Oil, Heavy And Light

Before I get to the main topic, I want to put in a plug for Simplicius’ latest deep dive. In it, he explains a lot of what’s behind the current situation in Ukraine, including why Russia is proceeding at such a deliberate pace:

SITREP 8/5/23: Projecting the Intermediate Future

It’s long but very thorough and informative.

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Sometime in the past I know I did a post about the fact that the oil that Russia exports is largely “heavy” oil—which is the source of the fuels used for powering trucks, ships, planes, heavy equipment and all kinds of other manufacturing applications. Light oil is used to produce gasoline. Framed in those terms, it doesn’t take a rocket scientist—which I’m not—to figure out which type of oil is most important in the big scheme of things.

Today I came across a long blog post (via Zerohedge) that explains the world situation in this regard. The post goes into a lot of other issues that I don’t want to include here because I suspect they could be controversional—things like, How much oil is in the ground? So I’ll paste in a portion of the much longer post and supplement it with a few additions that I came up with. I’m hoping this will prove informative to at least a fair number of readers. It will help explain the fix that Europe is in, largely of its own making.

Our Oil Predicament Explained: Heavy Oil and the Diesel Fuel it Provides Are Key

It has recently become clear to me that heavy oil, which is needed to produce diesel and jet fuel, plays a far more significant role in the world economy than most people understand. We need heavy oil that can be extracted, processed, and transported inexpensively to be able to provide the category of fuels sometimes referred to as Middle Distillates if our modern economy is to continue. A transition to electricity doesn’t work for most heavy equipment that is powered by diesel or jet fuel.

There’s the bottom line issue. Now the author lists other factors regarding the shipment and use of heavy oil:

As oil becomes “heavier,” it becomes more viscous, and thus more difficult to ship by pipeline. If oil is very heavy, as is the oil from the Oil Sands of Canada, it needs to be mixed with an appropriate diluent to be shipped by pipeline.

This may explain the Russian use of shipping to move oil from their Arctic regions to the Far East—that method could be more cost effective for the heaviest grades of oil (I’m guessing.).

Heavy oil often has sulfur and other pollutants mixed in, adding costs to the refining process. Furthermore, heavy oil, especially very heavy oil, often needs to be “cracked” in a refinery to provide a desirable mix of end products, including diesel, jet fuel, and gasoline.

Now, here’s a key factor. Heavy oil can be refined into lighter grades, but light oil can’t (in a practical sense) be made into heavy oil, into diesel fuel. That means that if a country (like the US) has large amounts of light oil, it will still need to import heavy oil to run its industry and transport. On the other hand, countries that have large amounts of heavy oil are in a good place, and may be able to find work arounds for light oil products.

While oil producers can crack heavy oil to make shorter hydrocarbons in a way that is not terribly expensive, trying to make near-gasses and light oils into diesel becomes impossibly expensive.

Where does the US stand in all this? The US has a mix of oils, but is skewed toward light oils. You can read about that here:

U.S. Imports Mostly Heavy Crude As Light Oil Production Booms

Here’s another article that goes into a bit more detail, if you’re inclined in the direction of more detail. I’ve pasted in a section that provides a handy summary. Briefly, in the graph, the more a given oil skews to the NW (top left) the heavier it will be.

Types of Crude Oil: Heavy vs Light, Sweet vs Sour, and TAN coun

CRUDE OIL TYPES LIST

There are over one hundred different crude oils traded on the market today.

These oils are typically labeled by the region they come from, and they have a specific chemical makeup. This graph below shows the sulfur content and weight of some of the most common.

BENCHMARK CRUDE OILS: OPEC, WTI, AND BRENT

The three most well known regional benchmark oils are WTI, Brent, and OPEC.

• WTI stands for West Texas Intermediate. This is oil produced in the United States. It is typically on the lighter end of the spectrum, at an API gravity of 39.6. WTI sulfur content is 0.24%, putting it at the sweeter end of the spectrum.

• Brent oil comes from the Scottish Brent and Ninian Systems located in the North Sea. This oil is also light and sweet, with an API gravity of 38.3. Brent sulfur content is 0.37%.

• OPEC stands for “Organization of Petroleum Exporting Countries.” It is a collective group of seven different crude oils from Algeria, Saudi Arabia, Nigeria, Dubai, Indonesia, Venezuela, and the Mexican Isthmus. The oil from these regions is typically on the heavier and sour end of the spectrum.

While logistics also play a role, typically the lighter and sweeter an oil is, the more expensive it’s going to be.

So, back to the main article. Now we get to the nitty gritty:

The world’s number one problem today seems to be an inadequate supply of Middle Distillates. These provide diesel and jet fuel.

Diesel and jet fuel provide the big bursts of power that commercial equipment requires. Many types of equipment are dependent on Middle Distillates, including semi-trucks, agricultural equipment, ocean-going ships, jet planes, road-making equipment, school buses, and trains operating in areas with steep inclines.

Because of its concentrated store of energy, diesel is also used to operate backup generators and to provide electricity in remote areas of the world where it would be impractical to have year-round electricity without an easily stored fuel.

• Light Distillates are primarily gasoline (78% in 2022).

• Middle Distillates are diesel (82%) and jet fuel/kerosene (18%).

• Fuel Oil is a cheap, polluting, unrefined product. If environmental laws permit, it can be burned as bunker fuel (used in ships), as boiler fuel, or to provide electricity.

• The Other category includes near-gasses such as ethane, propane, and butane (58%). It also includes some very heavy oil used as lubricants, asphalt, or feedstocks for petrochemicals.

Now we are running short of Fuel Oil to refine for the purpose of producing more Middle Distillates.

Countries around the world are now competing for Middle Distillates to maintain the food production, road building, commercial transportation, and construction portions of their economies.

Diesel and jet fuel, made using Middle Distillates, are less on the minds of voters, but they are probably more important to the economy because people’s jobs depend upon the economy in its current form holding together. Inadequate Middle Distillates leaves empty shelves in stores because of broken supply lines.

The EU has a serious oil problem. It has essentially no crude oil production of its own.

The EU, with no oil production of its own to speak of, somehow bought into the idea of cutting itself off from its best source of heavy oil—Russia. The US imports heavy oil (including from Russia!), so we won’t be exporting any of our own heavy oil production to the EU—except at a steep premium. US gas transported via ship is also much more expensive and less convenient than Russian pipeline gas. And remember, the US blew up the EU’s pipeline to cheap Russian gas.

And it gets worse. The EU has used tax penalties to induce ordinary people to buy diesel powered cars. That’s burning up—misallocating—diesel fuel that could be put to much better use for the EU economy as a whole. It appears that these crazy policies were largely put in place for the purpose of virtue signalling.

When I look at the data regarding the types of oil the EU has chosen to consume (nearly all imported), I find that it uses an oil mix that is unusually skewed toward Middle Distillates and away from Light Distillates. (Compare Figure 8 with Figure 3).

Part of the reason the EU uses this skewed oil mix is because it has encouraged the use of private passenger cars using diesel through its tax structure. Underlying this tax structure was most likely an understanding that Russia, through its exports of Urals Oil, which is heavy, could provide the EU with the mix of oil products it needed, including extra diesel.

The EU has recently cut off most oil imports from Russia as a way of punishing Russia. This cutoff is being phased in, with most of the impact in 2023 and later.

But, as we now know, this EU own goal hasn’t punished Russia at all. The EU has only punished itself.

China and India are now buying most of Russia’s exported oil. These countries tend to use the oil more “efficiently” than the EU. In particular, they do more manufacturing than the EU, and they have far fewer private passenger cars per capita than the EU. Furthermore, the EU powers quite a few of its private passenger cars with diesel. If diesel is in short supply, efficiency demands that it should be saved for uses that require it, such as powering heavy equipment.

Closer to home, it turns out—and you can fact check me on this—that gasoline should be relatively plentiful and it’s efficient for use in automobiles. It should be plentiful, because the US has enormous reserves of light oil that can be readily refined into gasoline. What’s keeping gasoline prices high is—you’ve guessed it already—government policy. Gasoline usage just isn’t that big of a deal in terms of overall petroleum product usage. The EV push is basically pointless, because of all the other costs and drawbacks to EVs, as we currently know them.

Why, then, haven’t we in the US addressed the bigger issue of diesel fuel usage? Because substituting electricity for diesel fuel would be “virtually impossible”. Well. That’s a good reason—see below for details. But, as you and most consumers have already surmised, the whole EV business is a scam—like so much else of life in a progressive utopia.

The substitution of electricity for oil so far has been mostly in the direction of replacing gasoline usage for private passenger automobiles. Substitution of electricity for Middle Distillates would be virtually impossible.

Middle Distillates are largely used for the tough jobs–jobs that require big bursts of power. Electricity and the battery storage required for electricity are not adapted to these tough jobs. The vehicles become too heavy, especially when the big battery packs that would be required are considered. The Wall Street Journal recently reported that battery-powered commercial trucks can cost more than three times the price of diesel-powered trucks, a hurdle much smaller private passenger automobiles don’t face.