AN ECONOMIC ASSESSMENT OF THE INTERNATIONAL MARITIME ORGANIZATION SULPHUR REGULATIONS ON MARKETS FOR CANADIAN CRUDE OIL (original) (raw)

The IMO has set a global limit for sulphur in fuel oil used to power ships at 0.5% (by mass) starting January 2020. The current sulphur limit for fuels used in international ships is 3.5%. This more stringent regulation restricting emissions from ships plying international waters could significantly change the crude oil landscape at regional and global levels. This change will propagate through the value chain; from the marine industry that will seek replacement fuels to refiners that produce bunker fuel, and to upstream oil producers who produce crudes that generate high sulphur residues used in bunkering. To Canada, particularly, in Alberta where the majority of high sulphur heavy crude oil is produced, this study is important because it is one of the major producers of high sulphur heavy crude oil with production growing steadily since 2008. We developed and deployed PADD (Petroleum Administration for Defense District)-level refinery models and linear optimization models and analysis to investigate how the IMO regulation will affect refinery margins and consequently, its impacts Canadian heavy crude price and production. Our results show that under plausible scenarios, a refinery margin loss of 16/bblto16/bbl to 16/bblto20/bbl between 2020 and post-2025 is expected to be transferred to a light-heavy differential, particularly WTI-WCS (West Texas Intermediate – Western Canadian Select) price differential. If we include a historical WTI-WCS discount of 13/bbl,thenwegetavaluethatsumsupto13/bbl, then we get a value that sums up to 13/bbl,thenwegetavaluethatsumsupto31/bbl- $33/bbl of WTI-WCS differential within the study period. We found that new SAGD projects with steam-to-oil ratios (SORs) of less than 3 m3/m3 are likely to break even when the IMO regulation is introduced whereas those with SORs greater than 3 m3/m3 will operate at a loss. A significant volume of SAGD-derived bitumen production could be affected. Based on CanOil’s SAGD production data, about 574,000 bbl/day of bitumen produced in Alberta has SOR of more than 3 m3/m3

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