Canada's tar sands unexpected winner from fracking

Updated 02 July 2012
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Canada's tar sands unexpected winner from fracking

LONDON: Soaring output of light condensate in the United States has crushed refining margins for naphtha and added to the global gasoline surplus.
But it is also providing a boost to Canada's oil industry, which increasingly benefits from a captive source of the diluent needed to make bitumen and heavy oil flow through processing facilities and pipelines.
In the past two years, collapsing gas prices have forced drilling companies in the United States to shift from targeting dry gas fields to liquid-rich plays containing a mixture of gas and more valuable crude oil and condensate to keep paying the bills.
The result has been an upsurge in output of very light liquid fuels variously described as light condensate, drip gas, pentanes plus or natural gasoline, which compete head one with the light naphtha traditionally produced by oil refineries, an essential component in the production of both motor gasoline and petrochemicals.
The sudden increase in availability of light hydrocarbons like pentane (which has five carbon atoms) and hexane (six carbon atoms) has crushed refining margins for light naphtha in North America, and added to downward pressure on the naphtha market worldwide.
It is also worsening the global refining imbalance, which is producing too much gasoline and not enough diesel, pushing gasoline prices to a discount and worsening the outlook for older refineries in North America and Europe.
As US prices for naphtha and natural gasoline fall, more and more of the surplus condensate is being exported to Canada for use in the production and transportation of bitumen and heavy crude oils, where it is being added as a diluent to improve viscosity and help them flow more easily through the processing and pipeline system.
In the first three months of 2012, the United States exported 10 million barrels of "pentanes plus," almost all to Canada, compared with less than 1 million barrels in the corresponding period last year, according to the Energy Information Administration (EIA), the independent statistical arm of the US Department of Energy.
EIA defines pentanes plus as "a mixture of hydrocarbons, mostly pentanes and heavier, extracted from natural gas. Includes isopentane, natural gasoline, and plant condensate."

COCHIN REVERSAL
Exports seem set to rise further. On June 5, Kinder Morgan Energy Partners announced it had secured binding commitments to transport more than 100,000 barrels per day of light condensate (pentanes plus) for at least ten years on its Cochin pipeline from the US state of Illinois to Fort Saskatchewan in Alberta, Canada.
At present, Cochin transports propane and propane-ethane mix from Canada to the United States. But as US gas output surges, demand for Canadian exports has fallen and the line is operating at a fraction of its rated capacity. Meanwhile, rising output of bitumen and heavy oil in Canada requires increased imports of light condensate to dilute the viscous crude.
"The Canadian National Energy Board is projecting a need to import over 180,000 barrels per day of pentanes plus into Canada by 2014. By 2020 and 2025, the import demand for light condensate is projected to grow to over 330,000 barrels per day and over 450,000 barrels per day, respectively" according to Kinder Morgan.
"The projected import demand will exceed the currently available pipeline capacity by the end of 2014, creating an opportunity for the conversion of existing, underutilized pipeline capacity to meet the growing market demand" ("Notice of binding open season for the Cochin reversal project" April 24, 2012).
From July 2014, subject to regulatory approvals, Kinder Morgan is proposing to reverse the flow on Cochin to transport light condensate northwards, and link it up with the Explorer pipeline, bringing light products up from the fast-growing shale gas and oil fields along the US Gulf Coast, including the Eagle Ford formation in Texas.
The Cochin reversal, new tank facilities and the link to Explorer will allow light condensate from Eagle Ford and other liquid-rich plays to be sent directly to oil sands producers in.
Ironically, Canada's oil sands producers benefit from a captive source of supply. US regulations banning the export of crude oil also apply to lease condensates and drip gas, which means they cannot normally be sent to other countries but may be exported to Canada for consumption or use therein owing to a special exception for the country's northern neighbor (15 CFR 754.2).

CONDENSATE GLUT
Exports are increasingly critical for the U.S. condensate market. In the second half of 2011, US stocks of pentanes plus surged to over 17.5 million barrels, exceeding previous highs set in 2010 and 2007, and far above normal levels of 6-10 million barrels. By the end of March 2012, commercial stocks of light condensate were still at almost 16 million barrels.
Stocks would have risen even more strongly were it not for the surge in exports to Canada (Charts 3-4). Even so, oversupply has helped push cash prices for light condensate and natural gasoline to a steep discount against regular refinery-produced gasoline, which contains other heavier molecules such as octane.
Predictably, rising output of light condensate is putting downward pressure on margins for refinery-produced light naphtha, which has traditionally been blended into regular motor gasoline, as well as being used as a feedstock for petrochemicals, and a diluent for heavy crude transportation.
It also worsens the global imbalance between gasoline and diesel production. Motor gasoline is a mix of hydrocarbons with mostly four to twelve carbon atoms while diesel fuel generally contains a mixture of slightly heavier molecules with between 8 and 21 carbon atoms.
Policies to promote the use of diesel rather than gasoline in Europe, coupled with growing demand for diesel in emerging markets, and rising production of condensate around the world, have resulted in refineries producing too much gasoline and not enough diesel.
The sudden increase in US pentane and hexane production is worsening the imbalance, adding extra molecules to the gasoline pool, while doing nothing to relieve the shortage of heavier molecules in the diesel segment.
Much of the extra US condensate will be used in transporting bitumen and heavy oils from Canada. Some will be lost as a result of evaporation in the pipelines. More will be lost in refining. But most will ultimately be recovered when the diluted heavy oils are passed through a US refinery, adding to the gasoline/naphtha pool glut.

— John Kemp is a Reuters market analyst. The views expressed are his own.


Intel CEO resigns after probe of relationship with employee

Krzanich led Intel as rival chipmakers ate away at its dominance in the technology over several decades and he also presided over a series of high-level executive departures. (AP)
Updated 5 min 11 sec ago
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Intel CEO resigns after probe of relationship with employee

  • Corporations are under increasing pressure to “walk the walk” on executive behavior with the rise of the #MeToo movement
  • The board named Chief Financial Officer Robert Swan as interim CEO

Intel Corp. Chief Executive Brian Krzanich resigned on Thursday after an investigation found he had a consensual relationship with an employee in breach of company policy.
The head of the largest US chipmaker is the latest in a line of men in business and politics to lose their jobs or resign over relationships viewed as inappropriate, a phenomenon highlighted by the #MeToo social media movement.
Krzanich led Intel as rival chipmakers ate away at its dominance in the technology over several decades and he also presided over a series of high-level executive departures.
The change in leadership comes as Intel expands beyond personal computers and servers into areas such as artificial intelligence and self-driving cars, where smaller competitors including Nvidia Corp. are strong. Qualcomm Inc. leads in the mobile chip market.
The board named Chief Financial Officer Robert Swan as interim CEO and said it has begun a search for a permanent CEO, including internal and external candidates.
“An ongoing investigation by internal and external counsel has confirmed a violation of Intel’s non-fraternization policy, which applies to all managers,” Intel said in a statement, declining to give any further information about the probe. Its shares fell 2.4 percent.
The company’s board was informed a week ago that Krzanich had a mutual relationship with an employee in his chain of command in the past, according to a source familiar with the matter who asked not to be named. The relationship began before Krzanich became CEO in 2013 and ended several years ago, the person said.

‘BK’ out
Krzanich, who did not have an employment contract, is entitled to a $38 million “walk-away” payment in the event of a voluntary termination, according to Intel’s regulatory filings.
Of that, $31 million is in the form of accelerated stock awards and $4.1 million in the form of deferred compensation, based on Intel’s share price on Dec. 29.
An Intel spokesman declined to say whether the walk-away payment applied to Krzanich’s resignation, but said the investigation into Krzanich’s conduct continued and that the board reserved the right to take further action.
Corporations are under increasing pressure to “walk the walk” on executive behavior with the rise of the #MeToo movement, said Ivan Feinseth, chief investment officer at Tigress Financial Partners.
In the last few months Martin Sorrell, founder of advertising giant WPP Plc, and casino mogul Steve Wynn of Wynn Resorts Ltd. resigned after accusations of impropriety. Wynn has denied the accusations and Sorrell has denied any wrongdoing.
Krzanich, 58, an engineer and Intel veteran known at the company as “BK,” was appointed CEO in May 2013. Intel shares more than doubled during his tenure as the company expanded into new markets.
He was recently credited with containing the fallout from the discovery of security flaws in the company’s chips that could allow hackers to steal data from computers, although his sale of much of his Intel stock before the flaws were disclosed to investors attracted some criticism.

Time for an outsider?
His temporary replacement, Robert Swan, has been Intel’s CFO since October 2016 and previously spent nine years as CFO of eBay Inc. Given his short tenure and lack of experience in manufacturing, he is not likely to be named permanent CEO, Cowen analyst Matthew Ramsay said.
While Intel dominates in processors for servers and data centers, global competitors are catching up with its manufacturing technology, said Bernstein analyst Stacy Rasgon.
“BK will go down in history as the CEO that let Intel’s process leadership advantage slip away,” he said, adding that a change at the top could bring in fresh ideas.
Kevin Cassidy, an analyst at Stifel, said that Intel would take the change in stride.
“Although we respect Krzanich’s efforts in redirecting Intel’s strategy from a computer-centric to a data-centric company, we view Intel as a process-driven company with a deep bench of CEO candidates that can continue to drive the corporate strategy,” he said.
In its 50-year history, Intel has never appointed a permanent CEO who did not come up through the company’s ranks.
But those ranks are thinner than they used to be, with prominent Intel executives such as former CFO and manufacturing chief Stacy Smith, former president Renee James, ex-architecture chief Dadi Perlmutter and Dianne Bryant, who headed the data center group, leaving in recent years.
Instead, Krzanich’s replacement could end up being one of the outsiders he brought into the company’s executive ranks, a sort of “insider outsider” such as Murthy Renduchintala, Intel’s chief engineering officer who joined Intel in 2015 after helping lead Qualcomm’s chip business.
“They’ve got some very good people they’ve brought in,” said Dan Hutcheson, CEO of VLSI Research Inc, who “know the company, know the new direction. It’s not a turnaround story.”
UBS analyst Tim Arcuri wrote to clients that “the door is open to hire from the outside.”
Intel on Thursday raised its second-quarter revenue and profit forecast, saying it expects quarterly revenue of about $16.9 billion and adjusted profit of about 99 cents per share, up from a previous forecast of $16.3 billion in revenue and adjusted earnings per share of 85 cents.
Analysts on average were expecting revenue of $16.29 billion and adjusted profit of 85 cents per share.
“There are no new payments as part of his departure,” a source familiar with the company told Reuters.