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?
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.
Great article! The reason I think Canada capitulated on the tariff situation is that they need to sell their heavy crude because their vexing problem as you point out is that they can't use their own heavy oils. They need to sell that to the US to but the lighter crude for themselves. They can't sell it to other countries because many countries have the same problem they do - they use LSC (light, sweet crude), and for the few other than the US that can use heavy crude, the transportation costs of shipping that crude makes it uneconomical.
Also from what I’ve gathered elsewhere, light oil produces more gas per barrel than heavy, which is why it cost more, although I am perplexed- then why is WTI cheaper than Brent!
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 😉)
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.
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.
Great article! The reason I think Canada capitulated on the tariff situation is that they need to sell their heavy crude because their vexing problem as you point out is that they can't use their own heavy oils. They need to sell that to the US to but the lighter crude for themselves. They can't sell it to other countries because many countries have the same problem they do - they use LSC (light, sweet crude), and for the few other than the US that can use heavy crude, the transportation costs of shipping that crude makes it uneconomical.
What are the economics of Grangemouth?
Why is that shutting down?
Doesn’t it refine light oil from the Middle East or USA and why can’t it compete?
I stopped reading when you described Fort McMurray oil as coming from ‘Tar Sands’. Pls enlighten me where that might be
All around Fort mac/Athabasca, Cold Lake, & Peace River (northern Alberta).
Those are not tar sands look up the meaning of Tar
Thanks for this well-written and informative article! I’ll be linking to it in the article I’m publishing today. 🙂
Gulf is heavy. Guyana is heavy. Exxon got ya covered.
Also from what I’ve gathered elsewhere, light oil produces more gas per barrel than heavy, which is why it cost more, although I am perplexed- then why is WTI cheaper than Brent!