Tag Archives: Vancouver

Alberta oil selling at 50% discount to world price…

…which explains why the Canadian government is Hell-and-High-Water-bent on building a pipeline, any pipeline, anywhere.

First, the stats

Over the past few months, new stories have noted that Canada’s oil sector isn’t getting full price for its heavy oil — in large part because American pipelines are well-supplied with newly-flowing tight oil (“shale oil”) from North Dakota.

As a side note, I should clarify that heavy oil — termed Western Canada Select — is a somewhat-upgraded form of bitumen.  Removing the sulfur and upgrading the oil a bit more, would turn it into the “light sweet crude” used for the world’s billion automobiles.) 

Western Canada Select is more refined, and more value-added, than the diluted bitumen that Enbridge has proposed to ship to the coast of British Columbia.  The Kalamazoo River spill in 2010 that added $750+ million in cleanup costs to the local economy, involved diluted bitumen (and Enbridge).

The discount on Alberta heavy oil is measured relative to the North American benchmark price, which is for West Texas Intermediate (WTI) crude.  And said discount has been growing faster than a pimple before prom reaching a jaw-dropping $40 per barrel this week.  [2013-01-31: historically the discount has been about $20 per barrel  – Matthew]  WTI sells for $96 per barrel, and Alberta heavy sells for … $56.

One barrel of oil is about 160 Litres, so this means that Alberta is giving up 25 cents per litre on its oil exports.  By way of comparison, the current WTI price works out to a total price of only 60 cents per litre.  We’re talking some serious discounting, here.

Western Canada Select vs. Brent crude

Of course, the world benchmark price is Brent crude, traded in London.  And for various reasons, West Texas Intermediate Crude trades at a discount to it!  I’ve taken a snapshot of the Bloomberg Energy page below; you can see that the Brent price is $112 per barrel.

Bloomberg Energy Jan 18, 2013

We see that the price of Brent crude ($112/bbl) is exactly twice as high as the price we established for Alberta heavy ($56/bbl).  Alberta heavy crude is selling for half-off — it’s like a BOGO (buy one, get one) sale!

Oh, but it gets worse (for Alberta)

I’ve previously mused about the plausibility of US oil demand falling in the coming decade.  Which means Alberta will need to find other markets.  It will probably benefit from the building of an east-west pipeline across Canada (finally!) but wouldn’t be enough added consumption to justify expanding bitumen projects.  That would mean leaner profits for Calgary head offices, less construction work in the oil patch, and lower royalties for the Alberta government.  (Tales abound of Newfoundlanders leaving Alberta in droves, to ply their trade in their home province’s newly ascendant offshore oil sector.)

It’s a far cry from the Bow River bluster of five to ten years ago, when Alberta seemed assured of sustained, stupendous wealth — and provincial surpluses which would dwarf those of the Federal government.  (Despite the highest average yearly oil price in history, the province ran a deficit in 2012!  In basic terms, the oil sector has effected a regulatory capture of Alberta’s government, which allows them to export raw goods and perform the value-added refining elsewhere.)

The oil patch’s hopes now seem pinned on one of a few pipelines, all of which face strong opposition, and none of which can soak up the new production to which Alberta aspires.

a)  Keystone XL, by which Alberta heavy oil could be upgraded further in the US, and then exported.  Opposed by the worldwide 350.org movement.  (600,000 barrels per day)

b)  Enbridge’s Northern Gateway, by which the oil could reach the Pacific Coast.  Given the dozens of First Nations standing in the way, who have recourse to the courts and have sometimes reported dismissive treatment at the hands of Enbridge representatives, this seems unlikely.   (500,000 barrels per day)

c)  Kinder Morgan’s Trans Mountain Pipeline expansion, by which the oil would be exported via Vancouver — birthplace of Greenpeace and the David Suzuki Foundation.  (Added capacity: 600,000 barrels per day.)

Pipe dreams

CAPP, the Canadian Association of Petroleum Producers, recently projected that Alberta would produce 3.2 million barrels per day of heavy oil, by 2020.  This represents an increase of 1.6 million barrels per day.  To accommodate this increase, all three of the above pipelines would have to be approved, up and running!!  Given the opposition each pipeline will face, a Beatles reunion would seem more likely…

(Yes, Alberta could of course use a *lot* of railcars, as they’re doing in the Dakotas right now.  This is doable, but more expensive — and would again cause Alberta’s oil to sell at a discount, to reflect the added costs of rail transport.)

To sum up, it doesn’t look like Alberta will enjoy another run of euphoric boom years, for some time to come.  Their product is currently selling at a deep discount due to a surge in production of US tight oil.  Meanwhile, US oil consumption is dropping (thanks largely to more-efficient vehicles) and all three pipelines face opposition.  (A Vancouver paper recently noted that opposition to the Northern Gateway pipeline in rural British Columbia ran so high, it could prevent the Prime Minister from winning a majority in the next election.)  Industry shows no signs of wanting to locally refining the product further, meaning the province is locked out of adding further value, winning higher prices.  And perhaps most fearfully of all, the following words from the head of AIMCo, the Alberta Investment Management Company:

“The notion that oil is going to become more expensive because as Asia and India need more energy there’s going to be a demand-supply imbalance, well, it may not be as much of an imbalance as everybody thought it was.”

The bitumen barons’ triumphalism from roughly 2004 to 2008 was predicated on the belief that a rising tide of Asian oil demand would lift Alberta above its provincial peers.  If, maybe, China and India won’t need as much as everyone thought … the ebbing tide could leave them beached.  On the upside, its residents’ expertise with heavy equipment and drilling could help Alberta pivot into a wind turbine / geothermal powerhouse, if it chose to do so.

– – – – – –

[note: while environmental considerations — and generally, the desire not to befoul one’s nest — are also a factor in the future of oil production, I side-stepped the topic altogether, as the above factors are formidable enough on their own.]

Muslims in America and other hidden ethnic histories

Yves at Naked Capitalism cross-posted a wonderful Alternet piece by Lynn Parramore, eviscerating the idea that Islam is new or alien to America.  In truth, the Muslim faith has had a long (if lightly-populated) history in the United States.  Islam arrived in America so early, the Puritans hadn’t even burnt their first witch!!

While the 1620 voyage of The Mayflower is deeply mythologized in the American psyche, the 1630 arrival of devout Muslim Anthony Janszoon van Salee in the New Netherlands, gets a lot less attention.  Which is a pity, because he seems to’ve been a business magnate — he had the foresight to buy Manhattan real estate back when it was cheap!  (It seems he once owned the land on which Wall Street was built.)  On top of that, he winds up being an ancestor of Cornelius Vanderbilt, one of the richest men of all time.  Why is this Horatio Alger-style “self-made man” not already an American legend??

(For those of you keeping track, van Salee arrived a short ten years after The Mayflower.  According to Wiki, New England executed its first “witch” seventeen years later, in 1647.  And the Salem witch trials occurred in 1692/1693.)

>

It’s deplorable that a fringe of American society wants to pretend the country is / should be Christian, on the flimsy and faulty premise that it was founded as such.  While the first pioneers in the 1600’s may have been passionately religious, by the late 1700’s the colonies were led by men whose intellect helped shape the Age of Enlightenment: or, as it was also known, the Age of Reason.  For many of them, the philosophy of choice was Deism — the atheism of its day, attacked by the righteous cacophony of religious conservatives.

One example is Thomas Paine, whose pamphlet Common Sense may have done more than any other document to galvanize the independence movement.  He was ostracized later in life for his scathing criticism of Christianity, his funeral attended by a mere six people.  The more potent case is Thomas Jefferson, author of the Declaration of Independence, who created his own Gospel — commonly known as the “Jefferson Bible” — by literally cutting-and-pasting the four gospels of the New Testament into one combined, miracle-free, Resurrection-less narrative.  (Definitely not the behaviour of the faithfully devout, or one considering the text holy.)  To quote from the Wiki article:

[It] begins with an account of Jesus’s birth without references to angels (at that time), genealogy, or prophecy. Miracles, references to the Trinity and the divinity of Jesus, and Jesus’ resurrection are also absent from his collection.

With “Christians” like that, who needs atheists?

>

>

Holding a mirror to country and community reveals hidden ethnic histories of our own — and not just of the Aboriginal peoples, who have suffered seemingly-interminable injustices over the centuries.  In my home province of British Columbia, Vancouver and the surrounding suburbs has seen an influx of east Asians in recent decades.  (My wife among them.)

As of the 2006 census, 45% of residents in the suburb of Richmond claimed Chinese heritage.  Given that the Chinese population grew by 20% in the five years from 2001 to 2006, it’s possible that as I write this (2012) Chinese-Canadians are the majority in Richmond.  Delving further, we see that “visible minorities” in Richmond have a formidable 2/3 majority!  Which makes for some exceptional cuisine.  :)

Continue reading