U.S. Refiners Should Brace for Trans Mountain Pipeline Launch

By Irina Slav - Feb 01, 2024

• Following the news that Trans Mountain Corporation will start filling the expanded pipeline in February, with first crude to be loaded from Vancouver in April, Canadian crude prices jumped to the narrowest discount to WTI since August 2023.
• 
  
• U.S. refiners used to cheap Canadian crude will need to start budgeting more for the commodity from this spring.
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• Canadian oil producers are preparing for the 890,000 bpd in takeaway capacity growth.

When Kinder Morgan first announced its plans to expand the capacity of the Trans Mountain oil pipeline from 300,000 bpd to 890,000 bpd, it probably thought it was another major project.

Several years later, the company had given up on the project and sold it to the Canadian federal government for less than $4 billion. For a long time, it seemed like Trans Mountain would never be completed, plagued by opposition and regulatory snags.

Despite all this, it seems the pipeline is about to go into operation this year. And U.S. refiners used to cheap Canadian oil might need to reach deeper into their pockets to keep buying it.

The idea behind the Trans Mountain expansion was to turn Canada into a true oil exporter, reaching international markets rather than just the U.S. market, massive as it is. One reason this took so long was that the government of the province that was to host most of the pipeline was dead against it.

The John Horgan government was very environmentally minded. It would rather have Alberta stop all oil flows to British Columbia than endure the construction of the expanded Trans Mountain pipeline. That set back the project by months, and so did environmental protests against the pipeline. 

Amid all this, the discount at which Canadian crude normally trades to WTI deepened and hardened. Canadian oil was going to the United States—all the way to the Gulf Coast—and only from there could it reach international markets. It was a complicated situation.

Then, when Kinder Morgan had enough and sold the project, the Trans Mountain expansion got a new lease of life—ironically, from a federal government that has made no secret of its distaste towards the oil industry. And it paid for that distaste. From an original $3.4-billion price tag, the Trans Mountain expansion bill swelled to over $23 billion.

Inflation and supply chain problems were among the reasons for the sixfold increase in the cost of the project, as were construction challenges due to the geology along the route of the pipe. Oil producers have not exactly welcomed the cost overruns—there were suspicions that to make up for these, Trans Mountain Corporation would charge them higher fees for carrying their crude.

Even so, producers began ramping up production in anticipation of the launch. Canadian Natural Resources said earlier this year that it would boost output in 2024 by 40,000 barrels of oil equivalent daily. Cenovus Energy announced plans to spend more on production growth as well. Oil producers are preparing for that 890,000 bpd in capacity.

Prices have responded, too. Following the news that Trans Mountain Corporation will start filling the expanded pipeline in February, with first crude to be loaded from Vancouver in April, Canadian crude prices jumped to the narrowest discount to WTI since August 2023. The current discount is about $16 per barrel.

This means that U.S. refiners used to cheap Canadian crude will need to start budgeting more for the commodity from this spring—assuming the project does not hit yet another snag. You never know, after in September the Canadian Energy Regulator gave TMC the go-ahead to change the route of the expanded pipe due to challenging terrain.

Just a month later, the same CER ordered TMC to stop work on the pipeline on the grounds of non-compliance with environmental and safety regulations. A month later, the regulator decided it could not allow TMC to go ahead with the route alternation after all because of opposition from the Indigenous community through whose land that section would pass. By December, however, the CER had changed its mind and granted TMC the permit it needed to continue work on the pipeline.

These sorts of setbacks made it really hard to believe the Trans Mountain pipeline will indeed see the light of day as an operating pipeline, but it seems it might happen after all. And that means more expensive oil for U.S. refiners. They’re about to encounter some international competition for Canadian crude.

By Irina Slav for Oilprice.com

China’s Diplomatic Gesture to Taliban Stirs International Debate

By RFE/RL staff - Feb 02, 2024

• China's move to accept the Taliban ambassador's credentials is seen as a boost to the Taliban-led government, potentially influencing other regional countries.
• 
  
• A UN conference on Afghanistan is expected to address the issue of recognizing and engaging with the Taliban.
• 
  
• Afghanistan's decline in Transparency International's corruption rankings highlights ongoing challenges for the Taliban government in gaining legitimacy.
• 
  

Chinese President Xi Jinping on January 30 formally accepted the credentials of the Taliban-appointed ambassador, becoming the first head of state to do so.

Chinese Foreign Ministry spokesperson Wang Wenbin clarified that the move did not mean Beijing officially recognized the Taliban government.

“Diplomatic recognition of the Afghan government will come naturally as the concerns of various parties are effectively addressed,” he said.

The Taliban, however, celebrated the move as a major diplomatic victory.

"China understands what the rest of the world needs to understand," chief Taliban spokesman Zabihullah Mujahid said, urging other countries to expand bilateral relations with his government.

Why It's Important: China’s move is a boost to the Taliban-led government, which has not been recognized by any country since the extremist group seized power in 2021.

Beijing’s expanding diplomatic ties with the Taliban government could prompt other countries in the region, including Iran and Russia, to follow suit.

Ibraheem Bahiss, an Afghanistan expert at the International Crisis Group, said Beijing’s decision suggested that the Taliban was making headway in its strategy to gain official recognition from regional countries.

Countries in the region are growing “more and more skeptical about the Western consensus that the Taliban should stay confined to pariah status on the world stage,” he wrote.

Najib Azad, an exiled former Afghan government official, said that without full diplomatic recognition from all five permanent United Nations Security Council members, Beijing’s move was meaningless.

“Until that time, it is only a PR opportunity for the Taliban to claim success,” he told Radio Azadi.

What's Next: A planned UN conference on Afghanistan later this month is expected to debate the question of Taliban recognition and engagement with the group.

The hard-line Islamist group faces major hurdles in gaining international recognition and legitimacy.

Many nations have tied recognition to the Taliban establishing an inclusive government, ensuring women’s rights, and breaking ties with extremist groups.

But the Taliban has refused to share power, severely eroded women's freedoms, and maintained links with extremist groups, according to experts.

What To Keep An Eye On

Afghanistan dropped 12 places in Transparency International’s global corruption rankings.

Afghanistan was ranked 162nd out of 180 countries in the 2023 Corruption Perception Index. Last year, the same index ranked it 150th. In 2021, under the Western-backed Afghan government, the country ranked 176th.

Mujahid, the Taliban spokesman, attempted to downplay Afghanistan’s significant drop in the rankings.

“The drop in ranking doesn’t mean that corruption has increased in Afghanistan,” he said. “But it is possible that other countries have become more transparent.”

Why It's Important: The ranking is a blow for the Taliban government, which has touted its fight against corruption as one of its major achievements.

But Afghanistan’s declining score suggests that corruption, which was endemic under the previous government, remains pervasive.

By RFE/RL 

UK Carbon Price Drops to Record Low, Sparking Clean Energy Investment Concerns

By Irina Slav - Feb 02, 2024

The price of a ton of CO2 in the UK this week fell to a record low, giving rise to concerns about the immediate prospects of investments in alternative energy sources.

Per the Financial Times, the price for a so-called carbon permit, equal to one ton of CO2, fell to some $40 (31.48 pounds) this week due to lower industrial energy consumption and lower demand for heating due to the mild winter. Analysts also attributed the decline to an abundance of available permits.

Yet the UK’s net-zero transition plans require high carbon permit prices to motivate investment in decarbonization efforts, the report noted. Indeed, high carbon permit prices discourage businesses from emitting and compromise their competitiveness, motivating such investments.

With low carbon permit prices, however, that discouragement is not there, even though some might argue that the price drop—and permit availability—actually suggests industrial consumers are emitting less carbon dioxide, which should be good news for the net-zero planners in London.

“We need a strong, stable and predictable carbon price signal to ensure that investment heads in the right direction,” Adam Berman, deputy policy director at trade body Energy UK, told the FT. “A low carbon price sends absolutely the wrong signal about the UK’s commitment to net zero.”

“If we want to electrify transport and heat, and power them with renewables, then it’s going to be very difficult to do that without the higher carbon price to fund and incentivise it,” BNP Paribas analyst James Huckstepp told the FT.

Indeed, carbon pricing has emerged as an important tool in enforcing the transition by simultaneously discouraging businesses from generating CO2 emissions and providing funds that could be invested in alternative energy sources and net-zero technology.

Yet while the governments using carbon pricing to fund the transition have signaled they see this as a free market, they do need the price to keep going one way only—up. A free market precludes such a consistent price trend, giving cause for worry to transition advocates.

U.S. Exports of Steam Coal Reached 5-Year High in 2023

SHH DON'T TELL BIDEN

By Charles Kennedy - Feb 01, 2024

Lower domestic coal consumption and higher demand in Asia pushed U.S. exports of thermal coal in 2023 to the highest level since 2018, Reuters reported on Thursday, quoting data from ship-tracking firm Kpler.

The United States exported last year more than 32.5 million metric tons of thermal – or steam – coal, used primarily in electricity generation, per the data reported by Reuters columnist Gavin Maguire.

In terms of export revenues, the United States hauled in more than $5 billion from thermal coal shipments in 2023, the second-largest revenues since 2017. The highest coal export revenues since 2017 were achieved in 2022—at $5.7 billion, per figures cited by Reuters.

Climate think tank Ember notes that coal use in U.S. power generation sank last year to the lowest in the 21^st century. 

India continued to be the top destination for U.S. thermal coal exports in 2023.

Per Energy Information Administration data for 2022, India accounted for 19% of U.S. coal exports, followed by the Netherlands, whose import hubs are the entry point to Europe, and by Japan, Brazil, and South Korea.

As domestic consumption of U.S. coal is set to drop, the EIA expects in its latest Short-Term Energy Outlook (STEO) exports to account for a larger share of total U.S. coal consumption.

Exports are expected to make up 19% of total coal demand in the U.S. in 2024 and 21% in 2025, up from a share of 14% in 2019, due to falling domestic demand, especially from the electric power sector.

“The pickup in exports reflects more demand for U.S. coal in foreign markets, especially in Asia where coal consumption was on track to hit record levels in 2023,” the EIA said in an analysis earlier this week.

This increase in demand for U.S. coal is primarily for thermal coal in Europe and Asia, where U.S. coal exporters have grabbed a small share of the growing market. Demand for U.S. coal increased following the embargoes of Russia’s coal in several markets. Demand for U.S. metallurgical coal, used primarily in steelmaking, has remained steady in foreign markets given its high quality for blast furnace coking, the EIA said. 

Two U.S. Refineries Returning To Service After Emergency Outages

By Julianne Geiger - Feb 02, 2024

TotalEnergies’ Texas refinery in Port Arthur restarted on Friday, people familiar with the operations told Reuters.

The 238,000-barrel-per-day refinery has been shuttered since mid-January due to a power outage that triggered a malfunction at its gasoline-producing fluidic catalytic cracker. Two crude distillation units and two vacuum distillation units were shuttered—those units convert crude oil into feedstock for the other units at the refinery.

The refinery also had units that failed to start up on time when 3-month maintenance was completed in November.

Also on Friday, BP’s Whiting refinery said that power had been restored to its 440,000 bpd refinery in Indiana, with operations in the process of resuming. That refinery had been shut down on Thursday, prompting flaring and an evacuation. As of Thursday, BP had given no indication of how long it would be before operations resumed, with uncertainties surrounding how long the power would be out. By Friday morning, however, BP indicated that operations would resume later in the day after it learned that power had been restored.

The Whiting refinery produces 238,000 bpd of gasoline and 95,000 bpd of diesel fuel, along with 48,000 bpd of jet fuel. It is also responsible for the production of 7% of all the asphalt consumed in the United States, BP said.

The Whiting refinery is the sixth-largest refinery in the United States and the largest refinery in the Midwest.

GasBuddy’s Patrick De Haan said earlier that gasoline prices could spike due to the Whiting outage, to as much as 15 to 30 cents per gallon. AAA reported that gasoline prices rose to $3.154 per gallon from $3.150 per gallon on Thursday.

By Julianne Geiger for Oilprice.com

Power Outage Shuts Down BP Refinery in Indiana

By Irina Slav - Feb 02, 2024 

A power outage has prompted the shutdown of the Whiting refinery in Indiana. The facility is operated by BP, which evacuated the facility on Thursday and started flaring gas to avoid more serious problems.

Volatile gases are flared during a refinery shutdown because they cannot be processed the usual way and present a hazard.

"This flaring is a safety release to burn off the extra product and is a normal process during an event,” the Whiting City authorities said in a statement quoted by NBC Chicago. “BP is working to resolve the power outage as quickly as possible."

The company itself said "We are in the process of safely shutting down the refinery after a suspected power outage."

"We have activated our emergency response team and evacuated refinery office buildings out of an abundance of caution,” Christina Audisho, a spokesperson for BP, told the news outlet. "Local fire departments are assisting with the evacuation by closing nearby roads. The safety of refinery staff and the community are our highest priority."

BP has not given any indication as to how long the shutdown will continue. The Whiting refinery has the capacity to process 435,000 barrels of crude daily. The facility is the largest refinery in the Midwest and BP’s largest in North America, per Reuters.

According to energy consultancy Refined Fuel Analytics’ managing director, the shutdown could last as little as a week but there is no certainty.

"Restarting depends on how quickly you can restore power and if you have any damage," John Auers told Reuters, adding that "You can manage power outages but it’s very complex. You don't have instrumentation when you lose power, so you don't know what's going on in the units

The last time the Whiting refinery was shut down by an incident was back in 2022, when a fire broke out on the territory of the facility, prompting the temporary suspension of operations.

By Irina Slav for Oilprice.com

Embattled Phillips 66 Close Oklahoma Pipeline After Fire, Rupture

By Charles Kennedy - Jan 31, 2024

Less than a month after news that Phillips 66 was discussing the sale of some of its assets, the company has been forced to shut down a section of a natural gas pipeline due to a fire. 

The natural gas pipeline in the Oklahoma Panhandle ruptured after a fire on Tuesday, with Phillips 66 saying in a Wednesday statement that the fire had been extinguished and the cause of the incident was under investigation, Reuters reports. 

No injuries or threats to nearby residences have been reported, and the company said that multiple fire and law enforcement agencies had responded to the fire, according to Reuters. 

WSAZ news cited the Elmwood Fire Department as saying that some 13 miles of the pipeline must now be drained due to the rupture, with the surrounding areas closed to the public as the investigation into the cause of the explosion that led to the fire continues. 

This is the third such incident at Phillips 66 assets in less than a year. Earlier in January, a fire broke out at one of the company’s refineries in New Jersey, and last year, six people were injured in a fire at a Texas refinery. 

In early January, the Houston-based refiner said it was actively discussing the sale of $3 billion in non-core assets this year in an effort to cut costs and boost returns. There was no fixed timeline given for the sale, with CEO Mark Lashier saying there was no “sense of urgency”. 

Phillips saw its profits plunge 46% in the second quarter of 2023, and while Q3 brought better news, numbers still failed to live up to analyst expectations, despite the fact that refinery utilization was at a years-long high of 95%. 

That underperformance led to the $1-billion share purchase by activist investor Elliott Investment Management in November, during which time the company was criticized for soaring operating expenses.

Methane Rule Pits Texas Oil, Gas Industry Against White House

By Julianne Geiger - Jan 30, 2024, 

The Texas Railroad Commission—the states regulatory body for its entire oil and gas industry—has asked the Texas attorney general to sue the Biden Administration over its law designed to lower emissions within the oil and gas industry.

The rule was issued in December by the U.S. Environmental Protection Agency and deals specifically with methane released in the course of producing oil and gas. It is the second action in less than a week, after last week, Texas Railroad Commissioner Wayne Christian sent a letter to President Joe Biden and his Energy Secretary, Jennifer Granholm, chastising the Administration for its pause on new LNG export project permits.

“Texas natural gas is saving the free world, and President Biden wants to end it,” Christian said last week, adding that the Administration’s pause on LNG export plants could “recklessly endanger European lives.”

When the Biden Administration presented the new methane rule in December, small U.S. oil and gas producers were concerned that it could shut down wells and put them out of business. The EPA argued that the nation's largest industrial source of the “super pollutant” is from the oil and gas industry.

Armed with deeper pockets to roll out what would certainly be massive changes, larger oil and gas players, such as BP, welcomed the new rule, even congratulating the Administration on achieving an “important milestone.”

The new regulation is set to take effect in five years, and will require significant investments from oil and gas companies to monitor methane leaks from, among other things, well sites and compressor stations. Some of the smaller oil and gas players may not survive, unable to shell out the cash required for such an ambitious rule.

By Julianne Geiger for Oilprice.com