Friday, March 30, 2018

British Columbia vs Alberta and BC’s increasing need for fossil fuels

Written by Joe Thornton - March 29, 2018  Material compiled from corporate and government web sources.

Want some sobering facts about automobiles, airplanes and Vancouver fuel requirements?  This article is analyzing where the oil comes from and who are the owners. Who benefits financially from the Trans Mountain Pipeline? It's not who you think. I get that some of you won't accept facts even when they are in front of you, so if that's you, don't read this. It'll be a waste of time. Go buy some weed and chill. Yes, I'm being purposefully provocative.

Onward. There are over 1 billion cars on the world's roads as of right now, almost all of them petroleum powered.  As of today 17,516,700 Cars produced so far this year,  203,017 Cars produced today as of this posting. There are about ten produced every minute on a worldwide basis.   Bloombergs best estimate is that Tesla has manufactured 11,189 Model 3s so far, and is now building approximately 975 a week. (  Other electric car manufacturers currently have a negligible output when compared to global totals. 
Ya with me so far?  Unless you want to walk everywhere, or invest in pedal power, Vancouver, you're going to need gasoline for quite awhile yet.  

There are now almost 2.5 million people living in BC's Lower Mainland, representing 60% of the province's population. But only one small refinery remains in the area - a 55,000 bbl/day facility on the edge of Burnaby Mountain operated by Chevron. The Chevron refinery only supplies 30% of the area's gasoline needs. In the past, Edmonton was able to satisfy the balance. But pipeline constraints and a growing population in Alberta and BC result in periodic shortfalls. And that shortfall is made up by importing gasoline from Washington State refineries located just across the BC/US border.

Vancouver's YVR International Airport is the second-busiest in Canada. The number of long-haul flights to Asia grows every day, and with it grows the need for jet fuel. The Chevron plant only supplies 40% of the airport's jet fuel requirements, forcing them to truck in 1,000 loads of fuel per month from BP's Cherry Point Refinery in Washington State. Every additional flight to Asia adds another 800 truckloads per year. The airport's growth is becoming unsustainable under current circumstances. Even a minor supply disruption of jet fuel would threaten their existing operations.
But YVR Airport isn't waiting for Canadian refineries to make more jet fuel. The city is building a marine terminal on the South Arm of the Fraser River. The plan is to import jet fuel from Washington State by tanker and run a 13 km underground pipeline through the city of Richmond to the YVR airport.

Ya with me so far?  Tankers coming INTO the area with fuel on board.  Huh? I can't hear you? No protesting? No one upset?  Hmmmm...  

So here's the deal.  West coast refining margins are some of the best in the world, none better than those located in Washington State, just a stone's throw from BC's Lower Mainland. The northwestern corner of Washington State is home to 5 refineries with a combined capacity of over 630,000 bbl/day. These refineries have a major competitive advantage - they can source discounted heavy oil from the oil sands (via the Trans Mountain Pipeline) and discounted light oil from the Bakkens (delivered by rail). The state produces premium low-sulphur gasoline and diesel shipped out to lucrative markets such Oregon, California, Hawaii, Asia and yes, even Vancouver.  Washington State exports a whopping 14% of its final products to BC's Lower Mainland.

Anybody getting it yet? This is what Alberta is trying to accomplish.  We are trying to get our supply to the markets in our/your backyard. A product that you are going to need for quite a while unless you want to go back to equine transportation. Going cold turkey on your petroleum addiction won't cut it this time. 

Why do you hate Alberta so much? It'd be so much easier if you'd just work with us and we can get to green together. We want to, but we need your money to do it, and you need our fuel.

Kinder Morgan

Kinder Morgan is a pipeline company not an oil producer. They just provide a service, like CN/CP Rail is also doing. Any bitumen being discussed is supplied by Suncor – the percentage makeup is explained below. Toss into the mix some crude that is coming from Fort St John BC through Edmonton and some light crude that comes from several smaller Alberta oil companies. Trans Mountain is a multipurpose pipe that is also transporting Aviation fuel made just outside Edmonton, gasoline, diesel and condensate also get a slot. 

The Trans Mountain Pipeline carries crude and refined oil from Alberta to the west coast of British Columbia, Canada. It is wholly owned by the Canadian division of Kinder Morgan Energy Partners (Kinder Morgan) and has been in use since 1953. It is the only pipeline to run between these two areas.

The Burnaby Refinery is an oil refinery located in the city of Burnaby, British Columbia, Canada owned by Parkland Fuel Corp.. The facility refines crude and synthetic oil into gasoline, diesel, jet fuels, asphalts, heating fuels, heavy fuel oils, butanes, and propane. Crude oil is supplied to the facility from Northern British Columbia and Alberta through the 1,200-kilometre Kinder Morgan Pipe Line. The refinery is divided into Area 1 now used for offices and oil storage and Area 2 the modern refining area. Former and original owner-operator Chevron sold its Canadian assets to Parkland Fuel Corp for C$1.46 billion in April 2017, including 129 gasoline stations, three terminals and the Burnaby oil refinery.

The refinery was established in 1935 by Standard Oil of California as one of few heavy industries in the area at that time - 2000 bbls/day. Major expansion took place in mid 1950's to 11,000 bbls/day as part of post war BC building boom. Further capacity increases in mid 1970’s to 35,000 bbls/day including a steady advancement in technology. Other lower mainland refineries were converted to terminals in early 1990’s with production transferred to Alberta.

Moving right along getting to the issue at hand which is bitumen. Who owns it? 

The Oil Sands Syncrude Partnership

Syncrude Canada Ltd. is one of the world's largest producers of synthetic crude oil from oil sands and the largest single source producer in Canada. It is located just outside Fort McMurray in the Athabasca Oil Sands, and has a nameplate capacity of 350,000 barrels per day (56,000 m3/d) of oil, equivalent to about 13% of Canada's consumption. It has approximately 5.1 billion barrels (810,000,000 m3) of proven and probable reserves (11.9 billion when including contingent and prospective resources) situated on 8 leases over 3 contiguous sites. Including fully realized prospective reserves, current production capacity could be sustained for well over 90 years.

The company is a joint venture between five partners. As a result, Syncrude is not traded directly, but rather through the individual owners. As of February 2018, the partners (by percentage): Suncor Energy (58.74%), Imperial Oil (25%), Sinopec (9.03%), Nexen (7.23%). Because of Nexen's subsequent takeover by CNOOC, over 16% of the shares in Syncrude are controlled by State Owned Enterprises (SOE).

The ownership board must approve all annual operating budgets and proposed capital spending projects, and are required to provide the funding for said activities based on their ownership share.

Calgary’s Suncor Energy Inc. - increased its stake in the Syncrude joint venture and acquired a stake in the Fenja Development, an offshore project in the Norwegian Sea, in a pair of deals.  Under the first agreement, Suncor acquired Mocal Energy’s five per cent interest in Syncrude for approximately $920 million.  

The acquisition increases Suncor’s share in Syncrude to 58.74 per cent from 53.74 per cent. The other partners include Calgary’s Imperial Oil Resources with 25 per cent, Calgary based Sinopec Oil Sands Partnership with 9.03 per cent and the Calgary based Nexen Oil Sands Partnership with 7.23 per cent.

Imperial Oil Limited is a Canadian petroleum company. It is Canada's second-biggest integrated oil company. ... Imperial owns 25 percent of Syncrude, which is one of the world's largest oil sands operations.

Suncor is the world's largest producer of bitumen, and owns and operates an oil sands upgrading plant near Fort McMurray, Alberta, Canada. Originally developed by Great Canadian Oil Sands which was a majority-owned subsidiary of Sun Oil, it is now wholly owned by the independent Suncor.

Sinopec Canada is a diversified unconventional oil and natural gas company, focused on developing our asset base in Alberta and north east British Columbia. The Company has a balanced mix of crude oil, liquids-rich natural gas and resource play natural gas and is a 9.03% partner in the Syncrude Oilsands Joint Venture. Sinopec Canada is a business unit of Sinopec International Petroleum Exploration and Production Corporation (SIPC) and is indirectly owned by China Petrochemical Corporation (Sinopec Group), one of the world's largest enterprises.

Nexen is an upstream oil and gas company responsibly developing energy resources in the UK North Sea, offshore West Africa, the United States and Western Canada. A wholly-owned subsidiary of CNOOC Limited, Nexen has three principal businesses: conventional oil and gas, oil sands and shale gas / oil.

CNOOC Limited, incorporated in the Hong Kong Special Administration Region in August 1999, was listed on the New York Stock Exchange (code: CEO) and The Stock Exchange of Hong Kong Limited on 27 and 28 February 2001, respectively. The Company was admitted as a constituent stock of the Hang Seng Index in July 2001. The Company’s American Depositary Receipts (“ADRs”) was listed on the Toronto Stock Exchange (code: CNU) on 18 September 2013.

In a separate heavy oil operation that spans the Alberta Saskatchewan border, Calgary based Husky Energy is a publically traded Canadian company that operates the Husky Lloydminster Upgrader, in Lloydminster, Saskatchewan, which converts heavy oil to a high-quality, low sulphur synthetic oil. This travels via pipeline eastward through Prince Albert and down to Regina where it supplies under contract to the Co-op Refinery Complex which was established in 1935.  It eventually joins the Keystone One and I believe the pipeline east to Ontario. 
Westward it provides petroleum to service it’s Husky Prince George Refinery, and from its Oil Sands Sunrise Energy Project, it supplies heavy oil/bitumen into the Trans Mountain pipeline.

Husky owns and operates the Prince George Refinery in Prince George, British Columbia. The refinery provides unleaded gasoline, seasonal diesel fuels, mixed propane and butane, and heavy fuel oil. The refinery's capacity is 12,000 bpd.

So the Canadian Oil Sands being a total corporate foreign owned venture is pretty much just a myth. There are foreign ownership elements but they are minor at this point as mentioned earlier in this article.

The corporations involved are all Canadian Corporations headquartered in Calgary.  Ownership shares are partially owned in a few cases by foreign entities but overall as mentioned the majority of the Oilsands are now owned by SunCor a Canadian Company.

The actual shareholdings are a bit more difficult to pin down but they are owned entirely by institutional investors.  That generally indicates a conglomerate of pension funds and banks.

On that basis, the top five institutional shareholders of Suncor are - FMR LLC; Wellington Management Group, Royal Bank of Canada, Capital World Investors, Invesco Ltd. FMR is a Boston investment company. Wellington Management - Also a Boston Investment company. Royal Bank no explanation necessary I hope, Capital World Investors - based in Los Angeles. Also an investment company. Invesco is from Atlanta Georgia and does not appear to be an institutional investor but is likely a single purpose. company setup to raise capital. So no Texans in the top five. 

Capital investment in Canada’s energy sector generates development activity, which in turn spurs job creation and economic growth across Canada for all levels of government – including about $19 billion in revenues in 2015 and 533,000 jobs across the nation in 2017.

Oil sands development creates a significant number of jobs outside Alberta. In fact, more than 3,400 Canadian companies outside of Alberta supplied the oil sands with good and services in 2014 and 2015. The goods, materials and services used to construct and operate in situ oil sands projects, mines and upgraders come from across Canada. Many of the components – trucks, gauges, valves, pumps – are produced in Ontario and Quebec.

In 2017, the oil sands supported and created more than 223,000 direct and indirect jobs across Canada. (Prism Economics, 2017). Many of these jobs are in provinces outside of Alberta - the goods, materials and services used to construct and operate oil sands projects, mines and upgraders come from across North America. Many of the components — tires, trucks, gauges, valves, pumps, etc. — are produced in Ontario and Quebec.

According to the Canadian Energy Research Institute (CERI), almost every region in Canada has been stimulated by oil sands development through job creation and economic activity.

Alberta’s natural resources belong to Albertans. In exchange for the right to develop these resources, companies pay the government a royalty. This is a percentage of revenues generated from the sale of oil and natural gas products, or in some cases takes the product in-kind for the government to sell.

Royalties are just one way oil and natural gas producers contribute to government revenues. Many different government taxation policies affect exploration and development of Alberta’s natural resources.

The oil and natural gas industry is Canada’s largest private sector investor, with oil sands alone injecting almost $14 billion into the economy in 2017. The oil sands industry and its suppliers contribute to government revenues through corporate taxes, personal income taxes, property taxes, royalties, land sales and other costs. Over the next 20 years, the oil sands industry is expected to pay $1.7 trillion in provincial and federal taxes – including royalties. These revenues contribute to government spending on infrastructure, social services and other important programs. A healthy oil sands industry results in higher revenues for governments.

The drive towards sustainable growth in the economy, along with a new Climate Leadership Plan introduced by the Government of Alberta in November 2015 will create a wide range opportunities in Alberta’s renewable energy market.

Alberta’s government is serious about addressing climate change. Alberta’s plan features a phase out of coal-fired power by 2030 and replacing at least 50-75% of retired coal generation with renewable power, increasing the overall share of renewables to 30%.

Alberta is serious about renewable energy.  As one of its first actions under the Climate Leadership Plan, the Government of Alberta chose the Alberta Electric System Operator (AESO) to develop and implement a renewable electricity program (REP) to add additional renewable generation capacity into Alberta’s electricity system. REP 1 results were announced in December 2018. This is the lowest renewable power prices seen in Canada at $37/MWh.

As of February 2018, there are two more REP procurement auctions available.

The Alberta government has also established Energy Efficiency Alberta to administer multiple efficiency programs for Alberta residents and businesses. Program details can be found here.
The transition to a larger proportion of renewable energy in Alberta's electricity market offers a phenomenal business opportunity. It's estimated $10.5 billion in new investment will flow into the provincial economy by 2030, creating at least 7,000 new jobs for Albertans as projects are built.
The province has proven potential for large scale investments in both wind and solar energy. For example, Alberta’s solar resource is 25% greater than Ontario’s and 30% greater than Germany’s, according to the Canadian Solar Industries Association. Alberta is Canada’s third largest producer of wind energy and that’s using only 1% of the estimated total wind energy potential in the province.
As Canada’s only fully deregulated electricity market, Alberta offers extensive opportunities for renewable power generation and smart grid technology. Alberta’s competitive electricity market has resulted in over 9000 megawatts (MW) of new electricity generating capacity since 1998. 

There is currently 16,242 MW of installed generating capacity in Alberta.

As of August 2015, future development proposed by industry includes over 2,400 MW of renewable generation and over 7,700 MW of thermal and other generation.

Coal-fired plants account for almost 38 per cent, while natural gas accounts for almost 44 per cent of the market, as of August 2015. The remaining 13 per cent is generated through hydro, wind, biomass and waste heat. Critical as well to Alberta’s electricity industry is the use of cogeneration. The process of cogeneration is economically friendly and efficient as the input fuel (such as natural gas or biomass) generates electricity and steam/heat for industrial processes simultaneously.

Co-generation of electricity strongly contributes to Alberta’s energy supply with over 30%, or 4,600 MW, of total installed generation capacity as of December 2014. Co-generation is environmentally efficient as it substantially reduces greenhouse gas emissions.

The province has nine biomass co-generation facilities and four waste heat facilities.  

The Alberta Electric System Operator (AESO) is Canada’s first customer-focused exchange for electricity. As an independent system operator, the AESO leads the safe, reliable and economic operation and planning of Alberta’s interconnected power system. The AESO also facilitates Alberta’s competitive wholesale electricity market which, in 2014, had 196 participants and approximately $5 billion in annual energy transactions.

Alberta’s electricity system is owned and operated by a mix of investor-owned and municipally owned companies, of which many are based in Calgary.