Why U.S. Refiners Are Worried About Canada’s New Oil Policy
Gasoline prices in the United States have recently dipped, with diesel prices falling to their lowest in 900 days. While this offers temporary relief for consumers, a looming change in Canada’s oil policy could disrupt the supply chain, particularly for U.S. refineries dependent on heavy crude oil imports. Canada’s Emissions Cap Proposal Prime Minister Justin Trudeau has proposed a cap on emissions for the oil and gas industry to align Canada’s environmental policies with its climate commitments. This cap is anticipated to limit production and raise operational costs for Canadian oil producers. A Deloitte report, commissioned by Alberta, suggests that without a cap, Canadian oil production could continue to rise, but the cap may stall or reduce output, affecting the overall supply. U.S. Refining Capacity The U.S. Energy Information Administration (EIA), pegs total U.S. oil refining capacity at 18.4 million barrels per day. The U.S. is the world’s largest refiner, and Canadian crude oil accounted for 24% of all its refinery throughput in last year, and is essential for U.S. energy security. U.S. Dependence on Canadian Crude Canada plays a crucial role in supplying crude oil to the United States, especially for refineries in the Rocky Mountain and Midwest regions. In fact, many U.S. refineries are specifically tooled to process the heavy oil found in Canada’s oil sands. The refineries in these specific regions, according to the U.S. Energy Information Administration (EIA), continue to process heavier grades of crude oil, which are becoming less prevalent in other regions due to the trend toward lighter crude oil processing. This reliance is evident in the crude oil import data, where Canada consistently tops the list of U.S. suppliers, providing over 3.8 million barrels per day according to annual EIA data. Global Heavy Crude Oil Sources Apart from Canada, other significant heavy crude oil suppliers include Venezuela, Brazil, and Iraq. However, geopolitical and logistical challenges make these sources less reliable. Venezuela faces sanctions and infrastructural challenges, while Brazil and Iraq have fluctuating production rates and export capabilities. Thus, Canada’s stable and politically secure oil supply is critical for U.S. refineries. Venezuela, Russia, and Iraq—all producers of heavy oil—pose logistical, security, and optical challenges for the United States. In Venezuela’s case, sanctions, industry mismanagement, and corruption have impeded its ability to produce and export its heavy crude. Russia’s crude oil exports are limited by a Western-imposed price cap. Iraq’s oil industry is still wildly unstable. Implications of Reduced Heavy Crude Supply A reduction in Canadian heavy crude supply could lead to increased competition for heavy crude from other sources, driving up prices and impacting refinery margins. This might lead to higher gasoline and diesel prices in the U.S. market. A shortage could also compel refineries to adapt their operations or invest in infrastructure to process lighter crude, which could be costly and less efficient. Heavy crude oil is essential for producing a range of refined products, including gasoline, diesel, and jet fuel, as well as lubricants and petrochemicals. Processing heavy crude requires specialized equipment and expertise, which many U.S. refineries have invested in over time. These upgrades provide a competitive advantage but also come with significant costs. The potential curtailment of Canadian oil production poses not only an economic threat but also raises environmental concerns. A decrease in heavy crude oil supply could lead to an increased reliance on lighter crude, which may not align with current refinery setups. Going lighter would also result in lower profitability as lighter crude comes with a higher price tag. Moreover, this shift could affect the global oil market, influencing pricing and supply dynamics. The U.S. refineries’ need to secure heavy crude oil could lead to heightened geopolitical tensions as they vie for resources in a tightening market. The resulting high refiner costs would then trickle down to industry. Canada’s proposed emissions cap on the oil and gas sector presents a complex challenge for U.S. refineries and the broader oil market. As Canadian production potentially dwindles, U.S. refineries must prepare for a shift in supply dynamics that could disrupt operations and affect the national economy.
The World’s Biggest Gas Reservoir Is At A Tipping Point
Iran is embarking on a US$70 billion investment programme of measures to attempt to halt a dramatic decline in output from its crucial South Pars gas field. A failure to do so will result in the loss of 40 percent of the country’s petrol output from the Persian Gulf Star gas condensate refinery, and the addition of up to US$12 billion a year of petrochemical costs, according to Iranian Gas Institute forecasts. “South Pars’ gas output provides nearly 80 percent of the our [Iran’s] total gas production, so it is vital to all segments of business and society that this does not drop significantly,” a senior energy industry source who works closely with Islamic Republic’s Petroleum Ministry exclusively told OilPrice.com last week. In broad terms, the South Pars site spans 3,700 square kilometres and holds an estimated 14.2 trillion cubic metres (tcm) of gas reserves plus 18 billion barrels of gas condensate. In addition to generating 78 percent of the country’s gas production, it also accounts for around 40 percent of Iran’s total estimated 33.8 tcm of gas reserves (mostly located in the southern Fars, Bushehr, and Hormozgan regions). Crucially in the current context as well is that it is one part of the two that constitute the world’s biggest gas reservoir by far, with 51 tcm of reserves. The other part is Qatar’s 6,000 square kilometre North Dome (or ‘North Field’), which is the foundation stone of its world-leading liquefied natural gas (LNG) exporter status. Iran split South Pars into 24 phases for development, with broad production targets ranging from around 28 million cubic metres per day (mcm/d) to about 57 mcm/d – the latter being a target for the perennially controversial Phase 11. After the Joint Comprehensive Plan of Action (‘JCPOA’, or colloquially ‘the nuclear deal’) had been implemented on 16 January 2016, France’s then-Total renewed its 2009 commitment to develop the Phase, which had been dropped in 2012 as the E.U. ramped up sanctions against Iran. The French oil and gas giant held a 50.1 percent stake in the Phase 11 project, ahead of the 30 percent stake of the China National Petroleum Corporation and a 19.9% holding by Petropars, a wholly owned subsidiary of the National Iranian Oil Company. Total quickly invested around US$1 billion in the Phase and made progress on the site, until in May 2018 came the withdrawal by the U.S. from the JCPOA, as analysed in full in my new book on the new global oil market order. Given the size and scope of Phase 11, it became a focal point of Washington’s attention in the aftermath of the withdrawal, and it put the French under extreme pressure to pull out of the project. Under the terms of the contract, CNPC then took charge and little progress has been made since then. This provides a microcosm of what has happened to Iran’s oil and gas sector since then. The key problem in the substitution of leading Western oil and gas firms with Chinese ones has been that the latter lack the latest technology available to the former. The same is now true of Russian oil and gas firms which have been denied much of the same technology through various sanctions since it invaded Ukraine’s Crimea region in 2014. According to assessments from Iran’s own National Development Fund, the country’s gas production will fall by at least 25 percent within the next 10 years due to falling pressure in the fields, with South Pars seeing a 30 percent decline. To attempt to redress this, March saw Iran’s Petroleum Ministry agree to a US$20 billion programme with various local firms to build 28 massive platforms to boost pressure on the South Pars site. However, little progress has been made on these, as neither the domestic companies nor their Chinese and Russian backers have the required technology and know-how. The latest programme to be announced by the Petroleum Ministry – the drilling of 35 new wells across the South Pars site – appears geared towards maximising production from the field while it still can, rather than addressing the fundamental causes of the reduction in pressure and attempting to slow them down. Indeed, according to official Petroleum Ministry statements, the new drilling is intended to boost output over the site by 35 million mcm/d over the next three years. “Part of the problem is the geology of the site, with a natural drift towards the Qatari side in several places rather than the Iranian one,” the Iran source told OilPrice.com last week. “But another part has been the many clumsy attempts by local contractors at optimising extraction over the years with no thought of the longer-term consequences,” he added. “There are multiple examples of the wrong areas being drilled, which has weakened the surrounding structures, so drilling 35 new wells having done this is only likely to make situation worse,” he said. Given this, Iran is looking to China to increase its pressure on Qatar to take a more cooperative approach to developing the two halves of the supergiant gas reservoir, the source added. “Qatar had a moratorium on gas production from its own North Dome field from 2005 to 2017, during which time it often accused Iran of drilling activity that reduced pressure on this side, and asked China to intervene on its behalf with Iran, which it did,” the source told OilPrice.com. “At that stage in early 2017, the two sides [Qatar and Iran] sat down and agreed to work together to ensure the sustainability of the site, so Iran wants the same assurance now from Qatar,” he added. This is even more urgent on Iran’s side, as Qatar is now embarked on its own drive to dramatically increase its production from the North Dome. The Emirate’s expansion program will see six major new developments in the North Field East (NFE) and North Field South (NFS) to 2029. Four new ‘trains’ (production facilities) – each with 8 million metric tonnes per annum (mtpa)
EIL and IndianOil completes RCC Chimney at SGU of P-25 Project in Panipat
Engineers India Limited along with Indian Oil Corporation successfully completed the RCC Chimney Shell Casting using the advanced Slip Form Technique at the Steam Generation Unit (SGU) of the P-25 Project in Panipat. This decision to opt for an RCC chimney over a traditional metal one is driven by several key advantages including its superior durability in handling the high moisture content of flue gases, reduced maintenance requirements, extended service life and more cost-effective initial investment. The Slip Form Technique, known for its efficiency and safety, was crucial in accelerating the construction process. This continuous, round-the-clock casting method not only ensures a faster completion time but also enhances the structural integrity of the chimney, solidifying EIL’s reputation as a leader in innovative project execution.
Petronet signs deal with with Sri Lankan company to supply LNG to Colombo
Petronet LNG Ltd, India’s biggest gas importer, on Tuesday (August 20) said it has entered into a Memorandum of Understanding (MoU) with LTL Holdings Ltd (LTL) of Sri Lanka to supply liquefied natural gas (LNG) to LTL’s dual-fueled power plants in Kerawalapitiya, Colombo. “…we wish to inform that Petronet LNG Limited (PLL) has entered into a Memorandum of Understanding (MoU) with LTL Holdings Limited (LTL) of Sri Lanka on August 20, 2024, at Colombo, Sri Lanka for the supply of LNG to LTL’s dual-fuelled Power Plant(s) in Kerawalapitiya, Colombo,” according to a stock exchange filing. Under this MoU, both parties will collaborate to develop a comprehensive LNG supply chain from PLL’s Kochi LNG terminal to LTL’s power plants in Colombo, using LNG ISO tank containers and a multi-modal transport system. The initial term of the LNG supply is set for five years, with provisions for extension based on mutual agreement.
Oil Giants IOC, HPCL And BPCL Eye LPG Supply Contract With Norway’s Equinor: Report
An Indian consortium of state-run oil marketing companies is in talks with Norway’s Equinor for long-term liquefied petroleum gas (LPG) contracts. This move is seen as an attempt to diversify sourcing away from traditional Middle Eastern suppliers amid escalating regional tensions. What Happened: The consortium includes Indian Oil Corporation Limited (IOCL), Hindustan Petroleum Corporation Ltd (HPCL), and Bharat Petroleum Corporation Ltd (BPCL), Mint reported. This strategic move is in response to the escalating tensions in West Asia, which could potentially disrupt energy prices and supplies. The NSE has sought clarification on the report from BPCL and HPCL. Currently, the United Arab Emirates, Qatar, Saudi Arabia and Kuwait are the top LPG suppliers to India. The talks with Equinor are crucial as LPG makes up about 62% of all cooking fuels used in Indian households, with over 60% of LPG being imported. Equinor’s potential entry into India’s LPG market follows previous discussions on topics such as Equinor’s participation in India’s strategic petroleum reserves (SPR) and long-term deals for the supply of liquified natural gas (LNG) from Equinor’s extensive portfolio in the US and Qatar. The Indian LPG market has witnessed significant growth in recent years, with consumption in FY24 increasing 3.7% year-on-year to 29.6 million tonnes. To cater to this growing demand, India imported 4.5 million tonnes of LPG in the first quarter of FY25, a 17.7% increase from the same period last fiscal.
Govt’s 20% ethanol blending in petrol by 2025 will need more sugarcane: Study
The government’s aim to blend 20 per cent ethanol in petrol by Ethanol Supply Year (ESY) 2025 will require more sugarcane utilisation, a report said on Monday. This is also likely to improve sugar inventory level and cash flows of millers, it added. An ESY runs from November to October. India’s aim to blend 20 per cent ethanol in petrol by ESY 2025 — or 9.90 billion litres annually — will require effective utilisation of both grain and sugarcane feedstock to increase its supply, Crisil Ratings said in a report. The annual ethanol production from grains is expected to see a significant increase to 6 billion litre by the next season (this season’s production estimate is 3.80 billion litre), it stated. The balance will have to be produced by processing ethanol from sugarcane, which is viable given the substantial capacity in place, it said. This, in turn, can help optimise the sugar inventory, particularly considering the high carry-over stock expected at the end of the current season owing to the government restriction on diversion for ethanol production and exports, Crisil Ratings said. Blending ethanol will help reduce India’s dependence on crude oil imports. The ethanol blending rate has steadily risen 200-300 basis points each season since ESY 2021, said the report