Tuesday, August 11, 2009

Alberta Upgraders - Game over!

The state-owned energy companies in Mexico and Venezuela are falling behind in oil production. Consequently, they are supplying progressively less crude to major refineries in the Southern United States. Refineries in Texas, Oklahoma and Louisiana are becoming more and more depending on supplies from Alberta's Oil Sands. This may not be quite the bonanza that it seems however due to a quirk of segmentation in oil production.

Bitumen has historically been about 30% cheaper than crude oil. In the past, this has provided an incentive to upgrade Bitumen where it is found. But due to the decline in supply from Mexico and Venezuela, the prices gap has narrowed considerably. The return on bitumen is approaching the price of crude oil.

Bitumen has historically been about 30% cheaper than crude oil. In the past, this has provided an incentive to upgrade bitumen where it is found. But due to declines in supply from Mexico and Venezuela, the price gap has narrowed considerably. The return on bitumen is approaching the price of crude oil. This lowers the profit on upgrading it.

Therefore, some major producers in Alberta are opting to ship bitumen to existing upgraders in the US south and postpone their own plans. This is a big disappointment for construction and energy sector workers for the provincial government. Many of the higher-end jobs are in refining. This is also where most "value added" occurs.



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