Viewpoint: New pipelines may boost Canadian heavy
Canadian heavy sour crude discounts are poised to narrow in 2023 as additional pipeline capacity helps de-bottleneck infrastructure strained by record-setting oil sands production.
Alberta's oil sands producers have now surpassed pre-pandemic levels, leading to excess capacity on Enbridge's 3mn b/d Mainline resulting from the completion of the Line 3 Replacement Project (L3RP) dissipating. Shippers now look to the completion of the Trans-Mountain expansion (TMX) project to draw nominations away from the 3mn b/d Mainline and alleviate pipeline congestion.
The additional arbitrage opportunities created by TMX project and increased pipeline space on the Mainline will push Canadian heavy crude prices higher, as record supply encounters demand from new markets.
The TMX project — expected to be complete in the third quarter 2023 — is set to add 590,000 b/d of capacity to the pipeline, up from its current capacity of 300,000 b/d.
Production in the Alberta oil sands continues to climb, as many companies indicate their commitment to major projects. Production of bitumen, the heavy crude associated with the oil sands, reached record levels of 2.19mn b/d in September, eclipsing the record set the previous month. The most recent production data shows bitumen production of 2.15mn b/d in October, up from 1.99mn b/d in the same month a year prior.
An increased supply of Canadian crude, coupled with limited pipeline infrastructure, has pushed Canadian heavy sour crudes to deep discounts against the basis. Over the course of the January trade cycle, Western Canadian Select (WCS) was assessed at an average of a $28.15/bl discount to Nymex WTI CMA. The discount for WCS had averaged $17.53/bl in the January trade cycle a year prior.
Deep discounts for Canadian heavy sour grades and pipeline apportionment places additional pressure on crude-by-rail, which is less economical than pipeline transportation for shippers with no crude-by-rail commitments. This pressure may be short-lived, however, as the completion of the Trans-Mountain expansion project opens the door to Canadian crude exports to Asia as an alternative to crude-by-rail transportation. The Trans-Mountain expansion may aid or supplement crude-by-rail's traditional role as a relief valve when pipeline congestion is high.
Additional pipeline capacity from the L3RP initially helped to reduce Alberta crude inventories. Closing inventories of 80.6mn bl in October 2021 declined to 66.2mn bl by January 2022 close as new pipeline capacity allowed for a drawdown of inventories. Since January, inventories have remained at similar levels, with October closing inventories of 66.4mn bl. Inventories averaged 65.1mn bl in the first 10 months of 2022, down from an average of 74.8mn bl across 2021.
Apportionment on Enbridge's 3mn b/d Mainline system declined steadily after the completion of the L3RP in October 2021, as the project effectively added 370,000 b/d of capacity to the 760,000 b/d line, which had been running at reduced capacity for safety considerations. Five consecutive months of excess pipeline capacity ended in August however as nominations were apportioned by 2pc. Apportionment has risen since then, up to 11pc for heavy grades and 13pc for light grades for December volumes.
Pipeline congestion has also pushed discounts for Canadian heavy grades in the US wider. When July was the prompt month, the discount for WCS at Cushing, Oklahoma, averaged $9.41/bl to the Nymex WTI CMA basis. This was the final month of excess pipeline capacity before apportionment returned. When October was prompt, Enbridge apportioned nominations for the third consecutive month, and the discount for WCS at Cushing had steadily widened to $13.05/bl.
The wide discounts for Canadian heavy sour grades in Canada and the US are supported by record production and limited pipeline infrastructure to transport crude. Apportionment on Enbridge's Mainline typically supported crude-by-rail movements but the completion of the Trans-Mountain expansion in 2023 will give shippers access to new markets, reducing the demand for space on the Mainline, reducing demand for crude-by-rail, and opening up arbitrage opportunities in Asia.
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Iran's Raisi’s death raises longer-term uncertainty
Iran's Raisi’s death raises longer-term uncertainty
The president's demise may not affect Iran's energy role, but heightens uncertainty over the country's long-term leadership, writes Nader Itayim Dubai, 24 May (Argus) — The death of Iran's president, Ebrahim Raisi, in a helicopter crash on 19 May has unleashed a host of questions as to what lies ahead for the Islamic Republic at a time when it is already facing a slew of challenges within its borders and beyond. The nature of Iran's leadership suggests there will be little immediate change, irrespective of who the next president is, but the longer-term impact looks far more uncertain. The political shock is unlikely to augur any change in the oil market role of Opec's third-largest producer. It has steadily raised covert crude exports to China over the last year, despite being under US sanctions — although it could soon face new challenges on that front. Iran continues to supply its Yemeni proxy the Houthis with weapons to disrupt Red Sea shipping, in opposition to Israel's actions in Gaza. And conflict between Israel and Iran recently became open and direct for the first time, but pulled back from the brink without escalating into a conflagration that could catch the key oil producing region of the Mideast Gulf in its crossfire. Against this turbulent backdrop, Raisi lost his life travelling back to Iran from Azerbaijan, along with his foreign minister Hossein Amir-Abdollahian and two other officials. Investigations into the cause of the crash are ongoing, but Iranian officials are roundly pointing to difficult weather conditions. Raisi's demise has thrown Iran's election cycle into disarray. The country was due to hold its next presidential election in the summer of 2025, but the government has now had to schedule one for 28 June. Despite his less-than-stellar performance in his nearly three years in office — Iran's economy is in dire straits, inflation hit 40pc this year and the Iranian rial has slipped by 15pc against the US dollar in the past 12 months — Raisi was still seen as a shoo-in for re-election. This was a reflection of Iran's electoral system, in which most candidates that register to run are disqualified after vetting by the powerful conservative-dominated Guardian Council, leaving only a few that the council and Iran's supreme leader, Ayatollah Ali Khamenei, deem acceptable. Its decision to disqualify all prominent moderate and reformist candidates in the last election in 2021 paved the way for Raisi — an ultra-conservative former chief justice — to win the presidency after losing to the more moderate incumbent Hassan Rohani in 2017. Four funerals and an election With the country in mourning this week, nobody has yet publicly thrown their hat into the ring. But several familiar names are beginning to make the rounds in Iranian media. To date, two stand out. Iran's now caretaker head of state, Mohammad Mokhber, would — despite his limited political career — represent a degree of continuity for the leadership, and is increasingly being mentioned in discussions around the presidency. As is parliament speaker Mohammad Baqer Qalibaf. There is also the possibility that the Guardian Council green lights some popular, more moderate-leaning candidates, such as Rohani's former foreign minister Mohammad Javad Zarif or former parliament speaker Ali Larijani, in an attempt to draw an increasingly disenchanted and apathetic electorate back to the polls. The 2021 election saw a voter turnout of just 49pc, down from 73pc in 2017, while the more recent parliamentary elections in March saw 42pc participation nationwide — and just 7pc in the capital, Tehran — down from 63pc in 2016. But Iran watchers are not holding their breath. "I am not optimistic they will try to open up the field," Washington DC-based Centre for International Policy senior fellow Sina Toossi says. "Yes, there is a legitimacy crisis. But if past elections tell us anything, it is that they feel they don't need that high a turnout, and that they can repress any protest," he says. Whatever the outcome of the ballot, there is little expectation that it will translate into any material change, because the country's power dynamics place the supreme leader, and not the president, as the ultimate decision-maker. "The role of the president has already been marginalised significantly," according to Esfandyar Batmanghelidj, founder and chief executive of Bourse and Bazaar Foundation, a think-tank focused on Iran's economy. "Now, the president dies, and it's surprisingly inconsequential from a policy standpoint because the president wasn't an independent political operator." As such, most, if not all, of Iran's most critical and strategic policy decisions will remain in place — from its support of proxy groups in the region, to its "look to the east" policy, which has seen Tehran bolster its ties with Beijing, Moscow and a host of central Asian countries. What could change is how well a new administration delivers in these areas, relative to the Raisi administration. Nowhere is this likely to show itself more than in foreign policy, where Raisi arguably saw his biggest achievements, including the re-establishment of ties with long-time regional rival Saudi Arabia in March last year, as part of his administration's push to improve relations with Iran's immediate neighbours in the Mideast Gulf. "[Former foreign minister] Amir-Abdollahian was not defining policy, but when it came to being a messenger, he was a good fit for that regional policy," Batmanghelidj says. "He spoke the language, he knew the file, and they knew him. [His successor] Ali Bagheri-Kani has a different profile." Conversely, Bagheri-Kani was spearheading indirect nuclear negotiations with the US for the Raisi administration until the talks broke down in 2022. Should Bagheri-Kani be kept on by a new president, that will hold him in good stead if the talks were to be revived. Supreme uncertainty Raisi's rise to the presidency in 2021 is widely accepted to have been engineered by those in the upper echelons of Iran's political elite. As a protege of the supreme leader, and someone lacking his own political base, Raisi was considered by Khamenei as entirely dependable to carry out his vision for the Islamic Republic. "Raisi was unique in how much of his track record was just being Khamenei's man," Toossi says. "So finding another figure like that is going to be difficult." Khamenei's trust in Raisi appeared so deep that even before 2021 he had been touted as a potential front-runner to eventually succeed the now 85-year-old supreme leader. That was at least one factor behind his relatively quick rise. Khamenei's second son, Mojtaba, has been repeatedly suggested as another leading prospect to potentially succeed his father. For many, it appeared a straight contest between the younger Khamenei and Raisi. This would imply that Raisi's death has effectively cleared the path for Mojtaba to succeed his father. But the latter's candidacy, let alone his ascent, remains anything but certain. "For now, Mojtaba does not strike me as a viable candidate," Geneva Graduate Institute senior research associate Farzan Sabet says. "A son succeeding a father smacks too much of monarchy. He has not held senior political, executive or administrative posts, he has very little public profile, and does not seem to have real standing among the Shia clergy." What is more, Mojtaba has for many years held significant sway over the office of the supreme leader, a key focus of economic and political power in Iran's system of governance. "He has carved out a role… [that] has a lot of influence," Batmanghelidj says. "Why would he jeopardise [that]?" Assuming that is the case, the prospective post-Khamenei leadership of the region's most disruptive power faces new uncertainty that may prove far more consequential than its president's death. Chinese imports of Iranian crude Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Q&A: Oman Shell to balance upstream with renewables
Q&A: Oman Shell to balance upstream with renewables
Dubai, 24 May (Argus) — Shell has been in Oman for decades now and had a front row seat to its energy evolution from primarily an oil producing nation to now a very gas-rich and gas-leaning hydrocarbons producer. Argus spoke to Oman Shell's country chairman Walid Hadi about the company's energy strategy in the sultanate. Edited highlights follow: How would you characterize Oman's energy sector today, and where do new energies fit into that? Oman is one of the countries where there is quite a bit of overlap between how we see the energy transition and how the country sees it. Oman is clear that hydrocarbons will continue to play a role in its energy system for a long period of time. But it is also looking to decrease the carbon intensity to the most extent which is viable. We need to work on creating new energy systems or new components of energy system like hydrogen and EV charging to facilitate that. It is what we would like to call a 'just transition' because you think about it from macroeconomic perspective of the country and its economic health. Shell is involved across the energy spectrum in Oman – from upstream gas to alternative, clean energies. What is Shell's overall strategy for the country? In Oman, our strategic foundation has three main pillars. The first is around oil and liquids and our ambition is to sustain oil and liquids production. At the same time, we aim to significantly reduce carbon intensity from the oil production coming from PDO. The second strategic pillar is gas, and our ambition here is to grow the amount of gas we are producing in Oman and also to help Oman grow its LNG export capabilities. The more committed we are in unlocking the gas reserves in the country, the more we can support Oman's growth, diversification, and the resilience of its economy through investments and LNG revenue. Gas also offers a very logical and nice link into blue and green hydrogen, whether in sequence or as a stepping stone to scale the hydrogen economy in the country. The last strategic pillar is to establish low-carbon value chains, predominantly centered around hydrogen, more likely blue hydrogen in the short term and very likely material green in the long term, which is subject to regulations and markets developing. How would you view Oman's potential to be a major exporter of green hydrogen? When examining the foundational aspects of green hydrogen manufacturing, such as the quality of solar and wind resources and their onshore complementarity, Oman emerges as a highly competitive country in terms of its capabilities. But where we are in technology and where we are in global markets and on policy frameworks — the demand centers for green hydrogen are maturing but not yet matured. I think there will be a period of discovery for green hydrogen globally, not just for Oman, in the way LNG started 20-30 years ago. When it does, Oman will be well-positioned to play global role in the global hydrogen economy. But the question is, how much time it is going to take us and what kind of multi-collaboration needs to be in place to enable that? The realisation of this potential hinges on several factors: the policies of the Omani government, its bilateral ties with Japan, Korea, and the EU, and the technological advancements within the industry. Shell has also been looking at developing CCUS opportunities in the country. How big a role can CCUS play in the region's energy transition? CCUS is going to be an important tool in decarbonising the global energy system. We have several projects globally that we are pursuing for own scope 1, scope 2 emissions reductions, as well as to enable scope 3 emissions with the customers and partners In Oman, we are pursuing a blue hydrogen project where CCUS is a clear component. This initiative serves as a demonstrative case, helping us gauge the country's potential for CCUS implementation. We are using that as a proof point to understand the potential for CCUS in the country. At this stage, it's too early to gauge the scale of CCUS adoption in Oman or our specific role within it. However, we are among the pioneers in establishing the initial proof point through our Blue Hydrogen initiative. You were able to kick off production in block 10 in just over a year after signing the agreement. How are things progressing there? We have started producing at the plateau levels that we agreed with the government, which is just above 500mn ft³/d. Block 10 gas is sold to the government, through the government-owned Integrated Gas Company (IGC), which so far has been the entity that purchases gas from various operators in Oman like us, Shell. IGC then allocates that gas on a certain policy and value criteria across different sectors. We will require new gas if we are going to expand LNG in Oman. There is active gas exploration happening there in Block 10. We know there is more potential in the block. We still don't know at what scale it can be produce gas or the reservoir's characteristics. But blocks 10 and 11 are a combination of undiscovered and discovered resources. We are aiming to significantly increase gas production through a substantial boost. However, the exact scale and timing of this expansion will only be discernible upon the conclusion of our two-year exploration campaign in the block. We expect to understand the full growth potential by around mid to late 2025. Do you have any updates on block 11? Has exploration work there begun? We did have a material gas discovery which is being appraised this year, but it is a bit too early to draw conclusions at this stage. So, after the appraisal campaign is completed, we will be able to talk more confidently about the production potential. Exploration is a very uncertain business. You must go after a lot of things and only a few will end up working. We have a very aggressive exploration campaign at the moment. We also expect by the end of 2025, we would be in a much better position to determine the next wave of growth and where it is going to come from. Shell is set to become the largest off taker from Oman LNG, how do you view the LNG markets this year and next? As a company, we are convinced, that the demand for LNG will grow and it needs to grow if the world is going to achieve the energy transition Gas must play a role, it has to play a bigger role globally over the time, mainly to replace coal in power generation and given its higher efficiency and lower carbon intensity fuel in the energy mix. While Oman may not be the largest LNG exporter globally or hold the most significant gas reserves, it is a niche player in the gas sector with a sophisticated and high-quality gas infrastructure. Oman's resource base remains robust, driving ongoing exploration and investment efforts. This growth trajectory includes catering to domestic needs and servicing industrial hubs like Duqm and Sohar, alongside allocating resources for export purpose. We have the ambition to grow gas for domestic purpose and for gas for eventual exports Have you identified any international markets to export LNG? We have been historically and predominantly focused on east and we continue to see east as core LNG market with focus on Japan, Korea, and China. Europe has also emerged on the back of the Ukraine-Russia crisis as growing demand center for LNG. Over time we might focus on different markets to a certain extent. It will be driven on maximising value for the country. By Rithika Krishna Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Opec+ to take June meetings online
Opec+ to take June meetings online
Dubai, 24 May (Argus) — Meetings to discuss Opec+ crude output policy that had been scheduled to take place in Vienna at the start of June have been pushed back by a day and will now be held online. The meetings — one involving Opec ministers, another involving the wider Opec+ coalition and a third consisting of the group's Joint Ministerial Monitoring Committee (JMMC) — will "convene via videoconference on Sunday 2 June 2024", the Opec secretariat said on Friday. The original schedule was for Opec+ ministers to meet in person on 1 June. The announcement puts to bed more than a week of rumours and delegate chatter about whether or not the meeting would take place in person as speculation mounts around what policy decision the group would need, or be prepared, to take. Effectively, the only thing up for debate at these meetings is the fate of the 2.2mn b/d supply cut that eight member countries, led by Saudi Arabia and Russia, committed to after the Opec+ group's last meeting in late November. That cut was originally due to last for just three months, but it was later extended for another three months until the end of June. Several weeks ago, when oil prices were under sustained upward pressure in the face of tightening fundamentals and rising geopolitical tensions, expectations were high that the group would agree to begin unwinding at least part of the 2.2mn b/d from July. But a relative easing of tensions in the Middle East, coupled with signs of continued restrictive monetary policy by the US Federal Reserve and other major central banks, has since led to a softening of oil prices and with that a change in sentiment among Opec+ delegates about what the group should do next. Delegates today argue that the market is on the whole well-supplied and in no need of additional supply from the group, particularly given the uncertainty around the outlook for oil demand, highlighted by the wide range of growth projections for 2024. At one end of the spectrum, Opec sees oil demand growth of 2.25mn b/d this year. At the other end, the IEA recently revised down its 2024 growth forecast for a second consecutive month. It now stands at 1.06mn b/d. Two Opec+ delegates said earlier this week that they expect the eight countries to extend the 2.2mn b/d cut in its entirety beyond the second quarter. One said they could extend it through to the end of the year. Compensation plans A renewed emphasis by Opec+ in recent weeks on the need for those member countries producing above their targets to not only scale back but also compensate fully for their past overproduction could be interpreted as acknowledgement by the group that the market is indeed well-supplied. Iraq and Kazakhstan, the group's biggest overproducers this year, this month issued detailed programmes outlining how they plan to compensate , while Russia this week acknowledged it had exceeded its Opec+ target for April and said it would soon submit a plan to the Opec secretariat detailing how it will make up it. Although all eyes will be on the fate of the 2.2mn b/d cut at the upcoming meetings, the fact it is a voluntary pledge and one agreed by only a handful of countries means, in theory, a decision need not happen at the ministerial meeting. As the eight countries participating in that cut are all members of the JMMC, there is a good chance the decision gets announced at the committee's meeting instead. By Nader Itayim Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Richmond City Council proposes Chevron refinery tax
Richmond City Council proposes Chevron refinery tax
Houston, 23 May (Argus) — The Richmond City Council in California's Bay Area has paved the way for a tax on Chevron's 245,000 b/d refinery, voting unanimously at a 21 May meeting for the city's attorney to prepare a ballot initiative. The newly proposed excise tax would be based on the Richmond refinery's feedstock throughputs, according to a presentation given by Communities for a Better Environment (CBE) at the meeting. It is a "…legally defensible strategy to generate new revenue for the city," CBE attorney Kerry Guerin said. The city has previously looked to tax the refinery, with voters passing ‘Measure T' in 2008 before it was struck down in court in 2009. This led to a 15-year settlement agreement freezing any new taxes on Chevron's refinery, but the agreement expires on 30 June 2025. The city is projecting a $34mn budget shortfall for the 2024 to 2025 fiscal year and is seeking to shore up its finances with additional revenue. Ballot initiatives allow Californian citizens to bring laws to a vote without the support of the state's governor or legislature, and the tax proposal could go to voters as early as November this year, according to CBE's Guerin. "Richmond has been the refinery town for more than 100 years, but it won't be 100 years from now," Richmond Mayor Eduardo Martinez said during the meeting. Chevron reiterates risk to renewables A tax on the refinery is the "wrong approach to encourage investment in our facility and in the city that could lead to new energy solutions and reductions in emissions from the refinery," Chevron senior public affairs representative Brian Hubinger said during the meeting's public comments. Hubinger's comment echoes prior warnings from Chevron that a potential cap on California refining profit in the process of being implemented by the California Energy Commission (CEC) would make the company less willing to investment in renewable energy . "An additional punitive tax burden reduces our ability to make investments in our facility to provide the affordable, reliable and ever-cleaner energy our community depends on every day, along with the job opportunities and emission reductions that go with these investments," Chevron said in an emailed statement. The Richmond refinery tax is a "hasty proposal, brought forward by activist interests," the company said. The company last year finished converting a hydrotreating unit at its 269,000 b/d El Segundo, California, refinery to process both renewable and crude feedstocks. The facility was processing 2,000 b/d of bio feedstock to produce renewable diesel (RD) and sustainable aviation fuel (SAF) and said it expected to up production to 10,000 b/d last year. But Chevron has so far lagged its California refining peers in terms of RD volumes with Marathon's Martinez plant running at about 24,000 b/d in the first quarter — half of its nameplate capacity — and Phillips 66's Rodeo refinery producing 30,000 b/d with plans to up runs to over 50,000 b/d by the end of the second quarter . Chevron did not immediately respond to a request for current RD volumes at its California refineries. By Nathan Risser Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
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