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Opening Session Part 2

Tue, 9 Sep 2008|

Thomas H. Wise, Vice President -- Purvin & Gertz, Inc. continues the opening session of the July 2008 Oil Sands Heavy Oil Technology conference by discussing market development for bitumen blends.



I. Okay. Okay. Lot of the -- -- Well some is using Canada but well most of it's been used in head to us via. Midwest region and we expected that that to grow considerably over the next decade. But there will probably be some that needs to go to other markets as well. Had to will grow because there are are real lot of Coker projects that are announced end. Some are starting construction in but some. Several are considered to be firm projects. Looking at different markets that might use -- blend. It's pretty busy slide which we could spend quite a long time on in but can't unfortunately. But it does show that. Among the markets there are some that have ever -- cookers. Those that are on the idea left side in the -- regions there was have a -- high percentage of coking. And useful for the and hatred plans. And on the right. Would suggest that had three that's -- Gulf Coast. Had two and had five West Coast all have a large coking capacity. And so. They should all be reasonable candidates for. Richmond blends. China has -- -- small coking capacity. But it's large and maybe you come home in the future. On synthetic crude there's a number of conventional -- recruits here compared with. The as CO -- -- synthetic. And synthetic stands out because it is without bottoms as I mentioned before. Most of the -- synthetic crude used to be used in Canadian refineries. Up until 2000 -- so. We had. There for a special refineries -- either cracking and then -- most of the synthetic -- -- was available. Now that we're producing more from several projects we're exporting more and that's mostly going to pad to at the moment. We -- that the -- to market will expand. -- will grow and -- use of synthetic period to a point. But it may run out of room eventually because. A lot of -- those same refiners are switching over to any -- And there are some limits with how you can process synthetic you know we shall talk about a minute. So we do expect that some of the synthetic we'll have to find its way to other markets such as the Gulf Coast or maybe the East Coast as I mentioned. Or maybe even Asia. Idea. Acts like it's even busier. On the left we -- the -- capacity that it has either crackers. And -- and -- crackers in blue. And again pad three is the largest market if he get there. But there are other. Markets that have large they're cracking capacity. On the other hand. In Japan is is cracking her market but has small -- crackers. On the air right hand -- Japan shows is one of largest markets -- with cracking capacity. But again not not such large units so on that right end unit right hand -- rather. There's a number of US ads show up -- for a large markets has won. 23 and fires. Now we -- a little harder it -- -- gas oil conversions us refineries have. To beat the -- a lot of their work in North America by cat cracking which turns that I can gasoline in the gasoline primarily as -- and just let's. And if you're gonna see more backing SO in the theater after the -- there are cracking capacity. We showed her what happened -- capacity through it rate of 1% a year or 2% a year. At the top -- -- -- but it would in fact be your present by by large projects as well as small ones. Than the need for new cracking his sooner -- one half percent based on this chart. And at the moment we don't see a lot of my cat cracking capacity being announced and so there could be a shortfall and that. Type reprocessing. Looming in the next several years. Synthetic crude is not identical to conventional. Like -- It has some attributes that -- -- No bottoms and and very low sulfur which sound pretty attractive. But on the other hand the and they can start to constant problems. Lot of the majority refineries nowadays do have co workers or else they're making asphalt with their bottoms. And so bottomless crude like synthetic. Which has no bottoms is not -- much use to those particular refiners. Also it turns out that the the qualities of some of it. Synthetic crude troop cuts have not been in quite it is great is -- that might be imagine. And they turn out to -- earlier dramatic because of the processing techniques that are used. And that means the diesel and jet fuel can be -- -- back there are now being improved by better -- -- -- but there. Still somewhat marginal compared to a conventional cruise. -- -- -- -- Feed the Biggio it's quality is not as easy to process some of the conventions. When I think that we look at. Quite a bit with clients is the there distillation rains that synthetic periodic have -- -- -- people think that. Having a lot of Biggio is a good thing and we certainly can you can have too much as you can exceed the -- cracker -- Also having too much -- is such a good thing because although it's good for maybe -- and let it. As a refinery feeds -- starts to -- yield in the reformers who is probably some optimal a cut that. Our -- that's required between. Various cuts -- going to synthetic crude oil. And -- cracking his one technology that -- as a producer a lot of flexibility to turned to get to that point. Well I've talked about. Synthetic light crude oil and I kind of a generic way is if it's all -- thing but it's not so. -- to it and suncor both have like synthetic it's fairly similar that's on the left. But there's a variety here -- -- latest from the -- project and it -- -- a lot less of the Biggio but. A lot more middle distillate. Cabrera that would WT suncor has some different sour grades. And they have a very idea -- -- -- Biggio. And -- LB on heavy -- shells they'll be on Hannity has bottoms as you can see. And that makes it different factored entirely from -- others. And some of the proposed actors will be. Different to -- qualities as well. Those some of talked about sour. -- heavy -- CO and they -- that would require presume it lower capital to produce. Which would be seen as a good thing. The -- without current loads the refiner with some -- the opposed treating. And -- -- be a balance between upstream and downstream processing. Some of the processes could could pose some unique problems leaving -- nitrogen. And just the way that they're processed and they traditional period in it. Could turn out be a problem. Most curious turn used to see annual funds so. -- of that period -- a refinery Padilla -- the unique problem. May also -- pipeline limitations because some of the -- All of them specs on them. There -- other room. Ways to make comedians are crude this chart shows based on to -- seven data. The -- occurred runs in and had to. I'm left side we see that they use. I'm majority 45%. Of light sweet crude. -- it's the small hard is Canadian. They also use light sour -- which -- littlest Canadian. And they use 25% heavy. -- which is almost dollars Canadian. However in that 2015 we see changes due to the supply. -- to come down the Canadian portion go up -- synthetic. This tower probably go down. And the Canadians -- won't change much. In the heavy -- go up tremendously because -- -- live today you know -- is that I was talking about earlier. So there's a different landscape showing up and had to. So there maybe an opportunity here to and try to make a -- medium sour and that record something -- in between Hannity in light. Maybe -- has the sulfur and perhaps different ways to do that. Using existing technology you -- push the buttons earlier on my page. Way to do that would be. Using coking with a bypass. -- slip stream and upgrade part of Lipton. And put it back together. Which is Catalina rescinded but mixing it to -- that refiners would want. The reason -- cracking has some potential to do all of one processing step. Depends on the conversion -- and product stability may be an issue. And then thirdly maybe there's an -- -- here for some other new technologies. Which that would depend on the capex -- yield and -- quality produced. -- suitable for refiners and that would determine its there's value. Feedback and -- economics. Briefly to switch in the greenhouse. Gas issues I put that in because it's now becoming -- market issue. The the idea of and dirty oil seems to be surfacing. And the Albert. Canadian producers are trying to do -- they can to. Remedy that situation but it's -- of the PR and political game as well. Legitimate environmental concern. In that Canada Alberta has some long term reduction plans in meeting intensity -- -- reductions. Federal government also has long term mine plans for 2050. -- too much in between. -- we can expect federal provincial tensions over this because of jurisdictions. Both do favor. Carbon capture and storage. Machines of these some movement in this direction Albert that is put in some. Two billion dollars last week in this effort. -- would. Although it's. Maybe source of some of the problems it also has. The luxury. -- -- geological potential to. Receive summon the CO -- so maybe they go hand and to some extent really high cost infrastructure. It may encourage classification. And and you'll hear a lot more about -- vacation -- equities. That does lead to one other issue that's water because. Hydrogen from gasification. Comes from Italy to follow. And we have some water issues well. So the market mechanisms in costs in other -- cap and trade -- -- very uncertain at this point in time. And also raise the question new rules Coke stockpiling. Continue to be acceptable. It's -- you probably know -- -- stockpile coat. That was seen by some to be a bad thing. That's sequestered -- -- sitting on the ground. In the US. Cited. Talked but the dirty oh well. There are limits of the fuels derived from non conventional sources. -- -- life cycle carbon. Which are being discussed and in fact. There limitations placed in the December. US energy bill. Which was -- energy independence and security act but. Apparently it. Like the security oil sands crude so there's some debate about. Whether they qualify it is -- -- Fuels are not. California itself has limitations on low carbon fuel standards. Richer. -- -- cycle basis as well. And so it remains to be seen how that rule -- Oden. And maybe limit the use. -- stands type recruits. It appears that for the time being -- player in the US. Federal election politics. And a we really won't have upgraded. -- this in total after the election is over in the new administration is as sturgeon -- some real policies. What's the impact oil -- well the reserves aren't going anywhere. So we're gonna produce some will be on site but upgrading. Can be moved go to Canada. And may have to be may be forced to be depending on and the costs so. Another question is are there alternatives to the US market if the arrests. It doesn't want a lot of media. Well because of environmental issues perhaps that provides motivation to the western pipeline. Two. Push product over -- Asia. And that presumes that the Asian countries wouldn't have quite the same concerns. And course costs and timing and her concern we -- seen some operators. Been delayed in part of the reason has been. Greenhouse gas and certainty. Viewers on pricing then mention we can have a spectrum of products. Water -- did depending on the amount of upgrading. Presumably is you keep upgrading and converting -- later materials. You keep adding some value it at least two. To a point maybe if you turbulent LPG that's not adding value that. Going -- to refined products. But and this -- just illustrator that may not be give -- the best return because that depends on the capital and financing charges and so on that come into place so there's probably some sweet spots where. Where -- upgrading tends to match the market and provide the the best value. -- blends. As we see them to the error for -- low price -- spread is extremely wide. And and acres the -- -- price at or below Gulf Coast parity. So you can't really get much lower than that. Light sweet crude. On the other hand has often been price for the -- over -- conventional crude so that. Seems to have driven people to make the light sweet and we'll probably stay there for awhile but over time. Water. Anticipating that as we produce more -- -- -- -- demand starts to become. America becomes saturated and they aren't here. And -- to move to more distant markets that the price of light sweet synthetic -- rule begin to fall. Or time and may even reach Gulf Coast parity of -- -- -- Gulf Coast. That's was demonstrated on this chart on that diagonal line on the top. Now in the middle we've got this is notional medium -- synthetic crude oil. Would have lower values in -- street today. But as time goes on its value probably wouldn't fall. Recently because there would be demand forward in northern tier. And so could reach -- -- her and medium sour asserts that look a lot more attractive and point you up greater investment. Just to sum up the it's been blends. Have been over -- of the midwest. And some effect on the Gulf Coast so they're -- been price discounts. New coking projects in the -- -- -- improve the balance. Richmond blends utilize. Minimum upgrading technology -- -- there's been very little done. Upstream mom by definition. And that requires maximum. Technology employed downstream at the refineries to -- -- finished products. We find that the incremental investment at refineries can have better economics and grassroots upgrading. But that depends a lot what that operator would look like in. What kind of synergies might have with the upstream -- that are. We note the transfers of CO2 emissions from Canada. To the importing countries. Would be accomplished if if if if the -- blend has moved to refineries. But that really doesn't solve the problem of global warming that they eventually he some of that oil is gonna turn in -- CO2. And it doesn't seem to matter -- that. Goes into the atmosphere. -- of light sweet synthetic without bottoms growing that the demand is limited. To a minority -- refineries. Which don't have coaching -- don't have as well so we can expect to see synthetic crude discount more overtime. We'll lead. More -- cracking her -- -- nation -- the refineries use it. And we can also. -- make some improvements through technology you optimizing the amount -- Biggio. And perhaps even leading some low sulfur receded. That -- refineries. Could use in there conventional processing. Well sends -- graders. Haven't produced much SC EO in the past. Suncor produces. A variety with which includes some medium and -- been proposals. Plans by it by if you projects. For for small amounts but. For large amounts of mediums and that it equality would have to be suitable for her refineries to. Take into their system. And so -- media technology opportunity. -- on the environmental side. Talked that -- -- -- this will impact markets becoming much more important. Issues in them was recognized years ago. The issues that are sellers are also somewhat political. Carbon capture seems to be. Best bet for for -- some inroads in the near future. Particularly if Costner. -- support that are shared. And and maybe -- some. Righty properties in Alberta -- -- sequestration in justification. But they're government policies are needed including costs rumors seeing that this lack of thirty is delayed upgrading projects. And it's her -- people committing billions of dollars necessary -- -- some of that. Government. Commitments and clarity. So -- Artists wraps up my formal remarks in them. Understand I get to sit down and answer questions later -- right. Thank you it. Apologize for that rumbling we had I think we had drag racing forklifts over next -- about that -- shut that down and so. -- Okay. Okay.

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