240
PETROLEUM TECHNOLOGY, ECONOMICS, AND POLITICS
dollar investments in the heavy oil and bitumen resources of the
Orinoco basin in Venezuela (Pirog, 2007). This action followed the
breakdown of negotiations between the companies and the government of President Hugo Chavez and Petróleos de Venezuela SA
(PDV), the Venezuelan national oil company. However, four other
international oil companies, including Total SA from France, Statoil
from Norway, BP from Great Britain, and Chevron from the United
States, accepted agreements that raised the PDV share in their
Orinoco projects from approximately 40% to a controlling interest
of about 78%.
However, producing synthetic crude oil from the Canadian tar
sands is significantly more costly than producing conventional
crude oil. Tax and royalty conditions in some jurisdictions often
result in an economic environment for an operating company
where its actual cost becomes far higher than simple production
cost because of these taxes. As a result, Canadian tar sands economics, when compared to other tax and royalty environments, can be
more desirable. Unfortunately, below a certain nominal price of oil,
Canadian tar sands are not economically viable even if there are no
royalty considerations. For existing tar sand producers with depreciated assets that were built when the cost of construction was far
lower than it is today, that breakeven point is thought to be somewhere around $25 per barrel, whereas for new projects, the breakeven point may be closer to $100 per barrel (Pavon, 2009).
Synthetic crude oils derived from tar sands and other heavy
hydrocarbons are priced at a significant discount to benchmark
crude oils that are both lighter (lower viscosity) and sweeter (lower
sulfur content). In order to upgrade synthetic crude oils from tar
sands to the same yield of clean refined fuels, significantly more
refinery processing is required.
Whether a refiner can be profitable or not processing tar sandderived crude oil can be measured quantitatively using an industry standard called refinery crack spread. Although different
organizations define the crack spread in similar ways, we present
here refinery crack spread as defined by the New York Mercantile
Exchange (NYMEX) and calculates the refinery crack spread as the
difference between the sales price of a unit of refined fuels compared to the purchase price of the amount of light and sweet crude
oil (benchmark crude oil) required to produce the refined fuels.
The NYMEX assumes in its calculation that one barrel of crude
PETROLEUM TECHNOLOGY, ECONOMICS, AND POLITICS
dollar investments in the heavy oil and bitumen resources of the
Orinoco basin in Venezuela (Pirog, 2007). This action followed the
breakdown of negotiations between the companies and the government of President Hugo Chavez and Petróleos de Venezuela SA
(PDV), the Venezuelan national oil company. However, four other
international oil companies, including Total SA from France, Statoil
from Norway, BP from Great Britain, and Chevron from the United
States, accepted agreements that raised the PDV share in their
Orinoco projects from approximately 40% to a controlling interest
of about 78%.
However, producing synthetic crude oil from the Canadian tar
sands is significantly more costly than producing conventional
crude oil. Tax and royalty conditions in some jurisdictions often
result in an economic environment for an operating company
where its actual cost becomes far higher than simple production
cost because of these taxes. As a result, Canadian tar sands economics, when compared to other tax and royalty environments, can be
more desirable. Unfortunately, below a certain nominal price of oil,
Canadian tar sands are not economically viable even if there are no
royalty considerations. For existing tar sand producers with depreciated assets that were built when the cost of construction was far
lower than it is today, that breakeven point is thought to be somewhere around $25 per barrel, whereas for new projects, the breakeven point may be closer to $100 per barrel (Pavon, 2009).
Synthetic crude oils derived from tar sands and other heavy
hydrocarbons are priced at a significant discount to benchmark
crude oils that are both lighter (lower viscosity) and sweeter (lower
sulfur content). In order to upgrade synthetic crude oils from tar
sands to the same yield of clean refined fuels, significantly more
refinery processing is required.
Whether a refiner can be profitable or not processing tar sandderived crude oil can be measured quantitatively using an industry standard called refinery crack spread. Although different
organizations define the crack spread in similar ways, we present
here refinery crack spread as defined by the New York Mercantile
Exchange (NYMEX) and calculates the refinery crack spread as the
difference between the sales price of a unit of refined fuels compared to the purchase price of the amount of light and sweet crude
oil (benchmark crude oil) required to produce the refined fuels.
The NYMEX assumes in its calculation that one barrel of crude