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Old 11-01-2013, 12:00 PM   #41
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My thinking...building a refinery is maybe a billion dollar enterprise? A long term investment. That's a lot of money, maybe comparable to the electric company building another nuclear reactor for electricity. I think it is wise for the companies to not build more refineries. For them, that keeps profits up. No need for competition when profits can be amicably shared as they seem to do, now.
A major refinery would be well over a billion. It would depend on the crude feed, capacity and product mix. It would involve many integrated operating units each depending on other units operating smoothly.

Sharing profits amicably? Princing is determined by supply and demand. Profits depend on operating costs (including crude) and selling price. The refining business produces commodity fuels - gasoline, diesel, jet fuel, fuel oil and sometimes others. People will not stay loyal to a specific brand or gas station location for a few cents difference in price. Refiners spend a great deal of time and money attempting to optimize their crude purchases with refining operations and expected demand. Nobody sits around deciding how much everybody in the business is going to make this month.
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Old 11-01-2013, 12:33 PM   #42
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A major refinery would be well over a billion. It would depend on the crude feed, capacity and product mix. It would involve many integrated operating units each depending on other units operating smoothly.

Sharing profits amicably? Princing is determined by supply and demand. Profits depend on operating costs (including crude) and selling price. The refining business produces commodity fuels - gasoline, diesel, jet fuel, fuel oil and sometimes others. People will not stay loyal to a specific brand or gas station location for a few cents difference in price. Refiners spend a great deal of time and money attempting to optimize their crude purchases with refining operations and expected demand. Nobody sits around deciding how much everybody in the business is going to make this month.
+1. I have a friend who has had well paid but non-business employment his whole life. The crazy ideas he has about those evil capitalist cabals remind me of the most fevered Mother Jones articles of the 70s.

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Old 11-01-2013, 12:56 PM   #43
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Not approving the XL pipeline will not stop oil from getting to market. It will only prevent the US from benefiting from it.
So the US would pay more for oil and gas? It seems one of the promises is that it would lower prices.

But aren't prices determined by global supply and demand, not local supply and demand?


Regarding refining capacity, I heard that the US already exports a lot of refined products to other countries already. So maybe that's why there hasn't been new refineries built?

That along with NIMBY and environmental concerns.
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Old 11-01-2013, 01:03 PM   #44
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So the US would pay more for oil and gas? It seems one of the promises is that it would lower prices.

But aren't prices determined by global supply and demand, not local supply and demand?


Regarding refining capacity, I heard that the US already exports a lot of refined products to other countries already. So maybe that's why there hasn't been new refineries built?

That along with NIMBY and environmental concerns.
Global supply and demand are the major factor but the ability to move crude oil efficiently between suppliers and the refineries also contributes to lower costs. Crude in Canada can compete using the Keystone Pipeline on the Gulf Coast. That would probably reduce the price of Mexican and SA crudes.

Increasing the supplies to any given local market can reduce the costs there. Sending Canadian crude to China has less of an effect in the US market.

Various refineries sell products to Europe and some European refineries sell into the US market. It varies depending on local demand and pricing.
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Old 11-01-2013, 01:58 PM   #45
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+1. I have a friend who has had well paid but non-business employment his whole life. The crazy ideas he has about those evil capitalist cabals remind me of the most fevered Mother Jones articles of the 70s.

Ha
I've run into a few people like that. One a friend of mine, one on an older forum I used to frequent.

On the forum, this guy was ranting back a few years ago when gas hit $4/gallon. He'd say "Now that they know they can charge $4 and people will just keep buying it - what's next? $5, 6$,...." and then he'd just go ballistic about the evil capitalists...

He didn't seem to get my satire, when I said something like " Sure, one day in the limo to work, the CEO of Exon said to the driver - James, I just had a brilliant idea, why don't we charge $4 a gallon, we'll make a fortune!"

My friend forwarded that stupid email about boycotting certain gas stations, which would supposedly 'force' them to lower their price. Well, at least he seemed to understand my little Econ 101 lesson when I explained it to him (total demand did not change, supply is now limited, prices would go UP if you could actually pull this off!). But then he retaliated - but when the prices go up, why does the station need to raise prices on the gas they already have in their tanks! There oughta be a law! For the same reason the price of a stock goes up when there is news that they anticipate higher earnings. I think that one went over his head though. Oh well, he really just wanted to rant anyhow!

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Old 11-01-2013, 02:25 PM   #46
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I used to think this thing was probably about environmentalists vs oilmen or maybe donkeys vs elephants (so to speak). But this Business Week article seems to indicate it's a lot about different foreign interests (Canada, Mexico, even Venezuela) and domestic US interests. And then there are oil exploration interests vs refiners. Some quotes for this Keystone Pipeline's Gulf Coast Leg Will Soon Be Delivering Oil - Businessweek


Seems a confusing picture to me.
It's a confusing picture to me as well. I worked on pipelines through the 80's, and it seems to me that environmentalists are more against pipelines today than they were 30 years ago. But today's construction is much safer and far more sensitive to environmental concerns than that of the 80's. So maybe the environmentalists aren't really holding up the project. Maybe our politicians are simply trying to broker the best political/financial deal that they can.
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Old 11-01-2013, 02:37 PM   #47
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I worked on pipelines through the 80's, and it seems to me that environmentalists are more against pipelines today than they were 30 years ago. But today's construction is much safer and far more sensitive to environmental concerns than that of the 80's. So maybe the environmentalists aren't really holding up the project. Maybe our politicians are simply trying to broker the best political/financial deal that they can.
Environmentalism is a fad like other fads. Sometimes it is strong, sometimes less so. But mere facts will always play a small part in it. People, including environmentalists usually have their own limited set of "facts " that they will recognize.

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Old 11-01-2013, 02:55 PM   #48
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Environmentalism is a fad like other fads. Sometimes it I strong, sometimes less so. But mere facts will always play a small part in it. People, including environmentalists usually have their own set of "facts " that they will recognize.

Ha
True - parties tend to develop their own "facts" fairly easily when issues aren't crystal clear.
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Old 11-01-2013, 03:47 PM   #49
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It's a confusing picture to me as well. I worked on pipelines through the 80's, and it seems to me that environmentalists are more against pipelines today than they were 30 years ago. But today's construction is much safer and far more sensitive to environmental concerns than that of the 80's. So maybe the environmentalists aren't really holding up the project. Maybe our politicians are simply trying to broker the best political/financial deal that they can.
I don't think the concern is for the pipelines themselves as much as extracting more carbon-emitting energy sources.

The POV is that some of this kind of oil should be left in the ground because to extract it is to continue the dependence on oil, delaying the pursuit of renewable sources.

Not to mention produce more carbon emissions.
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Old 11-01-2013, 04:45 PM   #50
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Maybe we can vier towards the investment implications. Is there any reason one should overweight the energy sector in one's portfolio?

I think I'm pretty close to the total market benchmark for energy which according to M* is something like 11%.
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Old 11-01-2013, 06:19 PM   #51
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Whatever stock I usually buy falls in price immediately so I am not an authority in the game. Although I feel I have a special power over the market and can cause a drop in any stock just by me purchasing it.
So... would you share what stocks you are buying so the rest of us can short it?
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Old 11-01-2013, 09:08 PM   #52
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So the US would pay more for oil and gas? It seems one of the promises is that it would lower prices.

But aren't prices determined by global supply and demand, not local supply and demand?


Regarding refining capacity, I heard that the US already exports a lot of refined products to other countries already. So maybe that's why there hasn't been new refineries built?

That along with NIMBY and environmental concerns.
I said nothing of the kind. But here are my 2 cents:

The immediate economic benefit would be the construction in the US. Ongoing would be taxes paid to the states of transit. The tolls are taxable in the US. The pipeline companies will make money in the US.

The US would benefit from oil supplies from a politically stable, relatively friendly neighbor as opposed to, for example, Venezuela or Saudi Arabia or Nigeria. The route is entirely contained on our continent and not exposed to external risks of interruption (e.g., war or piracy).

Today, Hardisty Heavy (bitumen from Alberta) trades at a deep discount to WTI. Bringing it south should lower crude prices in Texas, to our benefit. In addition, a large, steady native source should have a stabilizing effect on oil prices on the Gulf Coast.

Economically, it should be a solid benefit to the US. Strategically as well.

Yes, the oil market is international, but transportation costs have a big impact, which is a big reason why Canadian bitumen sells at a discount to WTI. Have you noticed that North Sea Brent is typically $10 to $20 more per barrel than WTI? Why do you suppose that is?
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Old 11-01-2013, 09:20 PM   #53
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My understanding is that these heavier crudes, especially from Canada, depend on the price of oil being at a certain level because of the higher extraction costs.

So while the prospect of lower oil and gas prices is being dangled to push for the approval of the pipeline, the economics won't work if there is indeed greater supply than demand and prices fall drastically.
Don't worry about that. When this kind of money is being invested, such sensitivities are taken into account.

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Also, I had heard that they have to use a lot of energy to get this thick crude extracted, that at the end, you might end up using more energy than you get out of the end product?
You are thinking of ethanol.
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Old 11-01-2013, 09:41 PM   #54
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Oh cool I love experts*, if any of you want to hazard a guess as to companies that would be winners and loser if the northern portion of the Keystone was built I'd be interested. I also promise to say nothing bad if your predictions turn out badly, and praise your brilliance if they are right.


I'll start
Loser: Berkshire, BRKB Burlington Northern is owned by Buffett and it is a significant source of revenue, hauling oil has been a real profitably business for the railway.

I own the following related stocks are they winners or losers?
Kinder Morgan (KMP) The largest pipeline company is Keystone good bad for them.
Magellan Midstream Partners MMP? operates in the region
Buckeye Partners pipelines BPL are primarily in the midwest and northeast
Crosstex Energy XTXI and Devon (DVN) These two firms are merging lots of pipelines and operations in Texas and Louisiana. Primarily a natural gas distribution and processing.

*Expert anybody who know more than twice as much as I do about a subject.
I know a little about oil and gas, much less than other posters on this thread. Enough to imagine that I can avoid poor investments that an energy index fund would have to buy. Imagine is the operative word. LNCO gave me butterflys earlier this year.

I like the pipeline companies. I own
DUK, Duke Energy,
EEQ, Enbridge Energy Management,
KMI, Kinder Morgan Inc,
LNCO, LNNCO LLC,
SE, Spectra Energy (run by Duke),
TRP, Transcananda Corp
EEQ and TRP should make money no matter which way Canadian 'dirty oil' goes. Canadian production will increase with better access to markets.

I am also making a bet on the oil sands long-term for the same reason:
SU, Suncor,
COSWF, Canadian Oilsands LTD (a v-e-r-y long-term bet), and
RDS-B, Shell (as much as I do not like Shell, they look like a decent investment)

I do not short anything. Not that smart. I do own a little BRK-B. I doubt that the Keystone XL will have a big impact on Warren.
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Old 11-01-2013, 09:55 PM   #55
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Our company does work on site selection and permitting for new facilities. No real big (throughput wise) refineries have been built in N.A. many years, but we have been working with several companies on development plans for new refinery complexes. This effort changes from hot to cold from time to time. Right now, the latest interest in permitting and plant completion timelines is for gas to liquids plants and refinery expansions.

Your opinion on it being a long time before a new refinery being built in N.A. is a popular one and the biggest bottlenecks for that happening are obtaining air emissions and other permits and guessing the price of crude and refined products out 5-7 years in the future. The last major refinery built in the U.S. was Marathon's Garyville, Louisiana one in 1977. ARCO built one in Cherry Point, Washington just before that (I worked there briefly). These were 100,000+ BBL units and have been expanded. There were several small (less than 30,000 BBL) refineries built in the U.S. in the last 20 years.

While N.A. seems to be OK with refining capacity (thanks to less refined product demand), at some point in the future, this may change and our need for additional capacity will be there. Not sure how this will be managed, though.
Interesting information. BTW, I worked at Cherry Point briefly as well. I can see the plume from their cooling tower from my house.

There are many reasons that work against a new refinery being built in the US. The biggest one seems to me to be the low margins vs. the large long-term investment required and a volatile, uncertain market for refined products. Simply investing in an easy little debottlenecking of a single unit in a refinery is a major economic study and many projects never get built. There have been many plans for new refineries in the US but they never go anywhere. Years ago there were plans to build two refineries on the Columbia River. Just talk.

The next refinery I see being built is at Manta, Ecuador--long after I am out of the business.
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Old 11-01-2013, 10:06 PM   #56
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Actually if the Baaken boom continues in ND, I next see Keystone breaking the northern half of the pipeline into a phase to North Dakota and a phase to cross the border. Given the increasing production in ND you could fill the pipeline for a while and wait until the climate for a cross border approval is better. (They have already done this once by building the pipeline from Cushing OK to the Gulf.)
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Old 11-01-2013, 10:17 PM   #57
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Every time there is a world event that threatens to push oil prices through the roof, we get inquiries from rich clients that are interested in resurrecting an old, abandoned 30K BBL (or smaller) refinery in some weed patch in West Texas or Mississippi. Huge waste of time, but they want to run the numbers. So we do the math and send them a bill.

Then we tell them it will all be contingent in getting an air emissions operating permit and upgrading controls to MACT (maximum achievable control technology). And the process may take years. Then the effort ends.

Besides Ed's discussion on questionable financial economics associated with building a big refinery for Billion$ and making a call on future pricing, getting approvals to start construction is solely dependent on receiving an approved federal air emissions permit, and that will take 5 years +.

It's so much easier to amend a current operating permit to add capacity to an existing refinery (except in California). That's why in the last few decades, we have only seen refinery expansions through upgrades.
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Old 11-01-2013, 11:40 PM   #58
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Maybe we can vier towards the investment implications. Is there any reason one should overweight the energy sector in one's portfolio?

I think I'm pretty close to the total market benchmark for energy which according to M* is something like 11%.
I am very overweight energy and in individual stocks besides, but I do not recommend it to anyone else. ANY company can have a disaster like BP or Northwest Pipelines. There are two large plants in northern Alberta that scare the s**t out of me. There is a pipeline company that has at least one H2S pipeline. There are big, scary risks that most people cannot even imagine. I have picked a few companies that I have confidence in but there are others that I wouldn't go near. I do not plan to add any new ones either unless Exxon takes a big dive.
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Old 11-02-2013, 10:27 AM   #59
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If one plots VGENX (Vanguard Energy sector fund) vs the VEIEX (Emerging markets index) they moved the same way since 2002. Coincidence ? See chart below. The last 3 years have seen the SP500 outperform either of them.

I'm not up enough on the industry to pick individual stocks as some have here. Maybe some of them will do quite well. I worked in the electronics industry for 30+ years and lived in Silicon Valley. But I couldn't pick the winners in that industry either although I really didn't have the nerve to try too hard. The picture was always slightly blurry to me. Too bad I didn't believe in Apple.

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Old 11-02-2013, 12:59 PM   #60
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I got about the same graphs of adjusted closes (includes dividends and distributions) for all 3 funds since Jan 1, 2002.
VFINX up 95%
VEIEX up 292%
VGENX up 362%
I'll take oil long term. I also have some emerging markets, but heavy into O&G.
I switched out of a Canada index fund when I realized it tracked VGENX pretty close. An extractive economy. Then I decided to do O&G myself. Some day I have to go back and track my results.

S&P is 'doing better' lately? Nuts to that. 10 years from now, I'll bet O&G still outperforms.
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