Tag Archives: West Texas Intermediate

Fossil fuels, Massive increase in crude-by-rail, Oil exports, Oil Industry, Tar sands crude

Whatever Shall We Do with All this Extra Oil? Oil companies want the crude-export ban lifted. Is that a good idea?

Repost from onEarth, Natural Resources Defense Council

Whatever Shall We Do with All this Extra Oil?

Oil companies want the crude-export ban lifted. Is that a good idea?
By Brian Palmer | December 13, 2014

If oil industry lobbyists didn’t have so much money, Congress would get pretty sick of them. They’re constantly whining. They don’t like the carbon pollution rules. Fuel-economy standards are too tight. Something about a pipeline from Canada. Today, they’re back on Capitol Hill moaning about the crude-export ban.

What’s that you say? You’ve never even heard of the crude-export ban? Well, now you have, and I’ve compiled a few FAQs for you.

What does the ban say?

The short answer: Crude oil drilled in the United States must be refined in the country. But as with most laws, there are exceptions. Companies can export oil to be refined in Canada as long as the products are sold there or back to the States. Some Alaskan crude has been exported. And a particular kind of heavy crude from California can be sent abroad because presidents George H.W. Bush and Bill Clinton decided it was in the national interest. Such exceptions can be significant: Total exports peaked at 104 million barrels in 1980, representing about 3 percent of total U.S. extraction that year. In recent years, though, that number has fallen below 50 million barrels.

That law’s been around since the 1970s. What’s the big deal now?

Well, we’re talking about an industry in which greed is considered good. Money, of course! Until recently, energy companies weren’t drilling enough oil to make a big splash on the international market. But U.S. production surged by nearly 50 percent between 2008 and 2013, and those CEOs now think they can take home even bigger bonuses if they’re allowed to sell abroad.

Why was it created in the first place?

Basically because the Arab members of the Organization of Petroleum Exporting Countries got mad that the United States and a few other countries were siding with Israel during the 1973 Arab-Israeli War—and cut production and banned petroleum exports to those nations. The price of crude quadrupled, causing a five-month-long oil crisis that majorly disrupted global commerce and American lives. Since then, energy independence has been a goal for every U.S. president; Gerald Ford, for example, signed the 1975 Energy Policy and Conservation Act, which prohibited most crude exports and established a national strategic oil reserve.

Will I pay more for gas either way?

The ban certainly depresses the price of U.S.-produced crude oil, but gas prices involve a lot of factors. Energy analysts and industry advocates have debated the ban’s effects for years. So, in an attempt to settle the argument, the somewhat more impartial U.S. Energy Information Administration recently published a report on what would happen to gas prices if exports were allowed. You can read it here if you’re an oil-price wonk. Here’s the short version, from the organization’s administrator, Adam Sieminski: “[I]t probably wouldn’t do a great deal one way or the other with gasoline prices.”

Apparently, when it comes to economics, the controversy has more to do with profits than your family budget.

What would it mean for the climate if we allowed the exports?

It might be bad news. In an era of high domestic production, the ban holds down the price of West Texas Intermediate, North America’s benchmark crude, which then keeps Canada’s tar sands crude prices low. (The price points of the two crudes move roughly in sync.) So if Congress lifts the ban, the tar sands industry, which is currently in a major funk, could be saved—and this would mean a lot more extraction of the most carbon-intensive fossil fuel source around.

That’s the theory. And a March study from Oil Change International supports it: The report concluded that allowing exports would result in added carbon emissions equivalent to the output of 42 coal plants. The factors influencing global oil prices are complex, though, so it’s difficult to say exactly how much fossil fuel the crude-export ban is keeping in the ground.

The lack of certainty, however, makes its own point. Before Congress even considers repealing a 39-year-old law dealing directly with fossil fuels, it ought to understand the implications for climate change. It’s appalling that politicians would consider lifting the ban without full information. But I guess they’re not scientists.

 

 

Bakken Crude, Canadian refineries, Export of North American crude, North American light crude oils, Oil prices

U.S. exporting more crude oil to Canada

Repost from Bloomberg Business News

Canadian Refiners Set to Buy More U.S. Oil With Wider Discount

By Robert Tuttle, March 18, 2015 4:14 PM PDT 

(Bloomberg) — Cheaper North American oil is poised to replace West African and Middle East cargoes at eastern Canadian refineries with U.S. crude prices at the lowest level compared with the international benchmark in 14 months.

Imports to Canada from outside North America averaged 244,089 barrels a day this month through March 15, down 27 percent from a year earlier, according to New York-based ClipperData, which tracks tanker shipments.

Canada, the world’s fifth-largest oil supplier, produces most of its oil in the western province of Alberta and exports it south to the U.S. A lack of pipelines means Canada’s eastern refineries depend on imports by tanker and train.

U.S. export “volumes have been growing pretty exponentially,” Katherine Spector, a commodities strategist at CIBC World Markets Inc. in New York, said by phone Wednesday. U.S. oil is “going to Eastern Canadian refineries and displacing waterborne light crude.”

U.S. crude oil exports averaged 478,000 barrels a day the week ended March 13, up almost eightfold from a year earlier, preliminary data from the Energy Information Administration show. Canada, the only country that U.S. producers can export to without restrictions, receives the bulk of the shipments.

Oil has flowed north as West Texas Intermediate crude’s discount to Brent averaged $9.43 a barrel this month from $2.41 in January as U.S. stockpiles rose to a 458.5 million barrels, the most in decades.

The U.S. displaced Algeria in 2013 as Canada’s biggest source of imported oil and accounted for about half of imports in the first eight months of last year, the country’s National Energy Board said in a November report. The trend was driven by availability of tight oil from North Dakota as well as Texas, New Mexico and Colorado.

Bakken crude from North Dakota traded at about $40 a barrel today versus $55 for oil from West Africa, according to data compiled by Bloomberg.

“Especially with lower prices, a difference of a dollar or so in transport costs is significant,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone Wednesday. “If you can bring it in from the U.S. rather than West Africa, it’s a little closer and cheaper.”

Expanded rail capacity has linked U.S. oil producers with Canada, Spector said. The movement parallels the movement of Bakken crude to U.S. East Coast by rail, which cut the region’s imports of crude from Nigeria by half in two years and from Algeria by 81 percent, EIA data show.

“The maritime provinces of eastern Canada do resemble the U.S. East Coast in many ways,” Antoine Halff, head of the International Energy Agency’s oil industry and markets division, said in a March 18 phone interview. “When Bakken crude started being railed to the U.S. East Coast in significant quantities, it displaced imports from West Africa.”

Bakken Crude, DOT-111, Federal Regulation (U.S.), Oil Industry, Oil stabilization

North Dakota perspective on Bakken: ‘Getting it right’

From The Bismarck Tribune, Bakken Breakout
[An interesting analysis of the future of Bakken crude extraction from the perspective of an apparent oil industry advocate.  They’re listening!  – RS]

Getting it right

By Brian Kroshus, Publisher, September 17, 2014

Domestic oil production levels in the United States continue to rise – largely the result of the boom in shale oil drilling across the country. Notable plays like the Bakken shale in North Dakota and Permian and Eagle Ford shale in Texas, have been leading the way with more promising formations in different geographies, targeted for exploration and drilling in the years ahead.

Plays like the Bakken, Permian and Eagle Ford were actually in decline until only recently, having peaked decades ago when conventional, vertical wells were the only economically viable means of extracting crude. Now, those same plays are part of a drilling renaissance in key parts of the country. Geologists have known for years that more oil was present, trapped in source stone within the formations, but developing technology to profitably extract shale oil hasn’t come easy.

Today, oil production in the United States is surging thanks to advances in horizontal drilling and hydraulic fracturing techniques. Drillers are not only better understanding the geology of shale formations, but technology necessary to economically drill and produce oil. Increasingly, they’re becoming more efficient. Still, only a small percentage resource is making its way to the surface presently. Undoubtedly, more will continue to be learned in the years ahead, ultimately leading to higher extraction percentage and proven reserves.

From an energy independence standpoint, the outlook for the United States is certainly promising. In October 2013, for the first time in nearly two decades, the United States produced more oil than it imported. Predictably, while there are those including the current administration attempting to take partial credit, rising output has been the result of drilling on state and private lands. On federal lands, production has actually declined during Pres. Barack Obama’s time in office according to the American Petroleum Institute.

Despite declines on federal ground, experts still predict that the United States could be fully energy independent by the end of this decade. According the EIA, U.S. oil production will rise to 11.6 million barrels per day in 2020, from 9.2 million in 2012, overtaking Saudi Arabia and Russia and becoming the world’s largest oil producer. Over the same period, Saudi Arabia production levels are expected to decline from 11.7 million barrels to 10.6 million. Russia will also product less oil, falling from 10.7 million to 10.4 million barrels per day.

With a shale revolution and energy renaissance underway in the United States, there’s reason to be optimistic. Achieving energy independence appears to be within our grasp. Still, despite the prospect of becoming an energy independent nation, potential roadblocks loom.

In May, at the 2014 Williston Basin Petroleum Conference, Harold Hamm, CEO of Continental Resources told convention attendees that “we can’t have any more issues.” He also said “It has to be done in an absolute, safe manner. It’s going to take all of us.” He was referring to recent problems related to Bakken crude including pipeline ruptures and the fiery train derailment near Casselton, North Dakota this past December.

There’s a lot at stake. Companies like Continental Resources and others, are expected to invest billions in the years ahead to fully develop plays like the Bakken. Drillers are keenly aware that it’s their game to lose. Hamm stressed, “If we have anything, they’re going to shut us down. So many people want to stop fossil fuel use and production.”

Despite the positive macroeconomic effects rising domestic oil production and decreased imports have on the U.S. economy, job creation and economic growth alone won’t guarantee that shale oil production will continue, unless it is deemed safe and not a threat to public safety during transportation of Bakken crude in particular.

Volatility levels of Bakken crude and implication on public safety, continues to be heavily debated. The Lac-Megantic, Quebec, rail tragedy, where 47 people lost their lives when a runaway train carrying tanker cars filled with Bakken formation crude, derailed and exploded in the heart of town has been at the center of that debate. The explosions were so intense, that approximately one-half of the downtown area was destroyed.

Understandably, safely transporting Bakken crude by rail throughout North America, knowing freight rail routes frequently pass through residential areas on their way to final destinations, is a top industry priority. Much of the focus has been and remains on the DOT-111 tank car. On July 23 the U.S. Department of Transportation announced comprehensive proposed rulemaking for the safe transportation of crude oil and flammable materials, with Bakken crude being mentioned – in the form of a Notice of Proposed Rulemaking (NPRM) and a companion Advanced Notice of Proposed Rulemaking (ANPRM).

The NPRM language includes “enhanced tank car standards, a classification and testing program for mined gases and liquids and new operational requirements for high-hazard flammable trains that includes braking controls and speed restrictions.” Within two years, it proposes to “phase out of the older DOT-111 tank cars for the shipment of flammable liquids including Bakken crude oil, unless the tank cars are retrofitted to comply with new tank car design standards.” It also seeks “Better classification and characterization of mined gases and liquids.”

The North Dakota Public Service Commission has set a special hearing for September 23rd, as a part of the discussion on the volatility of Bakken crude and potential oil conditioning requirements necessary to safely transport oil from the Williston Basin. Reducing the light hydrocarbons present in Bakken crude would not only provide greater safety, but the standardization of Bakken crude into a class of oil much like West Texas Intermediate, possibly creating premium pricing opportunities.

NDPSC involvement and recommendations in addition to oil conditioning include heightened rail inspection efforts at the state level in addition to the Federal Pipeline and Hazardous Materials Administration, and emergency response training. Working closely with federal officials and a heightened inspection process, will require additional resources moving forward.

Expanding pipeline capacity and reducing reliance on rail to transport Bakken crude will continue to be a growing need, playing a role in addressing public safety concerns. The North Dakota pipeline authority anticipates two new pipelines coming online before the end of 2016, with capacity for 545,000 barrels a day. Another third proposed pipeline, capable of handling an additional 200,000 barrels, could potentially be in operation by late 2016 or early 2017.

With daily production expected to reach 1.5 million barrels in 2017, and 1.7 million barrels in early 2020, diversifying how Bakken crude is moved to market will be necessary not only from a public safety standpoint, but in order to address logistically challenges that continue to surface as production levels increase.

Extracting domestic oil and gas, moving it to market and properly disposing of or using byproducts created during the production process in a safe and efficient manner will be necessary in order for plays like the Bakken to be fully capitalized on. Those opposed to fossil fuel production will continue to watch and patiently wait for any opportunity to pressure elected officials and sway public opinion.

Ensuring both public and environmental safety to ensure the future of domestic oil production – will require a cooperative effort on the part of both industry and the state. As Harold Hamm alludes to, it truly is industries game to lose.