not cheap what so ever. But these things like fort hills, kearl lake, horizon, northwest, shell scotford will run for decades and pile billions and billions into alberta while employing thousands of workers making six figure incomes for decades. People always talk about how hard it is to get bitumin shipped because no one likes a pipe full of tarsands in their back yard.... probably alittle tougher to say no when the pipe is full of diesel. It is easy to say no to tarsands goes to china through a pipe, diesel is alittle tougher to say no, or gasoline. Diesel and gasoline are pretty familiar products to most people, everyone loves diesel and gasoline. |
Hey 79ford, I have a question for you. Its something I have wondered for a while now.
Even with production increases in diesel, do you think diesel will ever really be cheaper than gasoline in the future? I realize that we have faced shortages of diesel here raising the prices, but I had always assumed that diesel had stayed more expensive because the refining has gotten more expensive. Back in the 90s gas was 50ish cents and diesel was 35ish cents. Now with the ultra low sulphur content to meet Tier 4 Final emissions laws, I always assumed that the refining costs had increased the cost of diesel. Do you think the prices will ever correct to the point that where diesel will have an economic edge over gas? Sorry for the derail. |
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If north west runs good and produces 50 000 barrels of diesel the price should become more normal. They will produce almost as much diesel as the imperial oil refinery does which is the largest refinery in alberta/western canada. The biggest opponents to this are probably, imperial oil, suncor, and shell.... they have had diesel cornered for over a decade, they all produce at max rates as far as I know. I used to hate getting diesel when i worked out in the bush.diesel is a source of pain for many owners of equipment or trucks etc. |
The price of diesel in Edmonton is one of the cheapest in Canada. Wholesale at $0.53/L
Or $84.50/bbl http://www.petro-canada.ca/en/rack-p...k-pricing.aspx Reg gasoline is the same wholesale price. |
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I think at best diesel will only be on par or near par to gasoline. I just don't see a 25% savings on a fuel which produces more BTU's ever again. That alone is why I don't own a diesel, yet make my living working on diesels. |
The actual retail price of a 45 gal barrel of diesel is $200, not a bad Value Add, take a $20 barrel of bitumen and make it worth 10 fold and create a whole bunch of jobs in Alberta rather than Gulf in US.
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Don't confuse retail pricing for fuel versus what the refinery gets paid for it.
Wholesale refinery pricing for diesel is 0.53/L or $84/bbl For a 26 billion dollar commitment, the government could give 11,000 people jobs for 30 years at $80,000/year per person And still sell their royalty volumes as positive cashflow |
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