Oil­sands crude could get even heav­ier

Plans in mo­tion to strip dilu­ent for rail ship­ment

National Post (National Edition) - - Financial Post - ROBERT TUT­TLE

CAL­GARY • Al­berta’s strug­gling oil­sands in­dus­try has a plan to cut costs while ex­port­ing more of their crude: Make it even heav­ier.

Com­pa­nies i nclud­ing Cen­ovus En­ergy Inc., Gib­son En­ergy Inc., Im­pe­rial Oil Ltd. and MEG En­ergy Corp. are look­ing to re­move con­den­sate and other light oils from the oil­sands bi­tu­men they pro­duce, so they can get more of it onto rail­cars.

Do­ing so would dra­mat­i­cally re­duce the cost of ship­ping crude by rail to the U.S. Gulf Coast, which oth­er­wise can cost twice as much as ship­ping by pipe­line. Re­mov­ing the light oils, called dilu­ent, would make rail ship­ments nearly as cost-ef­fec­tive as pipe­line ex­ports, said Di­nara Milling­ton, vice-pres­i­dent of re­search at the Cana­dian En­ergy Re­search In­sti­tute.

The plan comes af­ter Al­berta’s gov­ern­ment in Oc­to­ber eased manda­tory pro­duc­tion lim­its for com­pa­nies that ship crude by rail. That’s stim­u­lated rail ship­ments at a time when pro­duc­ers are con­tend­ing with a sup­ply glut caused by a short­age of pipe­lines.

Ship­ping bi­tu­men to the Gulf Coast with lit­tle to no dilu­ent can save a pro­ducer more than $6 a bar­rel ver­sus ship­ping di­luted bi­tu­men, ac­cord­ing to IHS Markit.

Cana­dian pro­duc­ers have long con­sid­ered build­ing dilu­ent re­cov­ery units, or DRUs, to re­move con­den­sate from their bi­tu­men and ship­ping more of it by rail. Now, a few com­pa­nies are push­ing ahead with the projects as plans to ex­pand pipe­lines such as the Trans Moun­tain line to the Van­cou­ver area and En­bridge Inc.’s Line 3 face re­peated de­lays.

Cen­ovus plans to sub­mit an ap­pli­ca­tion this quar­ter to build an $800-mil­lion to $1-bil­lion DRU at its Bruder­heim, Alta., rail ter­mi­nal, with plans to start con­struc­tion within a year. The plant would process 180,000 bar­rels a day of di­luted bi­tu­men, strip­ping out 60,000 bar­rels a day that would be re­cy­cled back to oil­sands sites.

Gib­son En­ergy is work­ing with its part­ner USD Group LLC to se­cure com­mer­cial sup­port for a DRU at its Hardisty, Alta, ter­mi­nal and is “well ad­vanced” on a com­mer­cial agree­ment with one cus­tomer for a por­tion of the first 100,000 bar­rels a day re­quired for phase 1, Steve Spauld­ing, chief ex­ec­u­tive of­fi­cer, said in an Nov. 5 in­vestor call.

“We are cur­rently work­ing to se­cure cus­tomer com­mit­ments for the pro­ject; and

CUR­RENTLY WORK­ING TO SE­CURE CUS­TOMER COM­MIT­MENTS.

sanc­tion­ing will be de­pen­dent on those com­mit­ments,” Brian Rad­iff, Gib­son spokesman, said in an email. Con­struc­tion will take about 18 months with the plant op­er­a­tional as early as the se­cond quar­ter of 2021.

The pipe­line short­age that emerged last year, send­ing lo­cal oil prices tum­bling to the low­est in a decade, prompted com­pa­nies to sign up for long-term rail con­tracts, said Kevin Birn, IHS Markit’s di­rec­tor of North Amer­i­can crude oil mar­kets. That “taught pro­duc­ers they need to in­vest in flex­i­bil­ity to en­sure they can max­i­mize value of their prod­uct,” he said.

Still, ship­ping undi­luted crude by rail is more lo­gis­ti­cally chal­leng­ing, re­quir­ing special heat­ing equip­ment and pos­si­bly des­ig­nated tanks at the re­ceiv­ing ter­mi­nal, Birn said. Rail­cars must be in­su­lated with heat­ing coils.

DAR­REN MAKOWICHUK / POST­MEDIA NEWS FILES

Ship­ping undi­luted crude by rail will re­quire heat­ing equip­ment and pos­si­bly des­ig­nated tanks at the re­ceiv­ing end.

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