[ROCKMAN]

Pstarr – “Isn't Costa Rica a green ecotourist destination?” Been there…done that. Truly magnificent. And most of it is inland and on the Pacific coast. That’s where most of the expat homes are located and I doubt many will even know about the plant let alone feel any impact from it other than maybe some lower fuel prices. Not that they are all benign but for the last 5 years I’ve lived across the highway from one of the largest refineries in the western hemisphere and haven’t felt or seen one negative impact. But I do enjoy some of the lowest fuel prices in Texas and some incredibly low property taxes and great city services. And at night I find it pleasing to the eye…all the lights remind me of Christmas.

And besides many of the ecotourists are Texas oil patch hands that will be more likely bothered by them getting some oil that used to come to Texas. Also I'm curious...the plant where your motor fuel is refined...whose neighborhood is it located in? LOL

[ROCKMAN]

You might be surprised about the folks in Costa Rica. I found them very proud and very protective of their ecosystems. Don't know the numbers but I suspect ecotourism rates up there with coffee. I doubt they'll let any company, Chinese or American, push them around.

[ROCKMAN]

pstarr - Unfortunately Costa Rica may be the rare exception to the rule. China’s concerns about the environment are clearly telegraphed IMHO by their dedication to expanding coal generated power. And as various oil exporting countries and product consumers find PO causing them more pain the more likely they’ll be to let China conduct operations as they chose. Heck…I’ve seen rumors that a new refinery is being considered in California. What chance does Nigeria or the Red Sea have? LOL

[Matt979]

Very interesting subject and great posts. So one question if OIL production is rising very slowly and eventually declining and we get all these new refineries outside the US if you combine this with a peak of the light crude from Bakken and Eagle Ford that will eventually happen.

Its seem to me that the US and Europe is clearly heading for a supply problem of light crude in the future. Or can they just switch over to heavy crude from Canada and Venezuela?

[ROCKMAN]

Matt - A bit outside my comfort zone but I’ll take a shot.. It’s more a combination of the different pieces. As I understand the middle weight crudes have always been valued more. The heavies and the very lights, like Eagle Ford, don’t create the same profit margins. OTOH some refineries are geared to handling the heavies (like Texas refineries and Vz crude). So different refineries are impacted differently as crude characters change over time. Some refineries were upgraded to handle the swing...many weren't. But then the Canadian syncrude and Eagle Ford light hit the market. And then add the distribution problems. As I understand this is a big reason why EFS light is being shipped form Texas in ever increasing volumes to eastern Canadian refineries while Alberta oil sands production is shipped in the opposite direction to Texas.

And then enter China. From what I read their refinery designs are more efficient and yield a higher motor fuel proportion. They are also being built to the specifics specs of their JV partners' oil. But I think the most significant aspect is that there is zero demand today for new refining capacity. Every bbl of oil produced today is being bought by some refinery. And refineries have to be run on a large volume basis to be very profitable. So the BIG questions: which refineries in what countries are in the process of losing some of their crude supplies? And then the next question: how efficiently will they handle what crude is available to them?

I have these and a lot more questions. More questions than I have answers for. China may be making a huge financial blunder by expanding refinery capacity in a world already at capacity. But by linking these refineries through JV’s with oil exporters I don’t think they are.

Here’s some refinery filler you might want to thumb thru:

“Generally speaking 40 to 45 API gravity degree oils have the greatest commercial value because they are rich in gasoline. Condensates are worth slightly less because the natural gasoline has a lower octane value. Heavier crudes are worth less because they require more refinery processing. West Texas Intermediate (WTI) is the benchmark crude oil used by the United States to set prices and compare other oils. It has 38 to 40 API gravity.

And gravity isn’t the only factor:

“Sour Crude - Crude oil containing free sulfur, hydrogen sulfide (H2S), or other sulfur-containing compounds in amounts greater than 1% is considered sour crude (SPE definition). As is the case with sour gas, the sulfurs must be removed from the crude oil before the oil can be refined and the refiner pays less for oil that contains sulfur. Sour crude is usually processed into heavy oil such as diesel and fuel oil rather than gasoline to reduce processing costs.”

From: http://www.td.com/document/PDF/economic ... ntials.pdf

Highlights
• Since late last year, the widening differential between the Western Canadian Select (WCS) and West Texas Intermediate (WTI) benchmarks – commonly referred to as the bitumen bubble – has stolen the headlines as limited refinery capacity and pipeline constraints, combined with increased production by U.S. oil producers, have driven down the price Alberta’s heavy oil commands. However, there is more to Canadian oil than just the heavy oil priced at WCS.

• Infrastructure constraints have also weighed on the prices received for other blends of oil from the western region. Eastern Canadian oil producers benefit from access to tidewater ports and receive higher Brent-benchmarked prices for its lighter oil.

• The economic impact from a depressed oil price environment has been more pronounced in nominal terms, as corporate profits and government revenues clearly took a hit in 2012. Real economic activity has been affected as well.

• Canadian crude price conditions have improved so far in 2013 and recent data on investment intentions show that the crude oil industry is not pulling in its horns. Still, price differentials remain abnormally wide, imposing a significant opportunity cost to Canada’s economy.


Put simply, not all crude oil is created equally. Heavy crude oil has a higher density, flows through pipelines more slowly and is typically more expensive to refine relative to lighter blends. As a result, the market price for heavier oil will be lower than lighter blends, all things equal. Table 1 also distinguishes between non-conventional and conventional crude oil, oil well method. Bitumen comprises all of Canada’s non-conventional oil, and is either converted into heavy oil or upgraded to synthetic light crude.

Despite the rising share of heavy oil in Canada’s overall production mix, about three-fifths of overall production remains of the light variety. According to National Energy Board data, Saskatchewan is a more oriented towards heavy oil production (two-thirds of its total) than Alberta (40%).Newfoundland and Labrador rounds out the “big three” in Canada and currently only produces light oil (this will change once the Hebron project comes on-line in 2017). A closer look at prices Historically, there are two crude prices that have received the lion’s share of attention in Canada – the international Brent benchmark (sourced at the North Sea) and West Texas Intermediate (WTI) at Cushing Oklahoma, the latter of which forms the basis of crude pricing in North America. As shown in Table 2, this list includes Western Canadian Select (WCS), which is a heavy crude benchmark blend, Edmonton Par and Syncrude Sweet.

[ROCKMAN]

pstarr – I wonder if many Americans could truly grasp the numbers you offer. To simplify: currently upwards of 100,000 bopd of US oil is shipped to Canada. And much of that is light Eagle Ford oil shipped 2,500 miles via tankers from Port Arthur, Texas to eastern Canada. The tanks at the terminal in Port Author from which this oil is being sent to Canada are the same ones that supply via pipelines the local refineries pipelines just a few miles down the road. And that includes the huge Motiva refinery the Dutch and Saudis spent $10 billion to upgrade. IOW it's more profitable for tankers to make a 5,000 mile round trip than to just turn a few valves.

Imbalanced? Just a tad. LOL. Refinery dynamics are much more complicated than most Americans can begin to understand IMHO.

[ROCKMAN]

Talk about what I consider an absurd effort to turn lemons into lemonade. From the Washington Post no less – “Why it’s good news for the U.S. that China is snapping up Iraq’s oil”

http://www.washingtonpost.com/blogs/wor ... iraqs-oil/

“But, looking in isolation just at the growing Chinese stake in Iraqi oil and putting aside for a moment the symbolic power of that trend, it’s worth remembering that the global energy supply is not exactly a zero-sum game. And things that help China don’t necessarily hurt the U.S. Despite the broader narrative of a post-war Iraq that’s far from a reliable American ally (which is true), there are some real silver linings for the U.S. to this story. Here are a few:

“Reduces Chinese competition for oil in other countries.” So true. It’s not like China is doing refinery JV’s, financing and long term oil supply deals with Saudi Arabia, Russia, Egypt, South Africa, Angola, Venezuela, Brazil, Canada, etc., etc.

“China is paying for Iraq’s infrastructure development, which benefits us.” True. Paying for it with the help of interest payments and export revenue from the US. Of course, China isn’t giving the monies to Iraq for free. They are allowed a modest rate of return along with a long term commitments to acquire as much Iraq oil as they chose.

“Reduces China’s reliance on Iran.” The Obama administration will extend six-month sanctions exemptions to China, India and seven other countries for significantly reducing oil imports from Iran. Which isn’t a problem for China at the moment since they are competing very effectively with all other oil importing economies. So they may be reducing their Iran oil imports today. But they still remain Iran’s largest trading partner and there’s no permanent agreement on the export restrictions.

“Forces China to care more about peace and stability in the Middle East.” Yes: forces China to sit back and “care” about the US spending huge sums to keep the ME stable. Or at least as stable as possible.

“Protects global energy market from China-driven price spikes.” I can’t even figure out how to make a joke out of this statement. So by China buying reserves in the ground, doing refinery JV’s with oil exporters that will take millions of bbls of oil per day out of the market place and also tying up other crude with long term contracts this will keep down the price of what oil is left in the market place???

[ROCKMAN]

“Is Xi’s Chinese Dream Compatible with Latin America’s?”

http://thediplomat.com/china-power/is-x ... -americas/

One of the better reports IMHO highlighting the upside as well as the difficulties ahead for China in this part of the world.

[Keith_McClary]

$this->bbcode_second_pass_quote('ROCKMAN', 'f')orces China to sit back and “care” about the US spending huge sums to keep the ME stable. Or at least as stable as possible.

[ROCKMAN]

Keith - Exactly. Everyone here, whether they agree with each other on all the details or not, understand how complex the dynamics are. And then to see it represented as important that China "cares" about one aspect or another is truly childish IMHO. First, caring about an issue in no way implies exactly what their position may be. The response to their caring may be very positive or very negative depending on one's place in the process. But using "caring" is just cheap theatrics IMHO designed to let the reader imagine what every good may come out of caring. This didn't come out of some amateur’s blog…it’s from the Washington Post. Whatever their motivation might be I see this as a pure propaganda piece trying to convince the American people that China’s increase control of energy and other commodities around the world shouldn’t be a concern. The classic: “Move along…nothing to look at here.”

Obviously I think there’s a lot that should be looked at by the American people and govt.

[agramante]

Dovetailing perfectly with your info on Central America, Rock:

http://talkingpointsmemo.com/news/nicar ... ?ref=fpblg

Suddenly I'm a lot more scared about China's activities with reference to this country's medium-term economic prospects (all within the POD, of course). I'd be surprised, but I guess not overly so, if the national government has such little foresight and such poor strategic planning that we're simply letting the oil market be bought out from under us.

None of these problems are isolated--climate change, peak oil, the economic malaise--and our actions or inactions on any one affect the others. As you say, China might well be simply stockpiling resources so as to most easily escape its present unsustainable path, and the US is doing precisely the opposite.

[ROCKMAN]

a – While the Chinese seem to be making very smart moves left and right this one makes me wonder. But not enough details and just in the very early stages of the possible plan. For those who didn’t want to read the link here’s a hint:

Nicaragua is plowing ahead with a plan to dig a Chinese-funded rival to the Panama Canal across the midriff of the country, fast-tracking a proposal through the ruling party-controlled congress despite a lack of details about the $40 billion project.

A China-based consortium says it will finance the project and turn over control of the infrastructure to Nicaragua in exchange for a majority of the earnings, which it would share with the Nicaraguan government….Panama is nearing the end of a seven-year, $5.2 billion expansion project to allow bigger ships to use its waterway. That project is scheduled to be finished next year.

[Tanada]

$this->bbcode_second_pass_quote('ROCKMAN', 'a') – While the Chinese seem to be making very smart moves left and right this one makes me wonder. But not enough details and just in the very early stages of the possible plan. For those who didn’t want to read the link here’s a hint:

Nicaragua is plowing ahead with a plan to dig a Chinese-funded rival to the Panama Canal across the midriff of the country, fast-tracking a proposal through the ruling party-controlled congress despite a lack of details about the $40 billion project.

A China-based consortium says it will finance the project and turn over control of the infrastructure to Nicaragua in exchange for a majority of the earnings, which it would share with the Nicaraguan government….Panama is nearing the end of a seven-year, $5.2 billion expansion project to allow bigger ships to use its waterway. That project is scheduled to be finished next year.

[ROCKMAN]

Tanada – Found this interesting tidbit on wiki:

“The growth in usage of the Panama Canal over the past few years has been almost entirely driven by increased U.S. imports from China passing through the canal en route to ports on the U.S. East and Gulf coasts. But it is increasingly recognized in both the United States and China that this imbalance in trade is unsustainable and will be reduced via some sort of adjustment in the coming years, although such an imbalance need not be made up by physically shipped goods, but could be made by other trade such as intellectual property as China upgrades its intellectual property protection laws. The PC Canal expansion, however, presumes not only that trade will not be adjusted, but will continue to grow for a generation as it has for the past several years.

One of the central points made by critics of canal expansion is that it is unrealistic to attempt to predict canal usage trends over a generation, most improbable to expect that U.S. imports from China will continue to grow as they have the past few years over a generation, and irresponsible to bet Panama's financial future on such a projection”

And then add the potential competition from any new canal system and it seems to make the plan even more risky. OTOH the Chinese may see bigger opportunities beyond the US using the transits both coming and going. They have greatly increased their trade with Brazil (the 6th largest economy) over the last 10 years. And now they are beginning to cooperate on refining infrastructure with Brazil and thus the potential for more oil/products flowing through Central America to China and more products back to Brazil. I would imagine China is viewing all of S. America as a future growth market for their goods. Which might explain why China appears interested in supporting a new canal system. In addition to oil, refined products and manufactured goods passing through CA there is a huge amount of NG in the Caribbean with very little local market. Like Trinidad where the leader of China just paid a visit last week. Difficult to imagine that tiny little island being much of a market that China would expect to be exporting much to. Makes me wonder what they had to talk about. LOL. Eventually Caribbean LNG could be a significant portion of shipping towards all of Asia.

[Tanada]

When China bought the rights to the canal and started expanding it I always thought it was about Venezuela's oil and nothing else. Right now they are limited in how they ship it, only medium and small tankers will fit through the PC. Once the expansion project is finished that all changes, they will be able to get much larger crude carriers through cutting shipping costs substantially. A decade ago Chavez made a deal with China and cut off his sales of Orimulsion to all other buyers. Orimulsion was a growing business sector for Chavez, but he still made a deal with the PRC and stopped marketing it to anyone else. That leads me to believe the PRC has a contract for all Venezuela is willing to produce and sell, which was the first time I noticed that the 21st century China was lining up its ducks in preparation for Peak Oil.

[ROCKMAN]

Tanada - Some more flesh on the China-Vz deals: http://en.wikipedia.org/wiki/China%E2%8 ... _relations

Sino-Venezuelan trade was less than $500m per year before 1999, and reached $7.5bn in 2009, making China Venezuela's second-largest trade partner, and Venezuela is China's biggest investment destination in Latin America. Various bilateral deals have seen China invest billions in Venezuela, and Venezuela increase exports of oil and other resources to China. In September 2008 Venezuela signed a series of energy co-operation deals with China with the President of Venezuela stating that oil exports could rise threefold by 2012, to 1 million barrels per day.

Further trade agreements worth $12bn were signed in February 2009 and Venezuela's first cell phone factory, built with Chinese support, and was inaugurated. In February 2009 Venezuela and China agreed to double their joint investment fund to $12 billion and signed agreements to boost co-operation which include increasing oil exports from Venezuela, China's fourth biggest oil provider. An oil refinery is planned be built in China to handle Venezuelan heavy crude from the Orinoco basin

In 2009, China entered into a partnership with Venezuela to launch a railway company in Venezuela which will be 40% controlled by the China Railways Engineering Corporation (CREC) and the remainder by Venezuela. In September 2009 Venezuela announced a new $16bn deal with China to drill for oil in a joint venture with PDVSA to produce 450,000 barrels per day of extra heavy crude. Hugo Chavez stated that "In addition, there will be a flood of technology into the country, with China going to build drilling platforms, oil rigs, railroads, houses."