And why the tariffs on Canada could plausibly lead to America doing deals with considerably more shady countries. A dive into the weird and wonderful world of heavy oil
You could not write an article like this without a foundation in geography, a discipline which connects the physical world to the economic, political and social. Understanding These interconnections are what make this analysis so compelling
Canadians tend to decry the fact that we are both an importer and exporter of crude oil, but this is due to the fact that our refineries in Eastern Canada are equipped to handle light and sweet crude oil, while our oil produced in the West is heavy and sour. Despite existing pipelines which are fully capable of bringing oil from the West to the East, the current arrangement of sending Albertan oil to the United States, while Eastern refineries import oil from abroad, is more economical than adapting our refineries. In a world with a volatile neighbour as we have now, the solution is to develop our refining capacity in the West. Insulating our energy industry seems to be more important than ever, both economically and as a nation-building exercise in the face of threats of annexation, however serious.
Ed, great article. Quick and important typo; "Indeed, American refineries simply aren't equipped to deal with oils with an API *heavier* than 30" (I think you mean *higher* or *lighter* than 30)
The counterintuitive inverse density scale of API gravity frustrates many a refiner, so you're not alone! (I'm also claiming the Humber Refinery bonus point 😉)
A good article and although the issues of US oil and refining are well known to people who follow these things, the political and wider implications are less appreciated. I’m curious that you mention fentanyl in the first paragraph without any context. Surely it would have been worth a brief comment on the source, China, and how it comes into the US, via Mexico, given the impact on American society, border control and other implications to US policy to reduce the flow.
Fantastic explainer - why on earth doesn't the BBC (or other broadcasters) provide this information when breathlessly reporting on 'tariffs'? It would give so much more depth to a story.
Could Trump be trying to force American industry to adspt to use the oil they produce? Self sufficiency is important in essential industries as we in the UK are about to find out.
I mean, never say never, but if so it's a particularly brutal and painful way of doing it! And I'm not sure he's ever hinted that this is the strategy but if I've missed that do post a link...
All the way through the article I was smiling to myself assuming that this would be a lose/lose for President Trump. Then you mention Russia's light oil and I imagined transactional-Trump halting support for Ukraine in exchange for cheap oil.
As an aside could the Canadians pause crude exports to the US for a short period to concentrate their minds?
Or would that travel around the world and bite us all?
True. Oil is fungible but the article suggested that not all oils are equal.
Per the article, for historic reasons the US needs greater amounts of thick heavy crude. That sub-type of oil is still fungible, but the alternative supply comes from Russia and Venezuela.
My question was, would pausing exports, and thus forcing the US to consider imports from Russia and Venezuela, bring some sanity?
Or would it backfire and the US would source alternative supply? (Ukraine potentially being the loser)
Or would such a pause force the price of oil around the world to increase?
It would support your argument if you would have given a specific breakdown of refineries working with heavy versus light crude oil. I remember years ago Valero promoting the fact they were unique in refining crude oil. Your thesis makes that no longer the case.
With only a 10% Tariff and the reality of there being no other convenient alternate source of heavy oil available at present, why would anyone think that US refineries are in any hurry to rush into the arms of Venezuela, or Russia?
Business as usual for the foreseeable future. The US consumers will pay a 6 to 15 cents/USgal higher price. In what looks to be slowing economics and potentially declining fuel prices, the refineries tariff is negated by that declining fuel price and nobody really notices anything.
It would be informative if some approximate dollar amounts were attached to both the US and Canada's raw imports, refined exports. Maybe then Americans might begin to see they are actually winners in this "import/buy cheap thick oil, then export/sell more expensive light and refined oils". Unfortunately, President Myopic only sees "I win/you lose" in this complicated oil chess game.
Great article! And the solution is clear. Let's forget about trying to make Canada the 51st state and just invade and take over venezuela. We love the Orinoco Black and that's what the gulf refineries grew up on. Venezuela is relatively small the oil deposits are close to the coast. We could just carve out or protectorate and push the rest of the people into the Amazon jungle and we would have all the heavy crude we needed. What a plan! It could also double as a location to deport all of our illegal immigrants.
If the US is that dependent on heavy crude, Canada should just put a tax on WCS crude exports pegged to 90% of WTI. It will still be cheaper and consumed with inelastic demand.
I say go for the juggler and settle this issue with a match of Trump’s tariff with an equal percentage of export tax. That ought to solve the issue very quickly.
You could not write an article like this without a foundation in geography, a discipline which connects the physical world to the economic, political and social. Understanding These interconnections are what make this analysis so compelling
Canadians tend to decry the fact that we are both an importer and exporter of crude oil, but this is due to the fact that our refineries in Eastern Canada are equipped to handle light and sweet crude oil, while our oil produced in the West is heavy and sour. Despite existing pipelines which are fully capable of bringing oil from the West to the East, the current arrangement of sending Albertan oil to the United States, while Eastern refineries import oil from abroad, is more economical than adapting our refineries. In a world with a volatile neighbour as we have now, the solution is to develop our refining capacity in the West. Insulating our energy industry seems to be more important than ever, both economically and as a nation-building exercise in the face of threats of annexation, however serious.
Existing pipelines to the east is a liberal lie. Eastern refineries can't refine Alberta oil is a liberal lie.
Irving Oil finally gets approval to source Alberta oil — but through the Panama Canal
Irving's circuitous route is seen as a novel way to get around regulatory logjams in Canada that have stalled a number of pipelines
Author of the article:Geoffrey Morgan
Published May 04, 2020
Ed, great article. Quick and important typo; "Indeed, American refineries simply aren't equipped to deal with oils with an API *heavier* than 30" (I think you mean *higher* or *lighter* than 30)
The counterintuitive inverse density scale of API gravity frustrates many a refiner, so you're not alone! (I'm also claiming the Humber Refinery bonus point 😉)
Thank you. Corrected - and v much agree re inverse scale 😵💫. Bonus point is yours.
A good article and although the issues of US oil and refining are well known to people who follow these things, the political and wider implications are less appreciated. I’m curious that you mention fentanyl in the first paragraph without any context. Surely it would have been worth a brief comment on the source, China, and how it comes into the US, via Mexico, given the impact on American society, border control and other implications to US policy to reduce the flow.
Noted. Perhaps one for another day!
Indeed; it's a bit off-topic compared to your usual themes. I always enjoy your Posts.
Fantastic explainer - why on earth doesn't the BBC (or other broadcasters) provide this information when breathlessly reporting on 'tariffs'? It would give so much more depth to a story.
Could Trump be trying to force American industry to adspt to use the oil they produce? Self sufficiency is important in essential industries as we in the UK are about to find out.
I mean, never say never, but if so it's a particularly brutal and painful way of doing it! And I'm not sure he's ever hinted that this is the strategy but if I've missed that do post a link...
Maybe Musk is behind it forcing up the price of gas so his cars become more desirable!!
East Coast refineries were built for light, sweet crude and many have been shut down. Not sure about Midwest refineries but I assume the same.
All the way through the article I was smiling to myself assuming that this would be a lose/lose for President Trump. Then you mention Russia's light oil and I imagined transactional-Trump halting support for Ukraine in exchange for cheap oil.
As an aside could the Canadians pause crude exports to the US for a short period to concentrate their minds?
Or would that travel around the world and bite us all?
Oil is a commodity and fungible. Much harder to control than manufactured goods.
True. Oil is fungible but the article suggested that not all oils are equal.
Per the article, for historic reasons the US needs greater amounts of thick heavy crude. That sub-type of oil is still fungible, but the alternative supply comes from Russia and Venezuela.
My question was, would pausing exports, and thus forcing the US to consider imports from Russia and Venezuela, bring some sanity?
Or would it backfire and the US would source alternative supply? (Ukraine potentially being the loser)
Or would such a pause force the price of oil around the world to increase?
We'll have to let it play out. I'd be surprised if Canada and US don't find a way to play nice, after an appropriate amount of posturing.
Most oils at refineries are blended from multiple sources.
https://open.substack.com/pub/harrybenham/p/american-energy-in-the-21st-century?r=utv8&utm_medium=ios
Fully agree - see a similar take here from my substack last month - thanks for your piece
It would support your argument if you would have given a specific breakdown of refineries working with heavy versus light crude oil. I remember years ago Valero promoting the fact they were unique in refining crude oil. Your thesis makes that no longer the case.
america needs a intelligent forthright young ambitious president.
not the decrepit aging trump.
With only a 10% Tariff and the reality of there being no other convenient alternate source of heavy oil available at present, why would anyone think that US refineries are in any hurry to rush into the arms of Venezuela, or Russia?
Business as usual for the foreseeable future. The US consumers will pay a 6 to 15 cents/USgal higher price. In what looks to be slowing economics and potentially declining fuel prices, the refineries tariff is negated by that declining fuel price and nobody really notices anything.
It would be informative if some approximate dollar amounts were attached to both the US and Canada's raw imports, refined exports. Maybe then Americans might begin to see they are actually winners in this "import/buy cheap thick oil, then export/sell more expensive light and refined oils". Unfortunately, President Myopic only sees "I win/you lose" in this complicated oil chess game.
Great article! And the solution is clear. Let's forget about trying to make Canada the 51st state and just invade and take over venezuela. We love the Orinoco Black and that's what the gulf refineries grew up on. Venezuela is relatively small the oil deposits are close to the coast. We could just carve out or protectorate and push the rest of the people into the Amazon jungle and we would have all the heavy crude we needed. What a plan! It could also double as a location to deport all of our illegal immigrants.
If the US is that dependent on heavy crude, Canada should just put a tax on WCS crude exports pegged to 90% of WTI. It will still be cheaper and consumed with inelastic demand.
Every time I read one of your articles I feel I’ve advanced my understanding of the world.
I say go for the juggler and settle this issue with a match of Trump’s tariff with an equal percentage of export tax. That ought to solve the issue very quickly.