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LCFS will adversely affect oil-sands crude refiners

11.01.2010  |  Thinnes, Billy,  Hydrocarbon Processing Staff, Houston, TX

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Purvin & Gertz, Inc., has released a report on the effect low-carbon-fuel standards (LCFS) will have on oil sands. The report notes that LCFS programs are being implemented in California, Oregon and British Columbia. They are under consideration in many other states and provinces and are becoming regional in nature. LCFS programs differ by jurisdiction, but have in common mandated reductions in the carbon intensity of transportation fuels. By targeting petroleum-derived gasoline and diesel and promoting low-carbon alternative energy forms such as electricity, hydrogen, natural gas and next generation biofuels, LCFS programs are intended to reduce overall greenhouse gas (GHG) emissions on a “well-to-wheels” basis.

“In effect, LCFS programs contribute to an ‘off-oil’ strategy,” said Tom Wise, who directed the study.

The energy needed to produce oil sands crudes is higher than for most conventional crudes, so the resulting carbon intensities of refinery-produced gasoline and diesel from oil sands are also higher. Tom Wise points out it is a mistake to paint all oil sands crudes with the same brush because there are different oil sands crudes, such as synthetic crude oil and bitumen blended with various diluents, and each has a different pathway and carbon intensity.

“Contrary to widely held perceptions, our study concludes that some oil sands diluted bitumen does not have high carbon intensity under the California regulations and should not carry an LCFS penalty,” Mr. Wise said.

The Purvin & Gertz study estimates the well-to-wheels carbon intensities of refinery-produced gasoline and diesel from various oil sands and conventional crude oils. The study estimates the impact on consumer product prices, refinery margins and oil sands crude prices, for a range of LCFS carbon costs. In market regions that implement LCFS programs, consumer product prices will increase and refinery margins will fall.

“Some of the oil-sands crudes would require price discounts to compete with conventional crudes due to a reduced incentive to refine or upgrade heavy crudes,” said Mr. Wise.

Further, reduced crude runs in market regions with LCFS programs could result in refinery closures and displace oil sands crudes to other markets. For instance, LCFS programs in the US Midwest would cause leakage of oil sands crudes to the US Gulf Coast or Asia-Pacific.  HP



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