January 30, 2013

Alberta's Bitumen Bubble

Oil price gap spells trouble

Both Bank of Nova Scotia and Canadian Imperial Bank of Commerce are warning today about the impact of what Alberta Premier Alison Redford calls the “bitumen bubble.”

The banks issued reports related to commodity prices and the fallout where Canada’s resource-rich provinces are concerned, both talking about the price gap between western oil and global benchmarks.
Western Canadian Select, the most commonly traded Canadian heavy oil, is priced significantly below West Texas Intermediate and Brent, and Ms. Redford warned just last week that lower oil and gas royalties would cost the province some $6-billion this year.

The discount, said Patricia Mohr of Scotiabank, is the result of several factors, notably constraints on the pipeline system for movement of blended bitumen from the oil sands and “light, tight” oil from Saskatchewan’s Bakken.

That’s exacerbated by the surge in production from North Dakota, which is “competing” with Canadian oil for pipeline space.There was also “downtime” at refineries in the U.S. Midwest early last year and a delay in upgrading an Indiana refinery.

All of this has contributed to producers moving to ship by rail.

“The pipeline system from Canada to the United States now has little ‘operating flexibility’ to handle disruptions (caused by reduced pipeline pressure or technical problems on other pipelines, backing up flows onto the system),” said Ms. Mohr, one of Canada’s leading commodity experts.

“Some redundancy in pipeline capacity is required,” she said in a report today.
"The ‘opportunity cost’ of these discounts is enormous for the Alberta and Saskatchewan economies as well as for Canada -  reducing government royalties/income tax receipts and ultimately governments’ ability to fund ‘social services’ and ‘public infrastructure.”

This is an issue for Alberta, Saskatchewan and the federal government, as well.
Economists at CIBC, separately, warned that a combination of troubles have “dimmed the lights” for the country’s resource-rich provinces, while other regions are picking up nicely.

Indeed, said the report released by CIBC World Markets, the “provincial economic and fiscal playing field is now more evenly balanced than at any time in the past decade.”

According to CIBC’s Warren Lovely and Emanuella Enenajor, pipeline constraints, along with the troubles in Europe and weakness in emerging economies, are pressuring the resource provinces.
With the exception of Ontario and Newfoundland and Labrador, the economists cut their projections for economic growth in all of the provinces for this year, though some of the weakness in the resource regions are due to temporary factors.

“Expect some of that weakness to be recouped in 2013,” Mr. Lovely and Ms. Enenajor said.
“But Canada’s resource sector - still a very big part of the country’s long-term growth plan - faces a more difficult road ahead. With global real GDP growth decelerating to 3 per cent this year, a sideways profile for some key commodity prices could dampen fortunes in Canada’s West.”

“That has triggered a substantial falloff in provincial royalties and, as some recent announcements highlight, jeopardizes investment and job prospects in the oil patch,” said Mr. Lovely and Ms. Enenajor.
“While a number of long-term solutions have been proposed, there’s simply no quick fix. Of relevance to B.C. and others, prices for natural gas have languished in response to surging U.S. shale gas production, while cheaper levels for some minerals serve as a threat to Canadian mining sector activity more generally.”

Source -The Globe & Mail

January 24, 2013

Russia Expands Bitumen Buisness in Kazak

Russian oil company Gazprom Neft announced it acquired a tar sands oil production facility in southern Kazakhstan.

Gazprom Deputy Chief Executive Officer Anatoly Cherner said taking on the bitumen production facility was an important move for his company.

"The acquisition of a new production facility outside of Russia will enable the company to take another step in developing this segment," he said in a statement.

Bitumen developments in North America have put the United States and Canada in leadership positions among world oil producers. Gazprom Neft said the Kazakh facility gives it a competitive advantage given its proximity to regional transit networks to China.

The facility has an annual production capacity of 280,000 tons. The plant came on stream in 2011.
"The high quality of the plant's output, combined with its logistical advantages, will enable Gazprom Neft to capture up to 20 percent of Kazakhstan's market for bitumen materials and to strengthen its position in Central Asia," Cherner said.

Gazprom Neft said its one of the largest players in the bitumen sector in Russia. It sold 1.5 million tons of that oil product in 2012.

January 22, 2013

Shortage of Bitumen impacts Road Works

Another bitumen shortage is looming in South Africa in the first half of this year because of planned maintenance shutdowns by three oil refineries, potentially disrupting road construction and rehabilitation activities in the country. 

Also known as asphalt or tar, bitumen is a by-product of oil refining and a crucial element in the building and rehabilitation of roads. 

Philip Hechter, the chairman of the SA Bitumen Association and the chief executive of Murray & Roberts subsidiary Much Asphalt, said on Friday that a shortage of about 20 percent of the country’s bitumen requirement was expected because of the shutdowns. 

He said Sapref, Engen and Caltex refineries were expected to have shutdowns between next month and the end of May and at least one or more refinery would be out of production during this period.
“This will put pressure on the system and I guess demand will outstrip supply,” he said. 

But Hechter said imports would satisfy between 10 percent and 15 percent of demand. This meant there might still be a shortage of between 5 percent and 7 percent of demand, he said.
Despite the shortage, he said it would not the have same impact as the shortage in October 2011 when “we were caught with our pants down”. 

Much Asphalt would be importing bitumen in bulk, with the first shipment scheduled to arrive next month and another shipment planned for about a month later, if not sooner.In addition, many businesses that used bitumen had obtained containers in which to store bitumen and had built up strategic stock, Hechter said. 

“There will still be pressure on the system but it [the shortage] will be better managed.”
Still, bitumen imports had significant cost implications because they involved a R1 500 a ton premium compared with the local price, he said. 

Hechter was aware of plans to secure some bulk storage facilities for bitumen in Cape Town, Richards Bay and Mozambique. “In five to seven years, this problem will be a thing of the past,” he added.
Road construction and rehabilitation company Raubex confirmed in November that it was investing about R20 million in storage facilities to cushion it from the impact of bitumen shortages

Financial and commercial director Francois Diedrechsen said then there appeared to be a 30 percent supply shortage of bitumen in the market and the storage facilities it was building meant it could import bitumen at volumes that made it more cost effective. 

A shortage of bitumen in the local market lasting for several months from October 2011 caused chaos in the road construction and rehabilitation industry. It led to a grinding halt for many jobs done by smaller enterprises in the sector that used asphalt for driveways, parking lots and small contracting work. Some of these firms are believed to have since gone out of business because of cash flow problems caused by the bitumen shortage. 

By -  Roy Cokayne

January 3, 2013

Bitumen Shortage in Bangladesh

Bitumen crisis has hit road and highway construction and maintenance across the country, mainly the Dhaka-Chittagong and Dhaka-Mymensigh highways' four-lane construction work, making timely completion of both projects uncertain.
Officials said the crisis of bitumen, which is an essential ingredient for road construction, had led to holding an emergency meeting at the Prime Minister's Office (PMO) last month with the principal secretary in the chair. They said all stakeholders including the Roads and Highways Department (RHD) and the Local Government Engineering Department (LGED) also sat with the Bangladesh Petroleum Corporation (BPC) and the Eastern Refinery Corporation last week to find out a solution to meeting the growing demand the bitumen.
Bitumen is a byproduct produced refining of oil, and the Eastern Refinery is the major local source of the ingredient.
RHD officials said the demand for bitumen had increased in the current fiscal year as both Dhaka-Mymensingh and Dhaka-Chittagong highways need a huge quantity of this ingredient to carpet several hundred kilometres of roads with the beginning of the dry season, the peak construction season.
"As this year has been crucial for the Dhaka-Chittagong four-lane project as well as for the Dhaka-Mymensingh highway project for starting carpeting, the demand has risen," said a Communications Ministry official who attended both the meetings.
He said the local bitumen production and the imported bitumen also could not meet the demand.
According to RHD and BPC, the bitumen demand - supply gap this year has peaked to 80,000 tonnes as 70,000 tonnes are produced locally and another 50,000 tonnes are imported on an average.
Officials said RHD's yearly requirement had been assessed at about 150,000 tonnes followed by 26,000 tonnes of the LGED. Besides, all city corporations need a handsome amount of bitumen. The Aviation also requires a portion of the bitumen.
But against the total demand, 60,000 tonnes are needed only for carrying countrywide maintenance work this year while the Dhaka-Chittagong four-lane highway project will need around 70,000 tonnes of bitumen by the end of 2013.
As Communications Minister Obaidul Quader has set the monthly target of carpeting the 193-kilometre Dhaka-Chittagong highway, project officials said over 18,000 tonnes would be required by April for the four-lane road project.
When asked, the minister told the FE that efforts were made to overcome the crisis.
However, contractor sources said the crisis would turn more acute in the coming days due to the lack of efforts by the government.
They said the capacity of Eastern Refinery had been limited to 70,000 tonnes of bitumen since inception.
A contractor, who has been engaged in constructing both national highways and regional roads since the 90s, said due to corruption in distribution of bitumen by different agents of the Eastern Refinery, the crisis got worse forcing them to buy it at an exorbitant rate.
"Bitumen crisis is always there in the country due to a gap between the demand and supply, but it has become acute due to the lack of control over distribution process since 2004," he told the FE adding that the condition was likely to get worse in absence of efforts to increase the Eastern Refinery's production capacity.
An RHD official of Khulna zonal office said, due to the crisis getting bitumen on time is nowadays not possible forcing the contractors to manage it from importers at higher prices.
At present, bitumen is being sold at around Tk 70,000 per tonne. In the 90s, the price varied between Tk 5000 and Tk 6000, which increased to Tk 10,000 to Tk 12,000 due to the Iraq war.
The ministry concerned and RHD officials said the overall crisis had been discussed in the PMO's meeting, and directives were given to prioritise RHD's work mainly for the two important four-lane highway projects.
"As RHD accounts for 66 per cent of the total demand, a decision was taken to give priority to RHD projects," said the RHD official adding that they had to verify the work order.
However, sources said with the start of using bitumen by big projects like the two four-lane highway projects, another crisis would hit the small projects hampering overall development of road network in the country.
The RHD itself is at present implementing 153 road and bridge development projects.