Crack Spread

Alberta Oil - - FOCUS ON REFINING -

The money that re­fin­ers make off the dif­fer­en­tial be­tween the price of crude and re­fined prod­ucts is a thin mar­gin. The re­fin­ing ca­pac­ity in the east is sat­is­fied mainly by light, high-qual­ity oil im­ports, while most of Al­berta’s bi­tu­men heads south. Irv­ing Oil and Sun­cor En­ergy are both look­ing at adding desul­fu­r­iza­tion units, hy­dro treaters and cok­ers to their re­finer­ies in Saint John and Mon­treal, re­spec­tively, in or­der to han­dle lower-cost bi­tu­men and con­ven­tional heavy Cana­dian crudes. Such up­grades would change their re­fin­ing eco­nom­ics, widen­ing the crack spread by low­er­ing feed­stock costs. But adding a sin­gle 30,000 b/d coker unit costs some­thing north of $1.5 bil­lion. The Sun­cor and Irv­ing re­finer­ies both lie on the path of the pro­posed En­ergy East pipe­line and so their in­vest­ment de­ci­sions would be based on the as­sump­tion that Al­ber­tan bi­tu­men will re­main a plen­ti­ful, low-cost feed­stock with re­li­able pro­duc­ers for decades to come.

Canada’s eastern re­fin­ers could wind up com­pet­ing for Al­ber­tan crude against Euro­pean and Asian re­fin­ers. Any ac­cess to a mar­ket that pays a pre­mium will drive up the price for eastern re­fin­ers. Western Cana­dian Se­lect sells at a dis­count in North Amer­ica to sim­i­lar crude blends in Asia and Europe where the pro­ducer gets a higher net­back. Al­ber­tan crude reach­ing coastal ter­mi­nals will re­bal­ance the lo­cal markets, po­ten­tially mak­ing re­fin­ing mar­gins slim­mer and slim­mer. In ad­di­tion to higher mar­ket prices around the Asia Pa­cific re­gion and pos­si­bly Cal­i­for­nia, there’s also en­ergy-hun­gry China to take into ac­count. It has in­vested $50 bil­lion in Cana­dian en­ergy projects, in­clud­ing oil sands stakes and pipe­line in­fra­struc­ture, to get crude oil to tide­wa­ter—Chi­nese tide­wa­ter. A hand­ful of highly de­ter­mined state-owned com­pa­nies are play­ing a long-term en­ergy se­cu­rity game, which is based less on the bottom line than on get­ting oil on ships back to the Chi­nese main­land no mat­ter the cost or the dis­tance re­quired.

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