The Oil Sands Weekly

The Oil Sands Weekly

IN THE NEWS THIS WEEK:
  • Kinder Morgan wins Round 1 against Burnaby
  • Suncor's plan to boost COGEN capacity
  • Husky increases spending, but production stalls
  • Alberta expands funding for carbon reduction projects
  • Saskatchewan defies instructions from federal Liberals
  • Desjardins lift ban on energy loans
  • Minnesota vs Minnesota in Line 3 review
  • Another LNG project gets turfed in BC
  • Another LNG project starts-up in Russia
  • MIT accuses EIA of gross exaggeration
  • Mobil gas - now available in Mexico
  • Statoil moves forward on mega-project in Barents Sea
  • Replacing bunker fuels with LNG in France
  • Big Oil makes big investments in Africa
  • Venezuela ponders crude-backed Bitcoins.

ALBERTA

Husky boosts capital spending but production expected to stall
In this week's 2018 budget and production guidance, Husky Energy says it plans to increase capital spending to about $3 billion, slightly less than initially anticipated but almost $1 billion more than 2017. About $900 million will be allocated to Husky's heavy thermal properties in Alberta and Saskatchewan, including Sunrise, Lloyd and Tucker. Average upstream production is expected to be in the 320,000 to 335,000 boe/day range, roughly unchanged from this year. Refinery throughput is expected to increase about 7% to a range of 360,000 to 370,000 bbl/day. By the middle of 2018, Husky's Lima Refinery will have the capacity to process 40,000 bbl/day of heavy crude, up from a current capacity of 10,000 bbl/day. The company added it is targeting 400,000 boe/day of total upstream output by 2021 and hinted it may eventually reinstate its dividend.

Suncor announces plans to install new COGEN units
Suncor Energy says it has begun a process to replace coke-fired boilers with two cleaner-burning cogeneration units at its base plant operations north of Fort McMurray, AB. Cogeneration units burn natural-gas to produce steam and power required to operate the oil sands facility. Any excess power is sold to Alberta's electricity grid. Once operational, the company expects to export approximately 700 MW of electricity, equivalent to 7% of the province's electricity demand. Suncor says a final investment decision will be made sometime in the fourth quarter. If all goes according to plan, the units could be operational by 2022.

Alberta expands funding for carbon reduction ...
The Province of Alberta announced a new $1.4 billion fund to help its economy transition to a more "diversified, low-carbon future." The funds include $440 million to help oil sands companies reduce carbon intensity, $225 million for research and commercialization of new technologies that reduce emissions, $240 million for industrial energy-efficiency upgrades, $63 million in grants for bioenergy projects, and $400 million in "green loan" guarantees. The funds will come from the province's carbon tax revenues.

... and introduces credits for large emitters
Environment Minister Shannon Phillips also announced Carbon Competitiveness Incentives (CCIs) for large industrial facilities that emit more than 100,000 tonnes of carbon annually.  Large emitters were expected to pay up to $1.2 billion in levies annually by 2020, but the new plan reduces levies over the next few years and provides some funding assistance. CCIs are expected to reduce carbon emissions by 50 million tonnes by 2030. The new plan replaces the Specified Gas Emitters Regulation effective January 1, 2018.

... and takes steps to protect taxpayers from future liabilities
The government of Alberta has also revised eligibility requirements for those companies hoping to purchase oil and gas licences. The government says "acquiring and holding a licence or approval in Alberta is a privilege, not a right." Alberta is still fighting a recent court ruling that leaves taxpayers on the hook for remediating sites left behind by bankrupt producers. The government will now more closely scrutinize applications, including corporate compliance and director experience, reserving the right to reject any company that might pose a risk to taxpayers. The province will also allocate another $235 million to accelerate clean-up of abandoned wells.

Gibson poised for growth in 2018
Gibson Energy's Board of Directors has approved a 2018 capital budget of $120 million to $150 million, most of it to be spent on expanding its footprint at the Hardisty terminal. Based on current commercial discussions, the company says it expects to invest an additional $50-$100 million next year to "secure incremental infrastructure growth projects."


CANADA

Kinder Morgan wins Round 1
The National Energy Board (NEB) has ruled in favour of Kinder Morgan Canada in its battle against the city of Burnaby. Kinder Morgan had warned that the start-up of its $7.4 billion Trans Mountain Expansion Project (TMEP) could be delayed past September 2020 if it is unable to get more clarity on Burnaby's permitting process. Burnaby's lawyer argued that city officials are simply doing their jobs and denies any wrongdoing. The city accuses the company of being incompetent and says it showed no intention on complying with municipal bylaws. The NEB has ruled that construction can continue at KML's Burnaby and Westridge terminals without obtaining two permits related to zoning bylaws and tree clearing. The ball is now in Burnaby's court, with the mayor mulling an appeal or outright civil disobedience. Kinder Morgan is still awaiting another motion from the NEB on the establishment of a conflict resolution process going forward.

Saskatchewan takes aim at federal Liberals - Part 1
The Government of Saskatchewan has finally released its long-awaited climate change strategy, which does not include plans for a carbon tax. The province says it will focus on carbon sequestration and community preparedness, while promising to work with its natural resources sector to reduce carbon intensity. The province also says it will transition its power grid to 50% renewables by 2030, and set-up a technology fund for large emitters. The federal government has asked each province to introduce a $10/tonne carbon tax by next year, rising to $50 by 2022. The Liberals say they will unilaterally impose the tax on uncooperative provinces and have called for a ban on coal-fired power by 2030. Saskatchewan has threatened to take the feds to court for trampling on matters of provincial jurisdictions.

Saskatchewan takes aim at Alberta tradespeople - Part 2
Saskatchewan also announced that vehicles displaying Alberta licence plates will no longer be allowed on government job sites, specifically road and infrastructure projects. The province says Saskatchewan plates are not welcomed at Alberta job sites, and this announcement "just levels the playing field." The rules will apply to contractors, sub-contractors, consultants and general workers on all new government infrastructure projects.

Another LNG project gets turfed in BC
Steelhead LNG says it has abandoned plans to build a floating LNG terminal just outside Victoria, BC. The 6 million tonnes/year facility was to be developed in partnership with the Malahat First Nation. The project was approved by the NEB in late 2015. The company cites global competitiveness for its decision and says it will now focus on its larger Kwispaa LNG project (formerly known as Sarita LNG), to be developed in partnership with the Huu-ay-aht First Nations community. The 24 million tonnes/year export terminal is located further north on Vancouver Island, in the Alberni inlet. At last count, the terminal had a price tag north of US$30 billion, excluding the cost of running natural gas pipelines from northern BC/Alberta underneath the Straight of Georgia.

Desjardins lifts ban on energy loans
Quebec's Desjardins Group says it will consider environmental, social and governance (ESG) practices of clients in all future lending decisions, lifting a recent moratorium on new loans to the energy sector. CEO Guy Cormier says the moratorium will be replaced by the ESG criteria and says his bank will work to "support the transition to clean energy." Desjardins holds about $6.6 billion in oil and gas investments, representing about 2.3% of its outstanding loans.


USA

Minnesota vs Minnesota on Line 3
Minnesota's Public Utilities Commission (PUC) has rejected the state's environmental assessment on Enbridge's proposed replacement of Line 3. Minnesota's Commerce Department explored a number of potential scenarios in their Environmental Impact Statement (EIS), but made no real conclusion other than saying Line 3 provides no benefit to Minnesota's refineries. The PUC says the EIS was very thorough but needs more information on routing through ecologically sensitive areas. The Commerce Department has been given 60 days to add more meat to the assessment. The Line 3 Replacement Project would double volumes on the pipeline, restoring capacity to 760,000 bbl/day. The additional crude volumes are destined for the refineries in the Midwest and Gulf Coast. A final decision from the PUC is not expected until next April.

Gas line explodes in Illinois
An explosion on Kinder Morgan's NGPL natural gas pipeline killed two people and injured two others earlier this week in Lee County, Illinois. The line was suspected to have been accidentally struck by farming equipment in a rural area. The affected segment of pipe has since been isolated and taken out of service. NGPL is one of the largest interstate pipelines in the US, bringing natural gas into the Chicago area.

Beaumont Refinery running at reduced rates
ExxonMobil's 365,000 bbl/day Beaumont refinery in Texas will likely be running at reduced rates through January, after a fire in late November damaged the facility's 110,000 bbl/day crude distillation unit. A spokesperson for the company says repairs are ongoing, but did not give an exact timeline for return to normal.

MIT questions EIA's production forecasts
Researchers at MIT say the US Energy Information Administration's (EIA) production forecasts are flawed, and may be overestimating future production from US shale plays. MIT accuses the EIA of extrapolating efficiency gains into the future, but says a lot of those productivity improvements came from selectively targeting low-hanging fruit, and focusing on oil extraction from more prolific zones. Researchers estimate the error may overstate future production by about 10%.

World Bank rules in favour of ConocoPhillips
A World Bank panel has ordered the country of Ecuador to pay a subsidiary of ConocoPhillips US$380 million in damages eight years after the government unlawfully seized two oil fields that produce 22,000 bbl/day. The funds include a US$42 million payment awarded in favour of Ecuador for environmental and infrastructure counterclaims. Ecuador already paid the company US$75 million earlier this month with the balance will be paid next April.

Planes, trains and automobiles move to the top spot
For the first time in 40 years, the transportation sector has become the largest source of GHG emissions in the US, overtaking total emissions from power plants for the first time since 1978. The change is mainly attributed to the country's transition away from coal power, but rising emissions from transport vehicles are also to blame, as sales of SUVs and pick-up trucks have soared in recent years.


US PRODUCTION & INVENTORY DATA

Strong crack spreads have helped drawdown crude inventories south of the border, resulting in a slow but steady rise in product inventories, particularly gasoline.

US crude production rose 25,000 bbl/day to another record high of 9.7 million bbl/day last week. Production is now up 1.2 million bbl/day since the fall of 2016. Rig counts have been rising steadily since early October, which should support continued growth in US crude output.

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

DEC 6, 2017

EIA REPORTS BIG RISE IN PRODUCT INVENTORIES AS REFINERIES CRANK CRUDE THROUGHPUT

 

AROUND THE WORLD

Mobil gas now available in Mexico
Following in the footsteps of Shell and Andeavor, ExxonMobil announced its first Mobil-branded retail gas station in Mexico. The company says it plans to open more than 50 stations in the Bajio region during the first quarter of next year. The stations will be supplied by Exxon's refineries in Texas.

Using LNG to power marine vessels
French energy major Total has signed a 10-year agreement to supply 300,000 tons of LNG annually to Marseille-based shipper CMA CGM, beginning in 2020. CMA CGM will use the LNG to power its container ships. LNG is sulphur free making it considerably cleaner-burning than low grade bunker fuels commonly used in the marine shipping industry. By 2020, the International Maritime Organization has mandated a maximum sulphur content of 0.1% for marine fuels. LNG-powered ships have been gaining in popularity given the high cost of low-sulphur diesel.

Total invests in Angola
Total also signed several agreements with the government of Angola and its newly elected President João Lourenço, aimed at expanding deepwater exploration, increasing output and developing a retail distribution network. Total has maintained a presence in the Southern African nation for the past 64 years, producing about 243,000 bbl/day. Despite being a major oil exporter, Angola remains one of of the poorest countries in the world, where life expectance averages just over 50 years of age.

Massive LNG project gets off the ground in Northern Russia
Total also announces its first LNG shipment from the Yamal LNG facility in Sabetta, Russia. Yamal LNG is one of the biggest and lowest cost LNG projects in the world, sourcing its gas from the giant South Tambey field in Northern Russia. The second and third trains will be commissioned in 2018 and 2019, respectively. Once fully operationally, the facility will have the capacity to produce 16.5 million tons/year for export to Asian and European markets.

Exxon invests in Mauritania
A subsidiary of ExxonMobil has signed production sharing contracts with the government of Mauritania for three deepwater offshore blocks. The blocks are located 200 km offshore Mauritania, with depths that vary from 1,000 meters to over 3,500 meters. ExxonMobil says it will begin exploration activities. The government of Mauritania has retained a 10% stake in the fields.

Statoil plans massive offshore project in Barents Sea
Statoil has submitted an application for the massive Johan Castberg project in the Barents Sea. Statoil will operate the field, owned jointly with Eni and state-owned Petoro. If approved, Johan Castberg would be the biggest subsea field currently under development, with an estimated price tag of US$5.9 billion. The field is estimated to hold 450 to 650 million barrels of recoverable oil. Production is scheduled for 2022. Johan Castberg will be the sixth project to come on stream off the northern coast Norway.

Crude-backed Bitcoins?
During this week's Christmas extravaganza, Venezuelan President Nicolas Maduro announced plans to launch a cryptocurrency backed by the country's natural resources, including crude oil reserves. US sanctions have prevented the OPEC member from using US dollars in its financial transactions. Hyperinflation has left the country's currency virtually worthless, making Bitcoins wildly popular. One US dollar was worth about 8 bolivars in 2010 but black-market exchange rates are now hovering closer to 10,000. The government was light on details leaving some to speculate the feasibility of launching a new currency.


NEXT WEEK'S EVENTS

Monday:

  • Finance Minister Bill Morneau meets with provincial and territorial counterparts

Tuesday:

Wednesday:

Thursday:

Friday:

  • Baker Hughes Rig Count released @ 1:00pm ET
The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

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