# Suncor, Is It TMP Dependent?



## dogleg1 (Jul 4, 2016)

I notice that Suncor has dropped about 10% recently. Is it likely to keep going down unless or until a TMP deal is arrived at?


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## AltaRed (Jun 8, 2009)

dogleg1 said:


> I notice that Suncor has dropped about 10% recently. Is it likely to keep going down unless or until a TMP deal is arrived at?


Think it is more a case of Canadian price weakening, WCS pricing now discounted over 40% to WTI http://www.oilsandsmagazine.com/energy-statistics/oil-and-gas-prices#Cdndiscount


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## dogleg1 (Jul 4, 2016)

Alta Red: So you think the price would be where it is even if the dual pipeline had been OK'd ? You could be right but if that is the case why is Alberta so focused on the deal? Is an Alberta refinery a better solution?


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## AltaRed (Jun 8, 2009)

My view is SU share price is not specifically TransMountain dependent. I am saying its share price likely decreased because of declining Canadian oil price, which is of course severely discounted due to lack of pipeline takeaway capacity.... whether that be Keystone XL, Enbridge Line 3 replacement and/or Trans Mountain expansion. WCS price will remain heavily discounted until actual additional pipeline capacity is in place (any 2 of the above). Until there is definitive light at the end of that tunnel to raise hopes, energy sector share prices will remain depressed. No one I know bids up share prices of companies in anticipation* of improved revenue 2 years from now.

Alberta is focused on TMEP because it provides an outlet to a *new* market, i.e. Asia, rather than simply more reliance on US markets. There is no money in a non-taxpayer supported refinery in Alberta. Do you think the lower mainland would be much happier with tankers full of gasoline, diesel and jet fuel leaving Burnaby for the open sea? Which country is going to buy those products anyway? 

* Another case in point: IPL share price is stuck despite the 'certainty' of cash flow from their petro-chemical project a few years down the road. It is not too savvy to invest 'early' before having more certainty the project will develop as planned on time and budget. The world could re-invent itself in the intervening period.


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## dogleg1 (Jul 4, 2016)

A- Red: You make excellent points, however, will there ever be a 'light at the end of the tunnel'? The court (judge) wants more consultation but will it ever be enough? It is hard enough to get agreement between the federal government and the various provinces but when you have to include the Indians in the mix it makes me wonder if the country is even manageable. It is one thing to consult but it is entirely subjective what a reasonable degree of consultation is. I guess I should have sold my Suncor two weeks ago.


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## AltaRed (Jun 8, 2009)

Only when there is actually light (or walking distance to it). Until then, I wouldn't touch an oil stock (well, I won't even then but that is a different story).

Enbridge Line 3 is well into construction but they won't be laying the Minnesota section until summer 2019. No guarantees there won't be more delays or a Standing Rock situation. I would not count on anything until the freaking pipe is in the ground! Even then, the incremental takeaway capacity is not that large ~400 kpd? But every bit will help whenever it actually arrives......

C'est la vie. Our country has been handed over to the disenfranchised (although in the Enbridge case, it was the nutbars in Minnesota).


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## AltaRed (Jun 8, 2009)

Given the thread discussion so far, the following is a partial cut and paste from Eric Nuttal's newsletter today on BNN Market Call. FWIW, Eric mostly gives me a headache but he is indeed full of numbers, but somehow perennially over-optimistic. Still, there are a few nuggets in there......


> Given the front-page status of Canadian oil takeaway challenges (heavy, light, and now even condensate), WCS-exposed stocks are fully discounting a wider than likely mid-term WCS differential. We believe investors are getting a free option on any potential positive development, which could shrink the current spot WCS differential by half and result in many WCS-exposed stocks to double:
> 
> Rail capacity is potentially expanding to 500,000 barrels per day by Q3/19. General Electric on Sep. 5 announced an order from CN Rail for an additional 60 more locomotives, which to us suggests incremental capacity adds of 90,000 barrels per day (a 60,000 barrel per day unit train requires a total of 40 locomotives) if all 60 are dedicated to their oil division.
> The mainline nomination process is evolving to a fixed nomination process, which should eliminate “air barrels” and increase throughput.
> ...


Firstly, Eric has no idea whether all those new CN locomotives will remotely be used for unit oil trains or whether there are enough tank cars for so much incremental takeaway capacity. The BP Whiting turnaround is a non-issue given whatever dilbit we can ship out of Canada will end up on the Gulf Coast if Whiting is down. I don't see a material narrowing of WCS differentials once BC Whting is back on, but there will be some. The ramping up of the Northwest Upgrader will indeed help heavy but not takeaway capacity out of Canada. Eric should have said end of 2019 for Line 3 operation... assuming no more legal interference. And so on.... Eric needs to learn to be a bit more objective.


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## doctrine (Sep 30, 2011)

If Keystone XL (50-50 chance) and Line 3 (75%+) both go through, there will be transportation for all oil for at least 10 years. There will always be a structural discount, but it will be more like $10 US, not $20-40 US.


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## AltaRed (Jun 8, 2009)

I don't think there would be 10 years of space, but there will be multiple years. Oil companies will start to ramp up development again once the space is available. I do see 10 years if Trans Mountain also goes through. Oil companies will preferentially fill Trans Mountain over Keystone XL for market diversity if it goes. CN would then be stuck with so many tank cars and locomotives, they will have to have a fire sale.

I doubt the structural discount will be as much as $10US but it has to be some, as a minimum, due to pipeline transportation tariffs to tidewater refineries.


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## Bill G (Jan 8, 2017)

AltaRed said:


> I don't think there would be 10 years of space, but there will be multiple years. Oil companies will start to ramp up development again once the space is available. I do see 10 years if Trans Mountain also goes through. Oil companies will preferentially fill Trans Mountain over Keystone XL for market diversity if it goes. CN would then be stuck with so many tank cars and locomotives, they will have to have a fire sale.
> 
> I doubt the structural discount will be as much as $10US but it has to be some, as a minimum, due to pipeline transportation tariffs to tidewater refineries.


My guideline has been a WCS to WTI discount of US$10-15 is "fair", reflecting pipeline transportation costs and crude oil quality differential.

The CAPP 2018 Crude Oil Forecast: Markets and Transportation reports heavy oil pipeline tolls from Hardisty, AB to Cushing, OK of US$5.55-$6.90 (Enbridge) and US$6.25-10.10 (Keystone). The lower tolls listed are for so-called "anchor shippers" that made long-term commitments that underpinned the project. The pipeline toll range reported to get to the U.S. Gulf Coast is US$7.30-12.45. 

In its May 2018 bulletin, the Cost of Pipeline Constraints in Canada, the Fraser Institute came up with a "natural discount" of WCS versus WTI of $US 11.91 per barrel in 2017 ($6.28 per barrel for transportation and $5.63 for quality). The quality differential was based on the 5-year average differential between Mexican Maya and WTI.


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