Really ?

[PeterT]

In other words, my observation is correct. Even though my fuel comes from Canada, I gotta pay the same price on the same day as the middle east gets for their fuel going to Hawaii. Call it what you will. To me, it's Canadian companies gouging Canadian citizens for Canadian resources.

You glossed over where fuel is made & by whom. Give it another read, do some more research. You are asking AI simple questions & its recprocating with simple answers. How can you call it a gouge when Canadian O&G producers are price takers, not price makers? We dont have an OPEC. Yes, oil prices are more or less referenced globally, so N-Am O&G companies have no option but to pass that feedstock price down the line. Some years are more profitable, some are miserably un-profitable.

Look at the stock index chart in #667. It should be the litmus of your thesis. 80-85% of N-Am O&G companies are publically traded. USA is 65-70%. That means the bulk of Big Oil financials profit/loss are reported to strict standards, quarterly, yearly, for all eternity. It also means you as a shareholder are along for the ride. Their success is your success. So if O&G was so insanely profitable, why arent you plowing your investments & mortgaging your farm to load up on O&G stock? You would be so rich, within a year you wont have to fret about fueling your yacht. Hmmm on closer inspection the blue line kind of dances around 15% on average the past 25-30 years. Kinda flat. Kinda boring. Kind of less than the S&P. Not really the insane steep trajectory one would expect for a gouging monopoly with no competition. Yes some positive spikes along the way, also some negative periods.

If steel & plastic jumps 20%, do CAD automakers say - Shareholders be damned, lets absorb the hit so vehicle prices stay nice & low. Because that would be the socially benevalent thing to do? Vehicle prices say otherwise.

 

[Susquatch]

You glossed over where fuel is made & by whom.

I know that most of my fuel is refined in Sarnia and the crude comes by pipeline from the Canadian prairies. That was one of my points. It's Canadian crude and Canadian fuel.

How can you call it a gouge when Canadian O&G producers are price takers, not price makers?

This was actually another of my points - although perhaps not expressed at all that way. Why aren't we price makers for the domestic business? If you remove taxes, the pump price of gasoline in Saudi Arabia is less than half what it is in Canada. Apparently, Saudi Arabia treats low domestic fuel prices as an energy-policy benefit. If the Saudi's can do that, why can't Canada? And yes, I know that our government doesn't want fuel to be less expensive - actually quite the opposite driven by climate change policy. But that doesn't stop me from wishing otherwise.

Which I guess brings me back full circle to where we started and perhaps to your point after all. It isnt really about big oil gouging, it's actually all about big government...... Again... Fk.

 

[Sqought]

If you remove taxes, the pump price of gasoline in Saudi Arabia is less than half what it is in Canada.

The UAE also has much tighter state control/ownership of their fuel supply than Canada, and their supply is cheaper to extract and refine. In the end, I imagine their government would still make money selling gas at well below market rate. Here here in Canada, our private oil producers would probably expect to be reimbursed their lost profits by the government instead.

 

[Susquatch]

Here here in Canada, our private oil producers would probably expect to be reimbursed their lost profits by the government instead.

True!

Not really funny, but I laughed anyway!

 

[Sqought]

True!

Not really funny, but I laughed anyway!

Hey, it's better to laugh than cry.

 

[PeterT]

Why aren't we price makers for the domestic business? If you remove taxes, the pump price of gasoline in Saudi Arabia is less than half what it is in Canada....

Because Saudi & similar are gifted with massive oil reservoirs with many enviable attributes. Predominantly light gravity sweet crude which is better/cheaper feedstock for refining into gasoline type products. Their wellhead costs are estimated at 2-5 USD/bbl. Significatly higher production per well. Supertanker shipping infrastructure has in been in place since the 60's so they can land that crude inexpensively anywhere in the world & rapidly adapt to changing market conditions. Other OPEC export nations or Iran, Iraq, Russia... also have very low wellhead prices for similar reasons, maybe 5-10 $ range. In Western Canada, the comparable light oil reservoirs of the 50's-70's era are orders of magnitude smaller, more scattered, deeper & by now largely depleted. But we are experts in developing lower grade more challenging reservoirs/sources (which btw, Middle east also has in abundance & will get to that eventually when they have to). Western Can wellhead prices are ~20-30 USD/bbl for what is a net heavier blend. Or 30-40 USD/bbl for more recent conventional light oil, but ours is deep, tight permeability & remote, requiring higher density drilling of horizontal wells with multi-stage hydraulic fracturing. Our oil sands are vast but expensive & more remote. Broadly divided by subsurface thermal recovery or essentially mining/synth upgrading/reclamation type recovery. Greenfield projects in this class are in the 50-65 USD/bbl. Building a new oil sands facility from scratch requires billions in upfront infrastructure capital before a single barrel is produced. Interestingly, Quebec sits on vast shale oil capability. The rock is similar to what is actively being developed in USA, but it will never happen for cost & other reasons important to them. There is also significant light oil eastern offshore CAN, but $$ to develop.

So why doesnt N-Am just roll over, shut the lights out & buy from these cheaper middle east sources? Because we would be entirly dependant on foreign nations that are generally less stable & looser environmental standards. I'm sure you are aware of what transpired in the 'oil shock' era in the 70's. It was kind of a wake up call. USA now supplies 67% domestically, 20% from Canada, 2% each from the likes of Mexico/Saudi/Iraq. The shale revolution largely turned the tables. In the 70's I think about 35-40% came from middle east/other & they/we had lots of domestic light being developed to fill domestic needs. In some parts of eastern Canada we do in fact import ~15% from middle east & the rest from USA.

Your other questions collectively - why doesnt Canada refine crude here so its one stop shopping, source wellhead production -> gasoline? Mainly location & opportunity cost. In dense population areas or strategic distribution hubs like Sarnia, St. John, Quebec... western crude is shipped via pipelines constructed when when we actually built things. About 12% crude goes east (~5% to Sarnia) the rest goes south to USA. Some of these CAN refineries switch & flip between other non-CAN sources. And you are seeing the consequence of opportunity cost because oil is a world priced commodity. Building a greenfield gasoline refinery takes billions of investment. Now you have gasoline in Canada, logically constructed close to production source for operational reasons.. To ship fuel where exactly? We dont consume that volume. Its a long ways to a gas pump in Big City USA where the population/market is & it would compete with existing brownfield supply. Financial suicide. How about an shorter pipeline offshore terminal to supply Europe, far East?. Hmmm... I think that issue has been in the news quite often. How does that story go? Not in my back yard? Years of expensive consultation (code word for gatekeeper fees). I'll give you a hint, these issues simply do not come up in what amounts to dictatorship states. If the government wants something built, you get the f*ck out of the way.

You are from the auto industry? I'll flip the question around. I read ~10% of vehicles manufactured in Canada are sold domestically, 90% are exported, mainly to USA markets. Why cant you sell a 70K$ car for like 40K$ in Vancouver because after all, its made in Canada?

 

[jcdammeyer]

Your other questions collectively - why doesn't Canada refine crude here so its one stop shopping, source wellhead production -> gasoline? <SNIP>
Building a greenfield gasoline refinery takes billions of investment. Now you have gasoline in Canada, logically constructed close to production source for operational reasons.. To ship fuel where exactly? We dont consume that volume. Its a long ways to a gas pump in Big City USA where the population/market is & it would compete with existing brownfield supply. <SNIP>

I can, for not a lot of money build a still to make my own booze. Not super expensive although all in all I've never done the calculation to see if I would recover my investment compared to just buying cheap scotch.

I'm going to guess there's some tipping point where cost of investment is less than gain from what is produced.

Does that work for refineries? Does a refinery only work when built at the scale to handle an entire pipeline worth of oil or could a smaller one result in a ROI after a short time?

I'm thinking of the concept of an east/west pipeline where smaller refineries tap off what they need for local refined petro-chemical products. After all IIRC, there are a few refineries in and around Edmonton aren't there?

Kind of how we look at the problem. Discard and replace or use an old 1945 South Bend Lathe to repair something.

 

[Sqought]

Why cant you sell a 70K$ car for like 40K$ in Vancouver because after all, its made in Canada?

Any of the auto manufacturers could choose to do that (whether profitable or not), but our government can't really compel them to. The UAE can with oil because they nationalized their oil production (amongst other economic factors).

 

[PeterT]

Does that work for refineries? Does a refinery only work when built at the scale to handle an entire pipeline worth of oil or could a smaller one result in a ROI after a short time?
I'm thinking of the concept of an east/west pipeline where smaller refineries tap off what they need for local refined petro-chemical products. After all IIRC, there are a few refineries in and around Edmonton aren't there?

I'm not a downstream guy but generally speaking scale is a prerequisite to operate above break even. You may have heard of smaller 'teapot' refineries in China/elsewhere. My understanding is anything making gasoline/diesel quality, most certainly requires light gravity crude feedstock (think middle east API). If its medium or heavier gravity, which is more representative of a CDN blend, its a significantly more intensive process; cokers, hydrocrackers, blending.... And teapot construction & emmission standards & fuel quality are.... <ahem> not what we would be happy with here. Smaller micro-refining could be employed in certain situations/combinations, for sure. But it always competes with alternatives in a dramatically shifting market. The past 30 years WTI has beeen as low as 10 $/bbl late 90's to almost $150 in 2008. Somewhere in that volatility is a profit/loss line. The fact that few refineries have been built demonstrates what the market thinks.

(Google) To demonstrate how expensive refining Canadian crude is: the Sturgeon (North West Redwater) Refinery near Edmonton was built specifically to convert Alberta bitumen into ultra-low sulfur diesel. Because it required advanced upgrading and carbon capture technology, its construction cost exceeded $10 billion CAD. Its considered a textbook boondoggle. Lots of fingerpointing but lets just say the goverment involvement has a magic touch.

 

[PeterT]

Any of the auto manufacturers could choose to do that (whether profitable or not), but our government can't really compel them to. The UAE can with oil because they nationalized their oil production (amongst other economic factors).

Exactly. In a so called free market, its supply & demand economics. If the government puts floors or ceilings on prices, it has other ramifications.

Nationilazation gives them clout for sure. But its their significantly cheaper & better quality crude, costing 2-5 $/barrel at wellhead, which allow the economic margins to begin with. They pay 0.50 $/liter gasoline at the pump (unsubsidized) vs our +$2.50 or whatever. Their diesel is even cheaper. They could subsidize, and have in the past, but when its this cheap its not exactly the same household cost burden as N-Am. They make amazing profit at lower prices than what it costs us to produce. If their costs were like ours, significantly higher $ subsidization would be required, funded from some other source.

 

[Sqought]

Exactly. In a so called free market, its supply & demand economics. If the government puts floors or ceilings on prices, it has other ramifications.

Nationilazation gives them clout for sure. But its their significantly cheaper & better quality crude...

Extraction and refining technology have continued to improve, lowering the cost of Alberta crude oil & products.

https://www.cbc.ca/news/canada/edmonton/how-canada-s-oilsands-transformed-into-one-of-north-america-s-lowest-cost-plays-1.7586510

I haven't seen a resulting drop in the price of gas. From what google says, that money has mostly gone to corporate debt repayment, dividends and stock buybacks.

In Canada, our baseline is market rate. In the UAE it's their cost. It'd be nice if our baseline was at least our cost.

 

[Susquatch]

You are from the auto industry? I'll flip the question around. I read ~10% of vehicles manufactured in Canada are sold domestically, 90% are exported, mainly to USA markets. Why cant you sell a 70K$ car for like 40K$ in Vancouver because after all, its made in Canada?

I already rolled over on the original question. But I'll answer that one just so you have the info in your head.

The auto industry in Canada only makes a few models here. And they do price those models differently in Canada than they do when they sell elsewhere. In effect, giving Canadian buyers and advantage when there is one. The biggest advantage is often the exchange rate which helps with things like labour costs. But we are not talking big dollars since most of the content is sourced globally. Nonetheless, the advantage even when small actually is passed on to consumers. Sometimes the industry gets drowned in cross border sales when the difference gets big enough to justify people in other jurisdictions crossing the border or paying brokers to buy in Canada in droves.

 

[PeterT]

Extraction and refining technology have continued to improve, lowering the cost of Alberta crude oil & products.

I haven't seen a resulting drop in the price of gas. From what google says, that money has mostly gone to corporate debt repayment, dividends and stock buybacks.

In Canada, our baseline is market rate. In the UAE it's their cost. It'd be nice if our baseline was at least our cost.

Yes the article references ongoing improvements, efficiencies, technology.... thats called normal business in O&G. But pay attention to the quoted break even prices ' WTI 2024 to $42.90...' . '... can break even & still maintain their dividends at WTI prices between $43.10 and $40.85...' That barrel of wellhead crude FOB Fort McMurray cost them 40-ish dollars to extract. That is the number one would compare to 2-5$ cost to extract in middle east. It is not WTI & certainly not gasoline in your tank. Physically as in distance & chemically as various transporation & processing & refining into product. Its also an opex driven current perspective, it does not consider the capex that built the infrastrcuture that has to be paid out. Hence the reference to debt repayment. Maybe go back a couple posts & read what I wrote.

I'm not sure what your last sentence means, it makes no sense. UAE like similar regions, exports 80% of production, keeps 20% for domestic use. Their export sales goes on the open market. Reference prices at those market locations are typically where it lands adjusted for quality. USA Gulf coast delivery would be WTI. UK delivery might be Brent equivalent. Asia delivery might be Murban futures. Think of it more like a local currency like USD vs CAD vs Euro. With some minor adjustments its basically cost per volume.

 

[Sqought]

I'm not sure what your last sentence means...

I understand there are complexities in financing, extracting, refining, transporting, exchange rates, etc. and I (over?) simplified them down to "market rate" and "cost". I know our market rate & especially cost are not the same as theirs, but evidently didn't make that clear. I also sloppily combined crude and finished oil products, which you correctly called out, but I think my point still stands.

Our oil barons will sell to whoever will pay the most (market rate) for any given product, domestic or export. They have little interest in cutting a deal to domestic customers (pricing closer to cost), and our government can't force them. The UAE government, by being the oil barons, can choose to sell domestically for less (closer to cost) than they export (at market rate). I think we agree on this.

We will never be able to match their domestic prices because of their low costs. My point was we could lower our prices by bringing them closer to our costs, but the oil industry can't be compelled to do that.

 

[PeterT]

Yes, an unfortunate byproduct of free market, non-subsidization is exposure to real market conditions. Hence my example that forcing a CDN car company to cap the price at 40K domestically when it sells for 70K internationally comes with consequences. If the car costs 39K, the manufacturer will not be enthusiastic about making 1K per unit after investing billions on upfront costs. If the government sees political points & 'makes' it happen, you can bet they will find difference from other sources. They will push 15K under the table in form of a subsidy or variants of left pocket / right pocket. Or embark on long term loans to spread the pain far down the road for future generations. Neither are good. The flipside of free market, when it happens, is profit margin industries attract competition & innovation, hopefully driving down costs or developing workarounds. Natural resources are a bugger this way. They occur where Mother Nature laid them down. Gifts to a countries who happen to be on top of them. Super low cost oil is running out for UAE type regions too. That means they have to initiate secondary/tertiary recovery schemes ($) or develop smaller low class reservoirs ($) or clean up hazards ($). We just arrived at the problems earlier. They can be solved but at added cost & other consequences.

 

[Susquatch]

Hence my example that forcing a CDN car company to cap the price at 40K domestically when it sells for 70K internationally comes with consequences. If the car costs 39K, the manufacturer will not be enthusiastic about making 1K per unit after investing billions on upfront costs. If the government sees political points & 'makes' it happen, you can bet they will find difference from other sources. They will push 15K under the table in form of a subsidy or variants of left pocket / right pocket. Or embark on long term loans to spread the pain far down the road for future generations. Neither are good.

Nobody forces pricing on vehicles in Canada. I don't have any clue where you got that idea. The only driver for price changes is competition. And there is a shit load of that.

The other BIG issue is so called free trade agreements with countries that have unfair advantages - like low environmental and low safety standards in their factories and suppliers, different tax regimes, different incentives. When that happens, we need a level playing field or we need tarrifs.

I'd highly recommend not using cars as a comparison. They are not at all the same.

 

[PeterT]

Nobody forces pricing on vehicles in Canada. I don't have any clue where you got that idea. The only driver for price changes is competition. And there is a shit load of that.

I never said they did. I know better. It was in reference to my rhetorical question #686 by way of example.

 

[Susquatch]

I never said they did. I know better. It was in reference to my rhetorical question #686 by way of example.

Sorry, I misunderstood you.

Still, I hope the example doesn't imply to others that it might be happening or should be happening.

Carry on!

 

[PeterT]

Sorry, I misunderstood you.

Its just me being a Contrarian Dick. Visualizing a make belief Gas Pump Rage conversation

Dude) effing fillup cost me $200, it should be HALF that! effing Big Oil is ripping me off, I just know it!
CD) I agree fuel is expensive. Actually there are reasons for this, would you like to understand why?
Dude) NO! Eff Off!
CD) ok, just sayin. Hey fun fact, you'll spend ~70K$ on fuel over the life of the vehicle (300K miles at avg price). If fuel was reduced by half, that would be 35K. Should Big Oil take the hit?
Dude) I SAID, eff...O... Wait, what? 35K less, Hell ya. Take the hit, effing Big Oil
CD) so 35K reduction, you're happy. What about if the 70K vehicle was reduced to 35K, that would be the same amount ya?
Dude) ....thinking.... calculating.... carrying the zero.... Ya I guess so
CD) so mathematically you could also say effing Big Car Co is ripping me off, I just know it

 

[trevj]

I can, for not a lot of money build a still to make my own booze. Not super expensive although all in all I've never done the calculation to see if I would recover my investment compared to just buying cheap scotch.

I'm going to guess there's some tipping point where cost of investment is less than gain from what is produced.

Does that work for refineries? Does a refinery only work when built at the scale to handle an entire pipeline worth of oil or could a smaller one result in a ROI after a short time?

I'm thinking of the concept of an east/west pipeline where smaller refineries tap off what they need for local refined petro-chemical products. After all IIRC, there are a few refineries in and around Edmonton aren't there?

Kind of how we look at the problem. Discard and replace or use an old 1945 South Bend Lathe to repair something.

Saw a video recently, that compared the cost at the Ontario Beer Store for a six pack of his favorite IPA, at $3.50/can, vs. buying a can of hopped Malt concentrate off Amazon for $20, adding a kilo of sugar (from personal experience, add another kilo of malt extract!) and some time, to produce the same qty of beer for ~35 cents a can worth. Admittedly a small amount of the price at the store covers packaging, advertising, and transportation, but almost all the price is taxes buried out of sight and not easily seen.

If you were to want a neutral spirit, it is a pretty basic system to learn, agings, flavorings, various factors regarding mouth feel, etc., are pretty easily got from various available flavoring concentrates that can be got through almost any brew shop, if all you want to match, is "cheap scotch". But you will get gallons, for what you paid for a bottle...