[INDEED WCS/WTI DEPRESSED BECAUSE IMPERIAL'S EDMONDTON 187K/D WAS RUNNING <75% CAPACITY DURING MID-JUL AND VERY CHEAP C$]. KEARL LAKE HAS A VERY GOOD DISTILLATE, VGO YIELD FOR THE WINTER] [500,000K BUT STILL INTERESTING MOVE THAT YOU WOULD NORMALLY EXPECT FROM GUYS LIKE FREEPOINT COMMODITIES NOT PBF !]

1. The Trans Mountain-Panama Shipping Pipeline to
Philadelphia
PBF Energy has recently crafted an unorthodox trade:
Delivering a 500,000 bbls Kearl Lake cargo (Albertan)
to Philadelphia through Panama by LR2 tanker.
U.S. oil refiner PBF Energy Inc is shipping a cargo of
crude from Western Canada to supply its plant on the
other side of the continent, a rare move traders say is a
sign steep discounts for oil sands are upending age-old
trade routes.
The deal set the market abuzz with traders speculating
about the status of the shipment of up to 500,000 barrels
of crude.
-Reuters

2. The expectation for a such move you would normally
come from guys like Freepoint Commodities (not PBF).
PBF, the New Jersey energy company owns roughly
one-third of the East Coast refining capacity.
The refiner already lease 2,500 railcars to ship Western
Canadian and Bakken crude to its East Coast refineries
taking advantage of the opportunity to run discounted
slates reaping the associated economic benefits.
Refining 101: it is a very tricky industry:
Shale oil opportunities present to refiners like PBF
challenges as these slates contribute to crude blending
compatibility, yield (lower vacuum gas oil and resid)
and product quality issues (more paraffinic and high
pour point).
Opportunities from heavy oil also present to refiners
product quality issues (feed contaminants, unit
poisoning).

3. Imperial's Kearl
Kearl is a heavy, high sulfur crude produced by
Imperial, one of Canada's largest oil company which
also owned the Edmonton South Refinery.
During the month of July, the refinery was operating at
<75% of its 187,000 bbl/day nameplate capacity.
The Western Canadian Select (WCS) was in the $27
low-end and the WTI/WCS ex-edmondton has reached
$18/bbl.
Heavy/Light declines are generally beneficial for coking
refineries.
Kearl is a coker feed that has an excellent HVGO and
Vaccum Residue yield.

4. In a low-cost crude environment, this vaccum residue
yield translates to a margin uplift on stinky co-products
such asphalt, petcoke, sulphur whose value do not/less
fluctuate with oil.
Trans Mountain
The Trans Mountain Pipeline's flow is 300,000bbls per
day.
The pipeline connects the Edmonton-south terminal
which has 8mmbbls of storage capacity to the Westridge
terminal located in the marine port of Vancouver, BC.
There are no big refineries in the Vancouver area
except Chevron.
TMP delivers 31% of Puget Sound (BP, SHELL,
TESORO, U.S Refining co., P66) supply (PADD-V) @
92% capacity.

5. Trans Mountain Pipeline Expansion Project, National Energy Board
Kinder Morgan (TMP) signs 10 years throughput
contracts with Puget Sound refiners, the pipeline is
oversubscribed by over 70%. (KMI has a natural
monopoly over Westbound Albertan crude)
The NEB regulates only supplies going into Chevron's
Burnaby.
Despite a wide WCS/WTI spread, Traders say that if
you do not have line space, you will automatically lose
your pants.

6. Many including Petrochina and Reliance Industries
have tried and lost.
It is true that Kearl lake is produced by Imperial in
Alberta but the parcel was bought ex Edmondton (not
ex Burnaby) so we think they must have lost everything
they have gained in the WCS/WTI because of the
Trans-Mountain leg.
Thomas Malley (Ex-Phibro) buys refineries and turns
everything upside down.
He is crack-trader, not an crude oil marketer: his knack
is optimizing streams/co-products to extract their value.
This is how PBF faces the market "abuzzz" with
traders.
So sending a Kearl by tanker on a 7,000 miles trek
through the Panana Canal to the Delaware (PADD I)
might not be the arbitrage of an oil trader, but for a
virtuoso who understands the economic value inside a
refinery; absolutely it is.
Commodity Merchant Trading and
Shipping Advisory Services
Organizations are encouraged to call us for impartial
unprejudiced advices with an assistance on trading and
operational issues affecting the industry translated into
market terms.