Carney’s Decarbonized Pipeline Plan Has Sprung A Leak
At the recent Catch the Energy conference in Calgary, over 1,000 high-net worth investors, energy executives, and financial analysts gathered to hear the authoritative Josef Schachter give his views on the global macro-oil and gas picture.
With an off-the cuff remark, he provided the data needed to sink Mark Carney’s proposal that Canada needs to decarbonize its crude oil to attract foreign buyers.
The plan is to use carbon capture and storage (CCS) for the oil production emissions associated with a one-million barrel per day new pipeline to tidewater on Canada’s West Coast, the Pacific Link pipeline.
Carney has made CCS a multi-billion-dollar taxpayer-supported prerequisite to building the pipeline, and it is also a financial barrier to the new oil projects needed to produce the additional one million more barrels per day to fill it.
Even with carbon capture and storage on oil production, 80% of the CO2 emissions per barrel will still occur on combustion.
To avoid distracting complications, let’s propose for a moment that, for the most part, crude oil is just crude oil, and forget that there are price premiums to matching crude oil with the refinery designed for it.
It’s a bit like saying you want an apple for lunch, and don’t care if it’s a McIntosh, Honey Crisp, or Ambrosia, because any apple is better than no lunch at all.
The U.S. Navy has reopened the Strait of Hormuz to about the same volume of oil tanker traffic as before the outbreak of the war with Iran. That oil is typically priced off the benchmark Brent Crude, which recently was $117 US per barrel.
Prior to the war it was $71 per barrel. There was a shortage of tankers before the war, and now there is understandably a shortage of tankers willing to run the gauntlet of Hormuz.
The price of hiring those tankers is now $30 per barrel shipped higher than pre-war, plus marine insurance companies have increased their premiums by $10 per barrel.
Schachter pointed out that if you are a customer in Europe or Asia buying oil from the Persian Gulf you are not paying just $117 per barrel, but $157 per barrel when delivered.
That’s more that twice the cost for the same oil shipped to the same refinery than before hostilities began.
If you are an American customer and you buy crude oil via pipeline from Canada, the benchmark price is Western Canadian Select. That’s only $73 per barrel plus nominal pipeline tolls of about $2 delivered in Texas.
European and Asian customers have of late paid twice the full cost of crude oil on a ship transiting Hormuz than they were paying in February, and that is twice the price American’s can buy Canadian crude oil from a pipeline right now.
It may be a McIntosh to Honey Crisp comparison, but that’s enough financial motivation to entice those European and Asian supertankers to buy from Canada, and after the Iran war is over the motivation will be supply security. The Pacific Link pipeline will enable that export market for Canada.
Carney must drop his unneeded, tax-supported, and expensive decarbonized oil prerequisite to the Pacific Link project. It’s delaying the project while Canada misses out.
Customers are willing to pay a 100% premium to get their hands on crude oil, any oil, which confirms they have no demand at all that it be decarbonized.
If Carney wants to grow Canada’s oil export infrastructure, he must drop his fantasy that oil consumers want decarbonized oil. That is the real prerequisite to getting a new pipeline built to tidewater.
Ron Barmby (www.ronaldbarmby.ca) is a Professional Engineer with a master’s degree, whose 40+ year career in the petroleum sector has taken him to over 40 countries on five continents. His latest book, Sunset on Net Zero: A Heretic’s Guide to the Futile CO2 Target (Amazon, Barnes & Noble), explains in layman’s terms why net zero is pointless, unachievable and unfair. Ron is a proud member of the CO2 Coalition.
source climatechangedispatch.com