Monday, January 9, 2012

Canadian Tar Sands Oil - It's Expensive Indeed

The political fall-out and gridlock in Washington DC over the Keystone Oil Pipeline with environmentalists and Democrats blocking its construction has reached a rather toxic political impasse, no not from some proverbial minor oil spill, but smack dab in the middle of the 2012 political campaign. This is a very big deal and has even stolen headlines from the news of the passing on of the Late Great Kim Jong Il of North Korea in some nation newspapers.

On or about December 20, 2011 there was an article in Energy Daily online news, titled; "Canada oil may go to China without US pipeline: PM," and it talked about how Senior Harper of Canada stated that if the US doesn't approve the pipeline (Keystone) pipeline then the Canadians would put in a pipeline to Delta Port BC in Canada where it could be loaded onto ships and taken to China. In other words, the pressure is on, but I still have some comments about all this. Yes, I know China is heavily invested in refining, and the Tar Sands in Canada, but that oil could be very expensive, so, do the Chinese really need the oil that badly?

Remember the Chinese economy is starting to sputter, as their exports to the EU have dropped off a cliff, even the shipping industry is noting the slow boat containers loads severely diminished. The concept of Chinese GDP growth of 10% year-over-year does not seem remotely possible moving forward, even with their plan to sell to emerging markets - there just are not enough places to sell all that China is capable of producing, thus, they may not need all that much oil, and buying oil at a very high price may not be doable long-term for them anyway.

There was an interesting post on the Oil-Price (dot) net website which cited the cost of getting one barrel of crude oil from the Tar Sands in Canada at about $27. Remember, that's the "cost" before profit. That's really expensive oil, and at $100 per barrel it's feasible surely, but can our economy take that hit at the fuel pumps? What about all of our other transportation needs - Rail, Aircraft, Trucks, and Ships? Think about it. (Cite: 1/27/2010 "Are Canadian Tar Sands Profitable? By Giuseppe Marconi). To answer the questions posited in the article, I'd say; "No, not really."

The article stated something I've been saying all along; "Two tons of tar sands are required to produce one barrel of oil. Approximately 75% of the bitumen can be recovered from the sand. Profit margins are limited by the fact that the tar sands cannot be processed as quickly and without chemical processing. Saudi Crude Oil, by comparison can be pumped directly from the ground." And mind you the cost to get a barrel of crude from the Middle East is a lot cheaper indeed; about $2.50 in 2003 and it was about $1.50 in Iraq during that same time (cite: Time Magazine Online - World Edition; "Iraq's Crude Awakening" by Donald Barlett and James B. Steele - May 10, 2003).

In 2000, consider this, a barrel of crude oil from Saudi Arabia sold for $26.80 - that is the selling price, not the "cost" price, which I just referenced. Having a pipeline into the US from Canada means "energy security" even if we don't buy that much for the first 10-years and still rely on cheap light-sweet crude from the Middle East. So having the pipeline makes sense, even if the price-point is like the sticker shock from hell when looking at a Chevy Volt in the showroom. Please consider all this.

Lance Winslow has launched a new series of eBooks on the Mobile Oil Change Business. Lance Winslow is a retired Founder of a The Oil Change Guys, a Nationwide Franchise Chain, and now runs the Online Think Tank;

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