Oilsands firms considering diluent recovery units to boost crude-by-rail volumes

CALGARY — Ongoing pipeline project delays and growth in crude-by-rail capacity from Western Canada are leading some oilsands producers to consider spending billions of dollars to build diluent recovery units.

Oilsands bitumen is a thick, sticky oil which must be diluted with about half as much light petroleum to flow in a pipeline, but diluent isn’t needed for rail transport because the product can be heated for loading and unloading.

Building diluent recovery units at Alberta rail-loading terminals would allow about one-third more room for bitumen in the railcar to improve the efficiency and profitability of using rail to supply refineries in the southern U.S., said Eight Capital analyst Phil Skolnick in a report published Friday.

“DRUs in some cases can provide attractive returns, but more importantly, they can also improve the landscape of crude-by-rail and egress (to the tune of about 190,000 barrels per day of incremental bitumen if all 600,000 bpd of crude-by-rail capacity used a DRU),” he said.

“However, reduced costs and maximum diluent recycling are key to making this effort work. These current hurdles are likely reasons companies aren’t in a rush to build them yet.”

Shipping more bitumen by rail would free up space on export oil pipelines, he added, helping to relieve a glut of trapped oil in Alberta that led to the province imposing production curtailments this year after price discounts soared last fall.

Shipping undiluted or “neat” bitumen would also improve safety because, unlike the diluted product, it’s not considered very flammable, Skolnick pointed out.

Cenovus Energy Inc. is investigating building a recovery unit at its rail terminal near Edmonton which would cost between $800 million and $1 billion, CEO Alex Pourbaix told The Canadian Press in a recent interview.

It would be capable of processing up to 180,000 barrels per day of diluted bitumen, recovering about 60,000 barrels per day of diluent to be returned to Conovus’s northern Alberta oilsands projects for re-use, he said.

“Right now, about one-third by volume of every tank car of oil we send is taken up by diluent and that diluent actually has a cost to us, it has no value. If we could … move pure bitumen, it effectively reduces our freight costs by over a third, so it makes rail movement of oil much more economic,” he said.

“On top of that, the straight bitumen generally is a much more attractive feedstock for our refining customers at the other end of the line. We believe there may even be a premium value associated to stripping the diluent out.”

An investment decision is likely several months away and will depend on how proposed pipeline project timelines advance, said Pourbaix. Cenovus has promised an update on the proposal at its October investor day.

Rival oilsands producer Imperial Oil Ltd. considered building a diluent recovery unit in the Edmonton area in 2015 but decided against it based on its high construction cost and market uncertainties, said CEO Rich Kruger on a recent conference call.

“We look at some of those key assumptions,” he said. “I would never say never. But right now it’s not a front-burner opportunity for us.”

Oilsands producer MEG Energy Corp. is also looking at recovering diluent but hasn’t committed to an investment, CEO Derek Evans said on a recent conference call.

“Diluent is a huge part of our business. And so we continue to investigate DRUs, but we also are looking very clearly at the sort of technologies that we could use to reduce the amount of diluent that we need,” he said.

MEG has previously proposed employing a partial upgrading technology that would remove heavier components in a barrel of bitumen and reduce the amount of diluent needed for transport.

Oilsands

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Education minister targeting more money to classes

Alberta Education announces new funding model

Indoor farmers market survey underway

Red Deer & District Chamber of Commerce sponsors survey

New Red Deer utility rates take effect March 1

The City of Red Deer has increased its utility fees. Beginning March… Continue reading

Trudeau says Wet’suwet’en crisis, rail blockades a critical moment for country

First Nations leaders suggest it may be time to peacefully end the blockades

Four people charged in drug trafficking investigation

Rocky Mountain House RCMP execute search warrant

Your community calendar

Feb. 19 A Liberation of Holland event is being held at the… Continue reading

New highway to B.C. proposed

The Howse Pass shortcut to British Columbia is worth taking another look… Continue reading

Stolen car provides opportunity to try out public transit

I had my car stolen on Jan. 10, just as our one… Continue reading

Ottawa changing stress test rate for insured mortgages starting April 6

OTTAWA — The federal government is changing the stress test rate for… Continue reading

PM urges patience, promises reconciliation in face of anti-pipeline blockades

OTTAWA — Prime Minister Justin Trudeau promised to redouble reconciliation efforts with… Continue reading

Champagne campaigns for Security Council in Trudeau’s place at Caribbean summit

OTTAWA — Foreign Affairs Minister Francois-Philippe Champagne wrapped two days of meetings… Continue reading

‘Schitt’s Creek,’ ‘Anne with an E’ lead Canadian Screen Awards pack

TORONTO — It will be a celebrated ending for Schitt’s Creek and… Continue reading

Prison watchdog raises concerns of ‘culture of impunity’

OTTAWA — Canada’s prison watchdog is raising concerns about the safety, rights… Continue reading

Most Read