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Page added on May 9, 2017
A Sobering Look At The Future Of Oil
The current discussion about the future of oil is how soon will it be before petroleum becomes a sunset industry. If it isn’t already. Flat or falling demand. Carbon taxes. Electric cars. Renewable energy. Oil has no future. It is only a matter of time, although how much time remains is subject to considerable discussion and debate. Various prognosticators put forth differing view about when world oil demand will peak. Some say as early as 2030, others much later. Nobody says never.
As for actually running out of oil, that issue has run its course. At least for now.
How long the world stays in the oil business is of critical importance. This is illustrated by a Financial Post article April 28 titled, “Next battleground; Enbridge’s aging Great Lakes pipeline stirs new protest in Michigan”. Until recently, the battle against pipelines has been opposing new construction. Now it is existing pipelines. This opens yet another can of worms the industry and regulators have never really grappled with.
Enbridge Line 5 crosses from Wisconsin to Michigan under the Mackinac Straits between Lake Michigan and Lake Huron, a distance of about 4.5 miles. Built in 1953 to the most demanding standards of the day, the Enbridge website says Line 5 transports about 540,000 b/d of Canadian light and synthetic crude and natural gas liquids to markets in Michigan and beyond. What has emerged is concern among campaigning Michigan politicians about the potential for a major spill into the Great Lakes, an event being politically branded as inevitable.
Gretchen Whitmer, a former Michigan senator now campaigning for the Democratic nomination for governor, was quoted in the article as saying, “Common sense dictates that a pipeline which is already 28 percent past its viable life will eventually be decommissioned. Government would be wise to plan for that proactively – before disaster strikes”. Viable life apparently means it was intended to be in service for 50 years and is now on year 64. Not wanting to be left behind on an emerging issue, Michigan Attorney General Bill Schuette, expected to run for governor as a Republican, has also expressed his concerns about the integrity of Line 5.
Replacing this submerged section of the line is reported to cost $2.4 billion. Where it would go and who would pay is not mentioned. Enbridge routinely inspects the line and claims it is in good shape. Unfortunately, the failure of Enbridge Line 6B in 2010 which leaked 20,000 barrels of oil into Michigan’s Kalamazoo River in 2010 is still fresh in peoples’ memories. Having a campaign issue in Michigan which allows politicians to appear concerned by raising alarms about a Canadian company’s assets is a no-lose proposition, at least in the short term.
The subject and cost of maintaining producing, processing and transportation assets doesn’t arise often. While the profile of decommissioning suspended wells has been rising, keeping what still works going is not frequently discussed. But it should be because after they become public, issues like the future safety of Enbridge Line 5 seldom go away.
The ongoing maintenance of producing, processing and transportation assets is the responsibility of the owner, the same as changing the oil, tires and brakes on a car. It is assumed operators will maintain their sets in good working order, and the vast majority do. Maintenance capital budgets are part of every company.
But what happens when cash gets tight? More importantly, what happens if and when the industry starts going out of business as so many hope?
Back in 2008 Matthew R. Simmons, founder of Houston-based oil and gas investment bank Simmons & Company International, gave a slide presentation at the Offshore Technology Conference (OTC) titled “Oil And Gas ‘Rust’: An Evil Worse Than Depletion”. Simmons was often outspoken on oil issues saying things people didn’t want to hear or hadn’t thought about. His 2005 book, “Twilight In The Desert”, was about how Saudi Arabia’s oil production from its gigantic fields was destined to fall.
Both “Matt” Simmons, as he was called by friends and associates, and his firm are no longer with us in original form. Matt passed away in 2010 and his namesake company was acquired by Piper Jaffray Cos. in 2015. But the issue of the deterioration of steel remains.
Simmons went back to the first 100 years of oil when the big fields were on land, in the shallow waters of the Gulf of Mexico or inland bodies of water like Lake Maracaibo in Venezuela. Starting in 1965 the focused shifted from what Simmons called “brown water” to “blue water” further offshore. In response, the OTC was launched in 1969. But by 2008 Simmons said the offshore industry was mature and the North Sea was already “long in the tooth”. This was nine years ago.
Simmons wrote, “The entire oil value chain is built of steel and steel begins to corrode the day it is cast. The oil industry never grasped this profound risk as it built a house for oil out of steel”. The thought was steel would last forever but forever was defined by investors as profits and by governments and regulators as secure and immediate supplies of essential hydrocarbon energy. Simmons noted much of the core assets of North America and the world – pipelines, refineries, storage tanks, wellbores – dated back to the big expansion years of the 1950s and 1960s.
Simmons acknowledged the industry’s determination to prevent or control rust and deterioration. Cathodic protection. Downhole and surface chemical corrosion inhibitors. Smart pigs to inspect pipeline integrity from the inside. Ultrasonic and non-destructive radioactive testing of vessels, pipe and components. Internal and external coatings for everything. Improved metallurgy. Make it last as long as possible for obvious reasons of economic returns and public and worker safety. The original NACE (National Association of Corrosion Engineers) was founded in Houston in 1943 for the sole purpose of addressing all aspects of this subject.
But Simmons started raising alarms about infrastructure nine years ago. He alleged the 20 years following the oil price collapse of the mid-1980s to early this century when prices started rising again were tough on maintenance worldwide. Simmons concluded, “Bottom Line: The Energy Patch Has To Be Rebuilt”. He called this a reconstruction project along the lines of the World War Two war machine or the Marshall Plan to rebuild Europe stating, “If the world wants to continue to use energy, its assets need to be rebuilt. Simple law of nature”. He figured higher prices (which we don’t have) would help pay for it, but that this was a major issue the industry could longer ignore. In 2008.
Which brings us back to today’s reality. The point isn’t to be alarmist. Matt Simmons wasn’t right about Saudi Arabia or peak oil and he may have overstated the problem at the OTC in 2008. But as illustrated by the emerging Enbridge Line 5 issue, the infrastructure upon which the world depends isn’t getting any younger. The vast majority of western operators are very committed to the safety and integrity of their assets. But capital is precious. Where will the money come from?
The pressure from some governments and all regulators and environmental groups is for the industry to pay more for everything. More rules. More obligations. Higher corporate taxes. The highest possible royalties. More development restrictions. Obstruct infrastructure. Carbon taxes. Emission caps. Investment and endowment funds discouraged from owning oil investments. Standard tax depletion and amortization deductions for capital investment for any business called “subsidies” for oil and gas. If the people of the world won’t quit using oil then opponents are using every tool they can think of to starve the industry of capital.
Meanwhile, the industry’s financial commitments to keep aging infrastructure in good working order increase annually because of the age of the assets and despite the good work done by the companies themselves to stay in business in the face of collapsed oil prices and pro-active organizations like NACE. With money from where? Investors and lenders provide capital to grow the business, not sustain it. That’s up to the company.
The fork in the road has two options, neither attractive.
The first is the most likely. Petroleum will continue to be a key element of the world’s energy mix for decades. This means assets must be kept in good working order. Those demanding the industry do more with less better think this through and appreciate not only will the oilpatch require capital to sustain demand-driven growth through reserve replacement, but to keep everything in good working order to operate safely and efficiently. The current direction of taxes and regulations do not anticipate this outcome. The industry must rely on common sense, which outside of industry and capital providers, is in increasingly short supply.
The other option is worse. Technology and regulations combine to provide economically viable alternatives to petroleum. Now the industry must face decommissioning liabilities for assets no longer commercially profitable to operate. Except they don’t have the cash. And they won’t be able to get the money from debt or equity investors. Who is going to finance a company or industry going out of business?
The numbers are big. Take one example, Suncor Energy Inc. In its Management, Discussion and Analysis notes for its 2016 audited financial statements, Suncor reported sustaining capital investments primarily for oil sands and refining and marketing of $2.8 billion, nearly 50% of total CAPEX of $6.0 billion. A serious amount of money to sustain $71 billion in book value property, plant and equipment. But of course, Suncor is a serious company with no immediate plans for obsolescence.
But under Contractual Obligations, Commitments, Guarantees and Off-Balance Sheet Arrangements there are other numbers. For decommissioning and restoration costs Suncor estimates $382 million for 2017 and $419 million for 2018. This stays about the same through 2021. But the figure for 2022 and beyond is $9.6 billion and the total is $11.7 billion. This is a company which ended 2016 with $16.1 billion in long-term debt and another $2.1 billion in other liabilities, mostly pensions and post-retirement benefits.
Suncor’s total obligations for debt and decommissioning are approaching $30 billion. That’s a lot of capital to service if the company is going out of business because nobody needs its products. As was proven in the recent Redwater Energy Corp. case where Alberta’s energy regulator tried to insert itself ahead of creditors when the assets were sold – decommissioning obligations before debt repayment – lenders rank ahead of cleanup under current law. So, the Alberta Energy Regulator intends to appeal this decision to the Supreme Court.
There is nothing wrong with Suncor. It is a responsible company. But there is something terribly wrong with how the world regards the future of the oil business.
Whether the world decides to stay in or get out of the oil business; governments, regulators and opponents must learn to read an income statement and balance sheet before dispensing any further advice on how the petroleum industry conducts itself. This industry supplied the energy mankind demanded for generations and paid as much in taxes and royalties as governments could extract. Often governments took too much then had to give some back to keep the lights on. Now it is being asked to do much more with much less and perhaps, if the greens get their way, nothing at all.
Indeed, let’s talk about the future of oil. But from a much different perspective.
By David Yager for Oilprice.com
17 Comments on "A Sobering Look At The Future Of Oil"
Jan on Tue, 9th May 2017 7:55 am
99% of all vehicles bought this year will be petrol or diesel. Since a car today can easily last 15 years, a great deal of oil will still be needed in 2030. I do not see a problem with suncor. However the situation in the North Sea has turned from bad to disastrous.The billions of Pounds of profits and tax revenue have gone, all spent on things we could not afford.
Today the North sea oil companies will have to find over £50 billion breaking up the hundreds of oil platforms.
http://www.telegraph.co.uk/news/2017/01/09/cost-decommissioning-north-sea-wipe-future-tax-revenues/
eugene on Tue, 9th May 2017 8:05 am
Article from a man that doesn’t understand peak oil wasn’t about running out of oil but about peak production and peak production depended, of course, on how much was to be spent getting it. Personally, I’m waiting for peak bullshit re how our sorry asses are going to saved by electric cars, as yet unknown technologies and the like.
Decades ago, I read some about how technology was becoming the new religion. The transition appears to be complete.
rockman on Tue, 9th May 2017 9:10 am
The Michigan pipeline replacement may become a serious game of “chicken” for the politicians. If forced to decommission the line Embridge might decide it isn’t a good investment to replace it. As the article highlights long term infrastructure investments may not be as viable as the once were. Then add low oil prices are reducing new oil sands development to the fact that there are other transport options.
Bottom line: the line might not be worth it to Embridge to replace it. So the politicians might get big kudos from environmentalists. But not so much from the citizens. Not reported here but this pipeline also delivers propane to Michigan. If I recall correctly 80% of the state’s homes get their winter heating fuel from that pipeline.
As they say: be careful what you wish for…you might get it. LOL.
Sissyfuss on Tue, 9th May 2017 10:15 am
Rock, there are over 3 million households in Michigan with 320,000 using propane as their main energy source. That is the most of any state but it sure ain’t 80%.
rockman on Tue, 9th May 2017 1:34 pm
Sissy – Thanks. I didn’t state it correctly. What I recall (if memory serves) is that 80% of those 320,000 homes get their propane from that Embridge line. Still haven’t found that article again but if correct those 1/4 million homes will have to find another supplier. Which might be available but probably at a higher price.
Mark Ziegler on Wed, 10th May 2017 7:27 am
https://www.youtube.com/watch?v=VYYwzAvQIF8
https://www.youtube.com/watch?v=vg3yd8GPSnA
How Responsible?
bobinget on Wed, 10th May 2017 9:24 am
Ryiadh, Saudi Arabia
May 10th temperatures in hover around 100 F .
for updates; https://www.google.com/search?q=temperatures+in+riyadh+saudi+arabia&rlz=1C5CHFA_enUS730US737&oq=Temperatures+in+Reyad+&aqs=chrome.1.69i57j0l5.54344j0j8&sourceid=chrome&ie=UTF-8
The weather in Saudi Arabia is composed of extreme aridity and heat. It is among a few numbers of countries in the world where temperatures during the summer period reaches above 120 degrees F (50 degrees C).
#1 Climate change over the next decade will increase
temps in KSA beyond the power of air conditioning.
Until KSA gets it’s solar power on line, oil is used to generate power.
#2 If the temps outside are over 120 F don’t touch metal.
bobinget on Wed, 10th May 2017 9:33 am
VENEZUELA’S PUERTO LA CRUZ REFINERY OPERATING AT MINIMUM LEVELS DUE TO LACK OF CRUDE, EQUIPMENT PROBLEMS – SOURCES: RTRS
You think about that headline for a minute.
A major refinery in VENEZUELA is NOT OPERATING because of a LACK of crude.
Really, let that roll around your head for a minute.
This is what markets have been waiting for.
Going into the dry season, electric power will be limited.
Either the US, China or Russia must step in to save the day. (Russia and the US are out)
By fall Venezuela will be a Chinese colony.
Davy on Wed, 10th May 2017 11:50 am
“By fall Venezuela will be a Chinese colony” ??? You are bazaro bob. Bob, are they sending a carrier in to claim their territory? Explain how that is going to happen. Besides Brazil, Columbia, and the US have plans for Venezuela:
“Tensions Rise As US Announces Military Drills Near Embattled Venezuela”
http://theantimedia.org/us-military-drills-embattled-venezuela/
bobinget on Wed, 10th May 2017 12:11 pm
ww.cnbc.com/2017/02/10/venezuela-falls-behind-on-oil-for-loan-deals-with-china-russia.html
https://www.bloomberg.com/news/articles/2016-02-29/citi-why-china-ts-the-future-of-emerging-market-debt-refinancing
https://www.the-american-interest.com/2016/06/20/china-trying-to-keep-its-venezuelan-pound-of-flesh/
bobinget on Wed, 10th May 2017 12:45 pm
My point:
Venezuelan and to an only slightly lesser degree Nigeria’s oil production is falling apart due to low oil prices, violence, inflation and corruption.
The deal China made with Venezuela.
China was to get in leu of loan servicing, 200,000
barrels of oil per day. (as of 1/1/17)
China has let the agreement slide so Venezuela can pay oil workers and bond holders.
Venezuela’s production,
http://www.tradingeconomics.com/venezuela/crude-oil-production
As you can see there was no way Venezuela can meet Chinese obligations and ship eight or nine hundred thousand barrels to get cash from US markets.
Now apparently Ven is having a problem shipping
that volume to the US and supply its domestic needs much less catch up with China’s loan payments.
It’s true, I’am speculating about how China will go about collecting 45 Billion USD’s from America’s
fourth largest (crude oil) supplier..
Oh, some might be interested in the FACT that Russia
has more or less foreclosed on CITGO.
http://money.cnn.com/2017/04/10/news/economy/russia-us-oil-company-citgo/
https://en.wikipedia.org/wiki/Citgo
So, Venezuela played its last card. Now, only China and Russia can either write off a total of 50 to 60 Billion Dollars or swoop in and ‘save’ Venezuela without firing a shot.. (compare with US military experience in IRAQ)
As you know, Venezuela has the largest stash of proven crude on this planet.
That’s why today’s story I posted about Ven’s crude SHORTAGE is huge.
Stay tuned.
bobinget on Wed, 10th May 2017 12:48 pm
As for Nigeria, be Google’s guest;
Search Results
Nigeria seeks $6bn China loan to modernise railways – Financial Times
https://www.ft.com/content/9a3b9b20-2aa1-11e7-bc4b-5528796fe35c
Apr 26, 2017 – Muhammadu Buhari, Nigeria’s president, is seeking approval from lawmakers to borrow nearly $6bn from the Export-Import Bank of China for …
China loans Nigeria $4.5billion for mechanized agriculture – Vanguard …
http://www.vanguardngr.com › News
Apr 4, 2017 – ABUJA-Peoples Republic of China is to lend Nigeria the sum of $4.5billion to buy appropriate farming tools to boost local agriculture.
Why China withholds $20b concession loan to Nigeria — News — The …
https://guardian.ng/news/why-china-withholds-20b-concession-loan-to-nigeria/
Jan 9, 2017 – Multiple negative growth recorded in the economy in 2016 has been identified as one of the reasons the Chinese government withheld a $20 …
UPDATE: Nigeria secures $7.5 billion loan from China for rail project …
http://www.premiumtimesng.com/…/222767-update-nigeria-secures-7-5-billion-loan-china-...
Feb 6, 2017 – Nigeria secures $1.5 billion Chinese loan for Lagos-Ibadan railFebruary 1, … Nigerian govt to borrow $6.1 billion to complete all rail projects by …
Nigeria secures $1.5 billion Chinese loan for Lagos … – Premium Times
http://www.premiumtimesng.com/…/222278-nigeria-secures-1-5-billion-chinese-loan-lagos...
Feb 1, 2017 – UPDATE: Nigeria secures $7.5 billion loan from China for rail … of N72 billion as Nigeria’s counterpart funding for the Lagos-Ibadan railway.
China to loan Nigeria $4.5 billion to boost agriculture – Premium Times …
http://www.premiumtimesng.com/…/227939-china-loan-nigeria-4-5-billion-boost-agricultu...
Apr 5, 2017 – The Peoples Republic of China has said it will lend Nigeria $4.5 billion to boost local agriculture. The loan is to enable Nigeria purchase …
Nigeria: Why China Withholds $20 Billion Concession Loan to Nigeria …
allafrica.com/stories/201701090193.html
Jan 9, 2017 – President Muhammadu Buhari speaking at the Official Opening Ceremony of the China-Nigeria Business Forum in Beijing, China (file photo).
Nigeria secures $1.5 billion Chinese loan for Lagos … – Africanews
http://www.africanews.com/…/nigeria-secures-15-billion-chinese-loan-for-lagos-ibadan-rail/...
Feb 3, 2017 – Authorities in Nigeria has secured $1.5 billion (about N450 billion) counterpart funding from China for the Lagos-Ibadan rail project set to …
UPDATE 4-Nigeria says China offered $6 billion loan for infrastructure …
http://www.reuters.com/article/china-nigeria-yuan-idUSL3N17F3AG
Apr 12, 2016 – China has offered Nigeria aloan worth $6 billion to fund infrastructure projects, theNigerian foreign minister said on Tuesday.
Nigerian Loan Deal With China Highlights Need To Diversify Sources …
http://www.forbes.com/…/nigerian-loan-deal-with-china-highlights-need-to-diversify-sourc...
Apr 15, 2016 – A $6 billion loan deal with China is part of Nigeria’s plans to increase spending on public works projects as a means of kickstarting growth amid …
Ads
bobinget on Wed, 10th May 2017 12:59 pm
Can Nigeria repay Chinese loans in cash or oil?
With production falling off the roof, oil prices stuck below $48 (or $47) You guess?
Nigeria, the next Chinese oil Colony.
(oil going to China does not go to Europe or US)
In just six months the world faces to prospect of China and India jabbing so many straws into the glass one third full, no one else gets enough. In three years, China and India suck it all.
https://www.google.com/search?q=india%27s+growth+rate&rlz=1C5CHFA_enUS730US737&oq=India%27s+grow&aqs=chrome.1.69i57j35i39j0l4.22882j0j9&sourceid=chrome&ie=UTF-8
bobinget on Wed, 10th May 2017 1:04 pm
http://www.cnbc.com/2017/05/10/mccain-delivered-trump-a-rare-loss-in-his-bid-to-kill-energy-rules.html
IMO, Trump is radio active.
Davy on Wed, 10th May 2017 1:36 pm
Bob, largest heavy oil reserves. In fact barely economic. China will likely take a massive hair cut with little recourse. They have no ability to project military power there. Venezuela will pay them pennies on the dollar once they default. How about that high priced oil!
bobinget on Wed, 10th May 2017 2:25 pm
Davy,
It’s true, heavy oil sells at a discount.
Economics[edit]
Heavy crude oils provide an interesting situation for the economics of petroleum development. The resources of heavy oil in the world are more than twice those of conventional light crude oil. In October 2009, the United States Geological Survey updated the Orinoco deposits (Venezuela) recoverable value to 513 billion barrels (8.16×1010 m3),[16] making this area one of the world’s largest recoverable oil deposits. However, recovery rates for heavy oil are often limited from 5-30% of oil in place. The chemical makeup is often the defining variable in recovery rates. New technology utilized for the recovery of heavy oil is constantly increasing recovery rates.[17]
On one hand, due to increased refining costs and high sulfur content for some sources, heavy crudes are often priced at a discount to lighter ones. The increased viscosity and density also makes production more difficult (see reservoir engineering). On the other hand, large quantities of heavy crudes have been discovered in the Americas, including Canada, Venezuela and California. The relatively shallow depth of heavy oil fields[18] (often less than 3000 feet) can contribute to lower production costs; however, these are offset by the difficulties of production and transport that render conventional production methods ineffective.[18] Specialized techniques are being developed for exploration and production of heavy oil.
(30) Wikipedia
One problem with heavy oil, it needs dilution with lighter gaseous ‘oil’.
https://www.eia.gov/todayinenergy/detail.php?id=5930
Orinoco oil needs dilution, sure.
Not like bitumen AKA tar or oil sands.
Separating out sand (Suncor, CNQ,) is a great deal more energy intensive than simply adding light oil.
Oh, last week we read Venezuela had no money to import NGL’s. IOWS no diluting no exporting.
The largest US oil refinery, owned by KSA, ONLY takes
heavy oil.
More Wikipedia
Production of heavy oil is becoming more common in many countries, with 2008 production led by Canada and Venezuela.[18] Methods for extraction include Cold heavy oil production with sand, steam assisted gravity drainage, steam injection, vapor extraction, Toe-to-Heel Air Injection (THAI), and open-pit mining for extremely sandy and oil-rich deposits.
Environmental impact[edit]
With current production and transportation methods, heavy crudes have a more severe environmental impact than light ones. With more difficult production comes the employment of a variety of enhanced oil recovery techniques, including steam flooding and tighter well spacing, often as close as one well per acre. Heavy crude oils also carry contaminants. For example, Orinoco extra heavy oil contains 4.5% sulfur as well as vanadium and nickel.[19] However, because crude oil is refined before use, generating specific alkanes via cracking and fractional distillation, this comparison is not valid in a practical sense. Heavy crude refining techniques may require more energy input[citation needed] though, so its environmental impact is presently more significant than that of lighter crude if the intended final products are light hydrocarbons (gasoline motor fuels). On the other hand, heavy crude is a better source for road asphalt mixes than light crude.[citation needed]
With present technology, the extraction and refining of heavy oils and oil sands generates as much as three times the total CO2 emissions compared to conventional oil,[20] primarily driven by the extra energy consumption of the extraction process (which may include burning natural gas to heat and pressurize the reservoir to stimulate flow). Current research into better production methods seek to reduce this environmental impact.[citation needed]
rockman on Wed, 10th May 2017 6:33 pm
“The largest US oil refinery, owned by KSA, ONLY takes heavy oil.”
Not correct. Motiva, like all other Gulf Coast refineries, is optimised to crack BLENDED OIL in the 31° to 33° API range. So yes, it buys heavy oil. But it also buys light oils to blend with the heavy. From
https://www.eia.gov/opendata/qb.php?category=1292945&sdid=PET_IMPORTS.CTY_BH-RF_507-LSO.M
“Imports of light sour crude oil from Belize to MOTIVA ENTERPRISES”
The link shows 60,000 to 140,000 bbls of light oil imports. I saw another report showing Motiva had begun importing 65° API condensate from Thailand (?).
Also about that Venezuelan refinery that had to shut down. Just a guess but perhaps because it couldn’t afford to import light oil for blending with its heavy crud. About a year ago I saw a story about Venezuela importing several tanker loads of light oil from Libya.
Again if one has access to a large volume of 32° API WELL HEAD oil they are in great shape. But if they can only buy heavy oil they need to buy light oil to blend. Which is why prior to the shale boom US refineries had to also import a lot of light oil/condensates along with the heavy oil imports. The same reason eastern Canadian refineries have imported 100’s OF MILLIONS OF BBLS of Eagle Ford condensate to blend with their heavy oil imports.
IOW all those folks who repeatedly said that the condensate yield from the shale was “worthless” or of “little value” were (and still are) so full of sh*t to be truly laughable. The light oils are critical to refining our heavy oil imports. And the heavy oils are critical to our processing of the light oils.
So maybe for one last time (but probably not): ALMOST ALL THE OIL US REFINERIES PROCESS IS BLENDED OILS. Blended oils made of very light and very heavy oils and every gravity in between. For instance when you see oil selling for $50/bbl (the WTI benchmark price) that’s not necessarily the price of most refineries paid for the blended oil they processed that same day. If it’s a 50/50 blend (32° API) of 20° API Venezuelan heavy ($35/bbl) and 44° API South Texas Light ($36/bbl) then the refinery didn’t pay $47/bbl…the closing price of the WTI futures that day…the number we keep seeing reported as the “price of oil”.
And guess what: they might not have paid $35.50/bbl ($35+$36 ÷ 2). They may have bought it from an oil blending company that charged them $39/bbl. BTW much of the oil isn’t bought by the refineries directly from producers. The Cushing facility is not only the largest oil storage facility on the planet: it is also the largest oil BLENDING facility on the planet.
The point being: when you see armchair exports estimating per bbl profits, refinery margins, etc. their numbers are worth sh*t. Yes: one can make generalities especially when they lack the details. But they can’t then turn around and portray those numbers as representative of specific situations.