High Carbon Intensity Crude OilHigh Carbon Intensity Crude Oil
Transportation Committee Workshop onTransportation Committee Workshop on Transportation Energy Demand and Fuel
Infrastructure Issues
Transportation Committee Workshop
September 9, 2011
Gordon SchrempGordon Schremp
Fuels and Transportation Division
California Energy Commission
DATERECD. Sept 08 2011
DOCKET11-IEP-1L
High‐Carbon Intensity Crude Oil (HCICO)
29/9/2011
Background
• The purpose of this provision of the LCFS is to ensure that any rise in petroleum‐related lifecycle emissions due to a movement of crudes with high extraction emissions ismovement of crudes with high extraction emissions is captured in the LCFS and mitigated
• Energy Commission staff conducted an initial screen of 248 Marketable Crude Oil Names (MCONs) that were available globally during 2006‐2010 to identify what portion were potential HCICOspotential HCICOs
• Purpose of the work was to determine to what extent refiners in California would have to either compensate or defer purchase for processing in California
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Types of Potential HCICOs
• Oil sands (bitumen) mining ‐ potential HCICO– Exclusive to Canada
H il di C d & V l• Heavy oil upgrading – Canada & Venezuela– Processing heavy crude oil in upgrader to produce lighter synthetic
crude oil ‐ potential HCICO
• Flaring of associated natural gas– Countries that have average crude oil flaring intensities greater than
10 standard cubic meters per barrel ‐ potential HCICO10 standard cubic meters per barrel potential HCICO
– Russia, Nigeria & 6 other countries
• Enhanced oil recovery (EOR) – water flooding
– injection of natural gas, carbon dioxide or chemicals
– thermally enhanced oil recovery (TEOR) – potential HCICO
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60%California Produces TEOR Crude Oil
50%
HCICO Base Year
37.95%
40%
tage 51.3 percent as of 2009
20%
30%
Percen
t
10%
Percentage of CA ProductionPercentage of CA Refinery Receipts
0%
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Sources: CEC analysis of CA Division of Oil, Gas & Geothermal Resources data.
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2
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Source: CEC Analysis.
1
Summary of Screening Results
4 4
1
4 5
33Pass
Fail Flaring Only
Fail Substantial TEOR Only
Fail Partial TEOR Only
9 4 f l
197
Fail Partial TEOR & Upgrading
Fail Mining & Upgrading
F il U di O l
79.4 percent of total number of MCONs
Fail Upgrading Only
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Source: CEC Analysis.
Potential HCICOs – Initial Screening Results
• 197 MCONs receive a “pass” – 32 from Base Line countries– None of the Base Line foreign country MCONs would have received a “fail”
Nearly 51% of California MCONs would fail TEOR screen as of 2009– Nearly 51% of California MCONs would fail TEOR screen, as of 2009
• 51 MCONs receive a “fail” and are potential HCICOs– 8 of 45 import MCONs during 2009
• 45 MCONs exceed the 10.0 m3 per barrel limit – “fail” using the O&GJ crude oil production data for the intensity calculation
• 61 MCONs originate from countries that are listed in the Oil & Gas gEnhanced Oil Recovery Survey in 2010
• 4 MCONs sourced from bitumen mines & “fail” screen
6 dditi l MCON d b d & “f il”• 6 additional MCONs are processed by upgraders & “fail” screen
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Screening Results – Volume Weighted
1.0% 2.2%0.2% 1.1%
0.7%
21.1%Pass
Fail Flaring Only
Fail Substantial TEOR Only
F il P ti l TEORO l
73 9%
Fail Partial TEOR Only
Fail Partial TEOR & Upgrading
Fail Mining & Upgrading73.9% Fail Mining & Upgrading
Fail Upgrading Only
9/9/2011 8
Source: Energy Commission analysis.
2010 Potential HCICO Imports23.4%
25%2006 Base Line Country
20.8%20.2%
20%
Oil Im
ports
2006 Base Line Country
Potential HCICO
Non‐HCICO
Source: CEC Analysis of EIA Company Level Import Data
15%
reign Crud
e O
16.5 percent of the foreign crude oil receipts by California refineries during 2010 were potential HCICO - accounting f f
7.2% 7.0%6.3%
5.8%
10%
nt of Total For for 8.0 percent of total crude oil use during the year.
2.6%1.5% 1.5% 1.2% 1.1%
0.5% 0.4% 0.3% 0.1% 0.1%0%
5%
Percen
Saud
i Arabia
Ecuado
r
Iraq
Brazil
Canada
Russia
Columbia
Angola
Oman
Peru
Venezuela
Argentin
a
Nigeria
Australia
Kuwait
Arab Em
irates
dad & Tob
ago
9/9/2011 9
United A
Trinid
HCICO – Ability to Offset Emissions
• Refiners can use HCICOs, but need to offset the incremental carbon emissions or debt
If fi d tit f t ti l HCICO i il t 2010• If refiners used a quantity of potential HCICOs similar to 2010 (roughly 8 percent), they would need to use ethanol from California & Brazil in all of the gasoline they produce – beginning this year
• Even if refiners were to use as little as 2 percent HCICOs in their mix of crude oil, use of ethanol from the Midwest would be effectively infeasible by 2013
• In fact, their are no sources of commercially available ethanol available that could completely offset the incremental carbon debt of using 2 percent HCICOs by 2016of using 2 percent HCICOs by 2016
• It is therefore assumed by staff that potential HCICOs would be unavailable for use in California
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Oil Production Practices – Response Outlook
• HCICO provision is designed to “encourage emission reduction activities from these HCICO sources”
U lik l th t i t t id f th U it d• Unlikely that companies or governments outside of the United States will alter crude oil production practices because:– Producers outside of California have alternative markets to sell their crude oil
– California crude oil market is too small (between 1.2 percent and 2.1 percent) to justify an investment to reduce the carbon intensity of crude oil production operations
C i ki i t t i diff t t i th t• Companies are making investments in many different countries that have a sufficient return on investment (ROI) achieved by either:– Lowering their production costs
– Capturing natural gas that is being flared (to sell for an additional revenue stream and/or reduce the costs incurred from paying a flaring fee)
– Avoiding carbon taxes imposed by a local jurisdiction or country
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HCICO – Conclusion & Outstanding Issues
• The HCICO provision is not expected to restrict access to crude oil supplies in a way that could significantly impact fuel supply, but it could impact refiner profitability and the ultimate cost of petroleumcould impact refiner profitability and the ultimate cost of petroleum fuel in California
Outstanding Issues• Staff did not quantify the potential cost increase that could occur
when refiners replace HCICOs with alternative crude oils– Would need to know changes in crude oil acquisition costs, impacts on
refinery operating costs, and shifts in refined product output
• Staff did not assess potential for crude oil “shuffling”– What are the relative distances of sources of HCICOs and their replacements?
• Staff did not qualitatively assess any potential energy security implications of the HCICO provision– What framework should be used to rank various sources?What framework should be used to rank various sources?
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Additional Q & A
Sunset at Moonstone Beach – Humboldt County, California 9-2-2011
139/9/2011
