Lack of Mexican Crude Stymies New Arizona Refinery
19 April 2006
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| Location of the proposed refinery. |
Lack of an agreement for crude from Petróleos Mexicanos (Pemex), the Mexican state oil company, is thwarting the building of the first new US refinery in 30 years—the Arizona Clean Fuels refinery near Yuma (earlier post). As a result, Arizona Clean Fuels is turning to Canada for supplies from the oil sands.
Arizona Clean Fuels reached an agreement with Mexico in November to build a pipeline from Arizona to a port at Baja California in Mexico at an approximte cost of US$500 million. The pipeline could be used to receive Mexican crude or oil from outside sources, including oil processed from Canadian oil sands.
But according to a report in the Arizona Republic, Petroleos Mexicanos is unwilling to tie up its limited oil supply for a yet-to-be-built refinery. The Mexican oil company—which has seen its largest oil field, Cantarell, go into premature decline (earlier post)—did not rule out the possibility of eventually striking a deal with the Arizona group, possibly if Mexico expands production by tapping offshore reserves.
Without a long-term contract for crude, Arizona Clean Fuels won’t be able to complete raising the US$2.5 billion required for the refinery.
“It’s a Catch-22,” said Ian Calkins, spokesman for the Phoenix-based group. “In order to give our investors some certainty, we need a contract in hand. Since we’ve been unable to get that to date from Mexico, we must seek other alternatives.”
The company is now negotiating with Canadian oil producers, including suppliers of the oil and tar-sand deposits located mainly in Alberta. The oil would be shipped along the West Coast to a pipeline terminal in Baja California, then sent through the planned Mexico-to-Yuma County pipeline.
The extra delay in negotations may force the company to reapply for the air-quality permit required for construction. The current permit, approved in 2005, expires in November.
The refinery is designed to produce approximately 150,000 barrels per day of lower-sulfur motor fuels, including approximately 85,000 barrels per day of motor gasoline, 35,000 barrels per day of diesel fuel and 30,000 barrels per day of jet fuel. Arizona Clean Fuels estimates that to be approximately one-half of the gasoline, diesel and jet fuel demand for the state of Arizona.
The gasoline will contain less than 10 ppm (parts per million), versus the current sulfur content of 30-ppm and 180-ppm gasoline coming into Arizona. The EPA’s standard is 30 ppm (refinery average). (There is a relatively complex rule set around refinery averages, corporate averages, and production caps that allows for some higher sulfur-content gasoline—hence the 180-ppm.) The diesel will be ultra low-sulfur, with a sulfur content of less than 15 ppm.
The refinery will use ethanol as its default oxygenate rather than MTBE.
I think this shows 2 things
1) the problem is lack of raw material, not refining capacity
2) oil producers don't need to commit to a particular customer.
Posted by: Aussie | 19 April 2006 at 03:33 PM
I think it also shows that since Mexico's largest oil field Cantarell is going into premature decline, this problem may also affect other oil fields as well. Right now, continued sources of oil from Iran and Venezuela are in jeapordy. While Iran receives most of its national income from oil exports, there is no doubt that they would have little difficulty finding a buyer other than the US. Both China and India need oil. This situation is also true of Venezuela.
With oil past $72/barrel as of today, the outlook for the price of oil does not look good. I personally think that SUV's in the US should have a prohibitively high tax placed upon them and that this tax would be used specifically for the development of PHEV's since GM and Ford seem so slow to recognize the harm they are doing to our country.
[email protected]
Posted by: Adrian Akau | 19 April 2006 at 04:31 PM
Adrian:
The US does not buy any oil from Iran.
And you know what? You don't need to tax SUVs. High fuel prices alone are enough to make people change. Just look at the sales figures. I read that the Dodge Duragno dropped over 50% this year. Nissan is going to produce less Titan pickups.
Don't blame GM and Ford for providing a product the public *wanted*. They don't dictate to the public what they will buy. The market is now shrinking as smaller cars and crossovers take the place of SUVs.
Posted by: Cervus | 19 April 2006 at 04:47 PM
Why not build the refinery in the northern MidWest near Alberta and pipe the gasoline to where it is needed. A long sea voyage terminating in a foreign port to bring it to the US doesn't make sense.
Posted by: Ed | 19 April 2006 at 05:13 PM
Cervus, sorry about that mistake on thinking the US was purchasing oil from Iran. I do still think that Ford and GM have had ample opportunity to develop fuel efficient vehicles but have not done so. I read but can hardly believe that the latest F-100 Ford is rated at 12.8 mpg average.
In the case of the cigarette industry, health risks involved were covered up for decades and smoking was made to appear glamorous. The same has been true for the auto industry and gas guzzlers. It is a philosophy that was, in part, taught to the public to cause the demand. It is like holding ice cream in front of a child until the child wants the ice cream even though he has stuffed himself silly with other food. The want becomes the need.
The philosophy of thinking with gas guzzlers is like obesity. It looks good but the results are bad. If people really knew what was good for them, would they be getting overweight? You may say that I am in left field on this matter but is it a misuse of material goods. We are like the Romans who used vomitoriums because they had available such copious quantities of food. We have been using gas wastefully and do not wish to own up to it.
[email protected]
Posted by: Adrian Akau | 20 April 2006 at 12:05 AM
Adrian, since oil and its derivitaves are fungible, it really makes little difference where it comes from, but it does matter how easily it is transported, and whether it is uses for political purposes. Venezuela is selling its interest in a Houston refinery while planning to complete a former Russian refinery in Cuba in a joint venture.
http://news.bbc.co.uk/2/hi/business/4901466.stm
This could provide Venezuela with a better location from which to ship product to South America or Europe and Cuba an export product to earn hard currency. Of course Cuba may also become a player in the Ethinol business. Those moves help isolate the US when trying to compete with China and India for energy. By the way, an Indian company is exploring the Gulf in Cuban waters for oil since US companies are prohibited from doing so.
The world oil problem now is that it can be politicized. It has always been my opinion that we went into Iraq exactly for that reason -- Sadam was the only dictator willing to cut off oil to the markets for political purposes. Now the Iraqi insurgents, Nigerian rebels, perhaps Chad's government, and soon others may be willing to do the same. With no effective excess capacity, oil can be an effective negotiating tool if not a weapon.
Posted by: JMartin | 20 April 2006 at 08:17 AM
It's interesting that "Arizona Clean Fuels" is refining gasoline from one of the dirtiest sources of oil available.
In the long run this is all good news. Political instability and tight oil markets will only drive us to seek alternatives that much faster.
Posted by: Tripp Bisop | 20 April 2006 at 08:54 AM
Dear Folks:
If this proves true, how do we convince the world not to burn it???!!!:
How much oil is in Nevada?
Dr. Alan Chamberlain, last month, stated his estimates, that there is almost 1.9 TRILLION barrels of oil in the state. Mind you, since the 1850s, when the first oil was pumped in Pennsylvania, until now, total worldwide oil production is only 1 trillion barrels. Further, many experts (Deffeyes in Hubbert's Peak, for instance) believe that 2 trillion barrels is the total original world supply, meaning we only have 1 trillion left in the whole world. Chamberlain is now on the record as stating that he thinks there is roughly as much oil in Nevada as the rest of the world put together ever had. Any thoughts on this? If Eden Energy finds a couple of billion barrels, investors are rich beyond their collective imaginations; but a couple of trillion barrels?? That number just seems impossibly big.
Here's the link citing Chamberlain saying there are 1.89 trillion
barrels of oil in Nevada --
Geologist says White Pine must keep public lands open for oil exploration
Claims undiscovered oil reserves are '10 times' Saudi Arabia's
http://www.elynews.com/articles/2006/03/10/news/news03.txt
Eden Energy is drilling to 15000ft based on this information, should know by early summer if I'll lose my $2000 invested or Retire.
If they hit this elephant and I retire, I'll spend my time on the impossible task of trying to convince the world not to burn $20 oil for the biosphere's sake. Sort of like a rich democrat ,blasting the Bush tax cuts, but taking them anyway. God...$20 oil would be so disruptive to all the clean energy technology I've been promoting.
Here is my most extensive discussion on Eden Energy, http://peakoil.com/fortopic11190-0-asc-60.html
Posted by: Erich J. Knight | 20 April 2006 at 06:53 PM
FROM THE DESK OF [MR. GEORGE LEKOTA]
BILL AND EXCHANGE MANAGER ABSA BANK.
[JOHANNESBURG – SOUTH AFRICA]
TEL: 27 783 498 139.
DEAR,
IMMEDIATE ATTENTION! , IT IS MY PLEASURE TO CONTACT YOU FOR ASSISTANCE AND BUSINESS CO-OPERATION.I KNOW THE CONTACT OF THIS LETTER MIGHT BE SURPRISING TO YOU.BUT I ASSURE YOU THAT EVERY WORD OF IT IS TRUE.EVEN THOUGH WE HARDLY KNOW EACH OTHER I BELIEVE YOU CAN HELP ME.MEANWHILE, I GOT YOUR CONTACT IN THE WORLD BUSINESS DIRECTORY.
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IN ACCOUNT THAT BELONGS TO ONE OF OUR FOREIGN CUSTOMER WHO DIED ALONG WITH HIS ENTIRE FAMILY IN NOVEMBER [1999] IN AN AUTO CRASH.
SINCE WE GOT INFORMATION ABOUT HIS DEATH, WE HAVE BEEN EXPECTING HIS NEXT OF KIN TO COME OVER AND CLAIM HIS MONEY BECAUSE WE CAN NOT RELEASE IT UNLESS SOMEBODY APPLIES FOR IT AS NEXT OF KIN OR RELATION TO THE DECEASED AS INDICATED IN OUR BANKING GUIDELINES, BUT UNFORTUNATELY WE LENT THAT ALL HIS SUPPOSED NEXT OF KIN OR RELATION DIED ALONGSIDE WITH HIM AT THE AUTO CRASH LEAVING NOBODY BEHIND FOR THE CLAIM.
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OUR BANKING LAW AND GUIDELINE HERE STIPULATE THAT IF SUCH MONEY REMAINED UNCLAIMED AFTER TEN YEARS, THE MONEY WILL BE TRANSFER INTO THE BANK TREASURY AS UNCLAIMED FUND. THE REQUEST OF FOREIGNER AS NEXT OF KIN IN THIS BUSINESS IS OCCASIONED BY THE FACT THAT THE CUSTOMER WAS A FOREIGNER AND A [SOUTH AFRICA NATIONALITY] CANNOT STAND AS NEXT OF KIN TO A FOREIGNER.
[40%] OF THIS MONEY WILL BE FOR YOU AS FOREIGN PARTNERS RESPECT TO THE PROVISION OF A FOREIGN ACCOUNT, AND [60%] WOULD BE FOR ME.
THERE AFTER I WILL VISIT YOUR COUNTRY FOR DISBURSEMENT ACCORDING TO THE PERCENTAGES INDICATED.
THEREFORE TO ENABLE THE IMMEDIATE TRANSFER OF THIS FUND TO YOU AS ARRANGED, YOU MUST APPLY FIRST TO THE BANK AS RELATIONS OR NEXT OF KIN OF THE DECEASED INDICATING YOUR BANK NAME, YOUR BANK ACCOUNT NUMBER, YOUR PRIVATE TELEPHONE AND FAX NUMBER FOR EASY AND EFFECTIVE COMMUNICATION AND LOCATION WHERE THE MONEY WILL BE REMITTED.
UPON RECEIPT OF YOUR REPLY I WILL SEND TO YOU BY FAX OR EMAIL, WITH THE TEXT OF APPLICATION. AND I WILL NOT FAIL TO BRING YOU NOTICE THAT, THIS TRANSACTION IS HITCH FREE AND THAT YOU SHOULD NOT ENTERTAIN ANY ATOM OF FEAR AS ALL REQUIRED ARRANGEMENTS HAVE BEEN MADE FOR THE TRANSFER.
YOU SHOULD CONTACT ME IMMEDIATELY AS SOON AS YOU RECEIVE THIS LETTER.
REGARD,
[MR. GEORGE LEKOTA]
ABSA BAK OF SOUTH AFRICA.
BILL AND EXCHANGE MANAGER DEPERTMENT.
Posted by: george_lekota | 28 July 2006 at 01:30 AM