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Inconvenient Time for Canadian Crude: US Gulf Coast Is Glutted06/14/2022
Canadian heavy crude, being deeply discounted for several years due to a lack of pipelines, is eventually trading like a “North American” grade, moving in tandem with U.S. sour crudes sold on the Gulf Coast thanks to Enbridge’s expansion of its Line 3 pipeline late last year.
Meanwhile, the Gulf is full of sour crude over Washington’s largest-ever release from the Strategic Petroleum Reserve (SPR) that will amount to 180 MMbbl during six months, trying to tame exorbitant fuel prices after the Russian invasion of Ukraine.
The market is flooded with millions of barrels of sour crude from storage caverns in Louisiana and Texas. At the world’s biggest heavy crude refining center, U.S. Gulf Coast, heavy grades like Mars and Poseidon are languishing.
The discount in July for Western Canada Select (WCS) delivery in the Hardisty crude hub reached more than $20 a barrel below the WTI benchmark last week, the widest since early 2020, as WCS sold more than 3,000 km (nearly 2,000 miles) away in Hardisty, Alberta, is getting dragged down with them.
However, the undermining of the sour Gulf surplus is expected to be a period of stronger WCS demand in Hardisty, as maintenance on oil sands projects decreases supply and as U.S. refineries exit turnarounds.
Some analysts suppose that other factors resulting in the WCS discount widening include the high price of natural gas, which escalates the cost of refining heavy crude and risen demand for lighter products like gasoline.
According to U.S. Energy Information Administration (EIA) data, Canada exports around 4.3 MMbbl/d to the United States, whereas until last year demand to ship crude on export pipelines increased capacity, leaving barrels bottlenecked in Hardisty.
In 2018, the discount on WCS in Hardisty blew out to more than $40 a barrel, prompting the Alberta government to restrict output. Meanwhile, now there is sufficient pipeline capacity and WCS trades at approximately the same level as comparable crudes like Mexico's Maya. Canadian producers get that value, minus the spot pipeline tariff to the U.S. Gulf Coast, which is roughly $10 a barrel.
The EIA forecasts that Canadian production will increase 200,000 bbl/d by the end of 2022. Unfortunately, that could trigger bottlenecks to re-emerge until the Trans Mountain pipeline expansion to Canada's Pacific coast is completed in 2023, adding 600,000 bbl/d of capacity.
The joint project to improve and market a low-carbon hydrogen and ammonia production and export facility was presented on May, 6 by Enbridge Inc. and Humble Midstream LLC. Deployment of the facility is taken under the Enbridge Ingleside Energy Center (EIEC) basis close by Corpus Christi. Being the premier export facility on the U.S. Gulf Coast, the EIEC plays a vital role in world energy security and sustainability. Companies plan to develop a utility-scale efficiently low carbon production facility, able to combine both low-carbon hydrogen and ammonia to meet the growing global and domestic demand. It is expected to sequester up to 95% of CO2 generated in the production process in carbon capture facilities, especially ones owned and operated by Enbridge which makes this process a fully integrated low-carbon solution.
U.S. carbon emissions keep decreasing. Electricity produced from Natural Gas is one of the key reasons
On June 16 Targa Resources Corp. decided to acquire Lucid Energy Group, located in the Permian Basin, which is a part of Riverstone Holdings LLC and Goldman Sachs Asset Management. Firstly, Targa enlarged due to the recent “blot-on” acquisition of Southcross Energy in the Eagle Ford for $200 million and it will become bigger thanks to the $3.55 billion cash transaction. Targa’s financial position allowed it to utilize convenient opportunities to extend its company so it bought #Lucid using available cash and debt with an estimated pro forma year-end 2022 leverage around 3.5 times. According to Targa’s estimates, the acquisition of Lucid will increase the number of natural gas pipelines by 1,050 miles and add about 1.4 Bcf/d of cryogenic natural gas processing capacity in service or under construction located mainly in Eddy and Lea counties of New Mexico. The investment-grade producers source approximately 70% of current system volumes. According to the press release, a full-year standalone adjusted EBITDA is expected to be between $2.675 billion and $2.775 billion and reported year-end leverage ratio of about 2.7 times. Targa’s updated financial expectations assume NGL composite prices average $1.05 per gallon, crude oil prices average $100/bbl, and Waha natural gas prices average $6 per MMBtu for the remainder of 2022.
Your team’s ESG performance can be greatly improved applying the asset co-location analysis within upstream or midstream use cases. This has been a topic for a discussion at Rextag’s ‘Is ESG Improvement Next Door?’ webinar. We reviewed some cases like curbing gas flaring or renewable energy sourcing to power the fossil fuel infrastructure. Many combinations are available with access to the data Rextag provides on wells, acreages, power lines, substations, and such renewable infrastructure as wind turbines, methane landfills, etc.
BPPlc agreed on June 13 to exit the Canadian oil sands in an asset swap with Cenovus Energy Inc. potentially worth up to CA$1.2 billion. 50% non-operated interest in the #SunriseOilSands project will be sold by BP in an agreement reached with Cenovus Energy, a company based in Alberta. Two companies agreed on the following conditions: total consideration for the transaction includes CA$600 million in cash, additionally, a contingent payment with a maximum aggregate value of CA$600 million expiring after two years, and concerning Cenovus, it will have a 35% position in the undeveloped Bay du Nord project offshore Newfoundland and Labrador. Current production from the Sunrise Oil Sands asset is about 50,000 bbl/d and the company anticipates achieving a nameplate capacity of 60,000 bbls/d through a multi-year development program.