Canadian Railroads > About that Canadian tar sands oil

Alberta produces a wide range of oil from conventionally drilled sources, and oil from the "tar sands". The latter typically requires heat + water to separate the oil from clay, sand, and other tar like material. That jacks up the cost of producing tar sands oil compared to more conventional oils. Bloomberg cites a report that oil prices may need to be $150 a barrel for tar sands producers to break even.

Both CP and CN provide rail service to terminals which deliver tar sands oil as well as conventional oil. The oil often requires the use of heated coil tank cars with less oil capacity, and diluent (a fluid used to thin oil for shipment).

A sobering outlook for folks who expect tar sands to be the next fount of wealth in the far north


http://www.bloomberg.com/news/2014-08-14/oil-sands-are-biggest-losers-from-low-crude-prices-study.html

Not a whole lotta love in the comments to that Bloomberg article...

Ray

Anyone believing a Bloomberg report on oil and believing it to be the truth is sadly misinformed. No one pours big bucks in a continuing money losing effort. They are making money from it.

The last I heard it was 80 bucks that was the make money level for Tar sands.

MJplanner Wrote:
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> The last I heard it was 80 bucks that was the make
> money level for Tar sands.


That number sounds very low for the processing that goes into the tar sands, but it's in the ballpark for Bakken oil. Whiting is believed to be in the money around $80, Continental a little above that. Add in $12 for transport to St James or the east coast.

On the other hand, if tar sands $80 is a real number, I'm backing up every 1232 I can find...

All you have to do is read the second paragraph of the Bloomberg item. The source is a "think tank" and environmental action organization. 'Nuff said.

Will MacKenzie
Dundas, ON

thehighwayman Wrote:
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> All you have to do is read the second paragraph of
> the Bloomberg item. The source is a "think tank"
> and environmental action organization. 'Nuff said.


right, that's why checking their assumptions, "facts" and arguments is an important part of the process.

If Obama rejects the Keystone XL pipeline the oil will travel to US refineries by rail anyway.

Tar sands dirtiest source of fossil fuel energy on the planet. Rejection of Keystone XL will be an important, albeit largely symbolic first step, to send a message that humankind needs to start thinking about long term solutions for our energy needs.

Mukinduri Wrote:
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> If Obama rejects the Keystone XL pipeline the oil
> will travel to US refineries by rail anyway.
>
> Tar sands dirtiest source of fossil fuel energy on
> the planet. Rejection of Keystone XL will be an
> important, albeit largely symbolic first step, to
> send a message that humankind needs to start
> thinking about long term solutions for our energy
> needs.

The use of rail, plus the Flanigan South pipeline (a pipeline many people know nothing about), almost make the Keystone XL project mute at this point.

CN is going to get a REALLY long haul from the movement of Alberta tar sands crude to Port Arthur, TX. CN is looking at moving it from Alberta to Jackson, MS. KCS would then move it west to Shreveport then south to Port Arthur, not exactly a direct line but doable. CP wants in on that action too but CP, reportedly, is in talks with UP to move additional tar sands crude from Alberta to the UP at KC (or maybe the Twin Cities) then south to the new Kinder Morgan crude oil rail terminal in Houston.


Allen



Edited 2 time(s). Last edit at 08/16/14 11:51 by bradleymckay.

It is hardly news when the highest cost producer (Canadian Tar Sands)is affected by low crude oil prices. This expensive crude oil was launched years ago betting that crude oil prices would gradually increase over time. They were right. The breakeven price of imported crude oil for tar sanda to compete against is around $100 per barrel. This is for old investment. For new investments I can believe the break even price is $150. Time will tell again.

I am part of a company that is making all kinds of machinery that is being shipped way up into Alberta.

Don't think they'd being spending millions if it wasn't a place to make bucks.

mukinduri Wrote:
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> If Obama rejects the Keystone XL pipeline the oil
> will travel to US refineries by rail anyway.
>
> Tar sands dirtiest source of fossil fuel energy on
> the planet. Rejection of Keystone XL will be an
> important, albeit largely symbolic first step, to
> send a message that humankind needs to start
> thinking about long term solutions for our energy
> needs.

Agreed. Well stated.

RockIsland4310 Wrote:
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> I am part of a company that is making all kinds of
> machinery that is being shipped way up into
> Alberta.
>
> Don't think they'd being spending millions if it
> wasn't a place to make bucks.


The future of oil sands is being hotly (!) debated by the major oil companies, that's for sure. Their investment decisions will affect how far and how fast the development moves. That in turn will direct the rail and pipeline expansion.

Husky, Shell, Chevron, and Conoco are pretty much locked in, with their considerable investments. Whether anybody else will enter at this point seems to be an open question. As an investor, I'd expect to see companies investing, but not at the break neck speed we're seeing in the Niobara, northern Bakken etc. It's not a bet the ranch endeavor for Shell, Conoco, Chevron or even Husky.

As with any investment, if you think it's a good risk, and not properly assessed in the market, the choice is yours to make.

The Chines are investing in the oil sands, also it is a safe bet compared to any place else in the world

BNSFDrummer Wrote:
-------------------------------------------------------
> It is hardly news when the highest cost producer
> (Canadian Tar Sands)is affected by low crude oil
> prices. This expensive crude oil was launched
> years ago betting that crude oil prices would
> gradually increase over time. They were right.
> The breakeven price of imported crude oil for tar
> sanda to compete against is around $100 per
> barrel. This is for old investment. For new
> investments I can believe the break even price is
> $150. Time will tell again.

Agreed. And keep in mind that there are economies of scale involved over the long term. Even if the present day investment required keeps the producer's break even costs up in the $80s or $90s, there is a huge, huge resource out there and that capital investment will be making money for a long, long time. That often doesn't show up in simple economic analyses, which assume that all the equipment depreciates to near-zero value over a fixed time period.

Seems to be a lot of misinformation out there. The most important thing I can say about what has been discussed here so far, is that people are confusing the break even point, with the minimum projected profit margins the oil companies set as their targets. The numbers being mentioned, are the numbers the oil companies want to see as the minimum to maintain their profit margins, and make the oil economically feasible in the eyes of the accounting departments. These are FAR higher than the actual break even prices...........FAR HIGHER!

greasemonkey Wrote:
-------------------------------------------------------
> Seems to be a lot of misinformation out there.
> The most important thing I can say about what has
> been discussed here so far, is that people are
> confusing the break even point, with the minimum
> projected profit margins the oil companies set as
> their targets. The numbers being mentioned, are
> the numbers the oil companies want to see as the
> minimum to maintain their profit margins, and make
> the oil economically feasible in the eyes of the
> accounting departments. These are FAR higher than
> the actual break even prices...........FAR HIGHER!

One issue not previously mentioned is the obligation under some contracts to produce under the lease agreement. If you execute a lease, and fail to produce, you may lose the lease, or be subject to payments anyway. So, rather than shut in the well, you pump at a minimum level.

Nobody is going to bet the ranch oil from tar sands if other, cheaper, more accessible sources are equal to demand. (As I said up thread.)

A close reading of the legal filings from COSWF give a lot of color on how the industry views these valuable but hard to access resources