Oil is popularly known for its price volatility. Historically, oil prices have always been in the news, and we are used to reading about the evolution and changes in oil prices, their adjustments, and influences by external actors. However, are we aware of the inherent aspects of crude oil itself, its processes, and how marketing affects its value?
Beyond the influence that international relations, commercial interests, and the dependence on crude oil demand worldwide may play, the price of oil has historically also depended on its quality in terms of density: the lighter the crude, the higher the profit margin for the different traders. Likewise, and logically, this margin depends on the final quality of the expected product or by-product. What happens then with heavy crude oil? Does it have a different price?
The price of crude oil is one, regardless of whether it is light or heavy. The difference lies not in the marketing price but in the production cost to reach the needed quality levels to be marketed (synthetic or improved crude oil). Depending on the type of oil, processing and upgrading vary and the required energy consumption to transform the oil into a sufficiently good product also may change.
This production factor means that as the quality of crude oil decreases, there is a need for more energy to convert the oil into the same quality product in terms of extraction processes or during refining. This reality presents a challenge regarding lighter crudes, as their price is more volatile due to the relationship between energy consumption, energy efficiency, and the profitability of the process (cost of each barrel’s extraction).
Considering this idea, if we know that the net energy value of heavy oil accounts for total energy required at each production stage until arriving or the refining stage, we understand the profit margin and price volatility regarding heavier crude oils. This fluctuation happens due to the processes involved, which generate higher costs for the exploitation, extraction, treatment, pumping, and refining of heavy oils.
At Nakasawa Resources, we are committed to incorporating technologies to make these processes more efficient and therefore more profitable, reducing energy consumption and associated costs in this delicate production cycle.