9/2/2023 0 Comments Black magic battery $23![]() Crude oil comes with varying percentages of sulfur which must be removed, from the <1%, referred to as sweet, to Alberta’s 5-6%, referred to as sour. Crude oil comes in a range of how liquid it is, from stuff that flows like slightly thick water to stuff like tar. What does hydrogen have to do with the price of oil? Well, it gets back to that quality discount point. ![]() Some of the why I’ve explained above, but let’s look at the kicker: hydrogen costs. Wood Mackenzie’s analysis is that instead, more of it will flow to California’s southern refineries that can process heavy, sour crude, but I think that’s a very short term market. Major energy analysis firm Wood Mackenzie has extended this point, noting recently that the illegal invasion of Ukraine has meant that a lot more of Russia’s oil is flowing to China now, dampening even further any prospects that Alberta’s crude would flow to China. I pointed recently out that the Aframax limit on the TMX termination port in Vancouver meant that it was going to be expensive to ship across the Pacific compared to regions that could use VLCC carriers hauling up to double the barrels of oil per trip. The bad strategy behind the tripling of the TMX was that it would unlock the Asian market for Alberta’s product, despite a significant decline in any interest from China from 2010 onward in imports from Canada. That’s not Alberta’s product, so the lack of diversification of demand is going to hit it hard and fast. It’s going to be increasingly focused on locking up domestic demand with its own oil, of course, and only buying the cheapest oil from foreign sellers. So why will Alberta’s product, and similarly Venezuela’s product, be first off the market? Well, Alberta has a compounded set of problems including a market that’s 94% in the US, the US becoming a net oil exporter today, and the US seeing declining global and domestic markets as electrification sweeps the planet. I’ve spent time with two global shipping clients discussing the end of bulk oil (and coal and natural gas) shipping, and they are very aware that their business model is coming to an end. The bulk shipping industry clearly thinks that oil has had its day. Among other things, there’s only one very large crude carrier (VLCC) under construction in the world, against a fleet of over 900 of them. I’m with the projections of last half of this decade, personally, based on what I track globally. Others think it peaked in 2019 prior to COVID. Most, with a few oddball exceptions like the US Energy Information Administration, project flat demand through 2050, which makes sense only if you assume that turning the planet into a baked potato is a great idea and haven’t paid any attention to rapid global decarbonization of ground transportation. Quite a remarkable number of major organizations, including the International Energy Association, McKinsey, and Equinor have high likelihood scenarios that oil demand will stop growing this decade. And it’s only going to get higher, much higher. The quality discount against Brent Crude was already US$14 per barrel in 2021. I’ve made that point in regard to the completely unnecessary Trans Mountain Pipeline (TMX) too. I first made that obvious point over three years ago. As I noted recently, the International Institute for Sustainable Development (IISD) dropped a report making it clear that as peak oil demand arrived, Alberta’s product would be first off the market. The fate of the Alberta oil sands is on a lot of people’s minds.
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