Bitcrude may be a game-changer in pipeline debate
It didn’t take long to see the perils of trying to control markets through central planning. That’s not to say that oil curtailment was the wrong decision. I supported it too. It’s just that one intervention inevitably leads to another and another, and pretty soon you have a hot mess.To be fair to Premier Rachel Notley, we don’t know what would have happened if she hadn’t announced a supply restriction of 325,000 barrels per day of oil production. Perhaps the $50 discount would have stretched on for months and Alberta would have faced even more severe layoffs. Perhaps with the regime change and sanctions in Venezuela — our chief competitor in providing heavy crude to the U.S. — the price would have corrected on its own.What we do know is the industry is struggling with the restrictions. A last-minute change to the formula caused CNRL to curtail an amount disproportionately higher than its share of production. Imperial Oil — and every other company that transports oil by rail — says the differential is now too narrow to be competitive. Here’s why: If a refinery can buy West Texas Intermediate crude for $50 a barrel, and it costs $15 a barrel to transport by rail, Western Canadian Select crude would have to be less than $35 a barrel to make it worth it.Compounding the problem is Notley had already announced a plan to buy 7,000 rail cars for a government-sponsored oil-by-rail program. The economics of that plan are blown to smithereens under the current scenario.It’s darn tricky to get central planning right. We need to end curtailment as soon as possible.To this point, everyone — including me — has been saying that new pipelines are the only real solution to get out of this mess. Now it appears there may be another way.A private company has been quietly working to solve the problem of the bitumen bottleneck and make Athabasca oilsands the safest oil in the world to transport.This week I spoke to Cal Broder and Andy Popko from Bitcrude. If what I’m about to tell you seems too good to be true, you can check their presentation out yourself at bitcrude.ca.Their plan is to transport bitumen in semi-solid form by rail to any market in the world. It turns out Athabasca bitumen is naturally a semi-solid; it’s the reason why companies have to mix it with diluent to get it moving through pipelines. Their plan is to transport it as a semi-solid and only convert it to a liquid once it reaches the refinery for processing.How would it work? They are building a processing centre in central Alberta to extract the diluent from the bitumen. They will then pour pure liquid bitumen into a liner where it will solidify. A rail car will transport it to the port of Prince Rupert for loading on a container ship bound for Asian markets.This could change everything. Because it is in solid form, if there is a derailment there is no spill. If there is an accident loading on to the container ship or the container falls overboard, there’s no spill. Even if it ever did get into the water it would float. Plus it has been lab tested and shown that it doesn’t kill fish.Without diluent, the product is 100 per cent fuel and less costly to transport. Plus, it will sell at a premium because heavy crudes are more valuable on the international market.It will require less energy to produce, transport and refine so it will mean fewer greenhouse gases.There are no First Nations access issues because it uses an established railway right of way. It doesn’t need NEB approval because it’s not going in a pipeline. It is not subject to Trudeau’s tanker ban because it is a solid. And because liquid bitumen and diluent will be taken out of the existing pipeline system, it leaves more room for conventional crude which will immediately increase take-away capacity.The first processing plant is under construction. Once the first unit is complete, they say they can scale up almost without limit.This may be the solution we’ve all been waiting for.If it works, let’s remember it didn’t take central planners to come up with it.
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