It's a Bitumen, oil - Does it go too far? It might not matter anyway. Where is the natural home for Canadian oil sands crude oil? The Gulf Coast?

They call it oil sands.  It used to be called tar sands, but that was bad marketing.  Regardless, it looks like dirt. Oily dirt.  It is a mixture of sand, water, clay and petroleum – crude bitumen.   Pronounced bich-oo-muhn.  Even after it has been separated from the dirt and water, this bitumen is difficult to handle.  

Bitumen won’t flow and it can’t be pumped unless it is heated or diluted.  The gravity of Canadian bitumen is a rock bottom 8° API.  This is the oil that (1) is responsible for the majority of Canadian crude oil production growth, (2) that has motivated several U.S. refineries to spend billions on crude upgrading equipment, and (3) of course is the material that has stirred all the controversy with Keystone XL.  We’ll look at the current outlook for bitumen, how it is being transported, and the logic for moving it 2,700 miles to the U.S. Gulf Coast.  Is that going too far?

[To make this one work, you must pronounce ‘Oil’ in the title the way we do in East Texas.  You say ‘Oil’ as ‘Earl’ in Etxabonics.  Then think Hall & Oates.  Ok, it’s a stretch.]

How much bitumen do they have in Canada?  As shown in the graph below from James Cairns, VP Petroleum & Chemicals, CN, they have a lot.  This is from the Platts North America Crude Marketing Conference held last week in Houston.  The CN numbers show Oil Sands Heavy increasing from about 1.0 MMb/d up to 2.0 MMb/d by 2016, then up to 3.5 MMb/d in 2025.  There is another 1.0 MMb/d of upgraded light, which is bitumen that has been run through an upgrading plant to make synthetic crude oil (SCO).  For you refining jocks, the upgraders are basically a delayed coker with a hydrotreater on the back end. If this means nothing to you, think of an upgrader as half a refinery that takes bad crude and makes good crude.  It is a high-dollar process that is one way to make bitumen transportable by pipeline.

It makes economic sense to upgrade bitumen because disposition of the material is a problem.  Most of the refineries in Canada can’t run the stuff.  So there are three choices: (1) move to the U.S., (2) move to waterborne export facilities in British Columbia, or (3) don’t produce it in the first place.   [For more info, see an earlier RBN posting A Home For Canadian Oil Sands Crude.]

To move it, it must be upgraded, heated or diluted.  Almost all bitumen in one of these forms is transported to market via pipeline or railcar.  Bitumen moving via pipeline is diluted (think paint thinner) with natural gasoline, condensate or similar light material (generically called ‘diluent’) to make it flow.  Until 2010, most of the diluent had to be shipped into the Canadian Bitumen producing areas via rail car.  In late 2009, Enbridge completed the Southern Lights pipeline from the Chicago area into Alberta (see map below).   Some of this diluent comes from the Aux Sable natural gas processing plant near Chicago, but most comes from much farther away.  Diluent demand is pulling natural gasoline and condensates from Eagle Ford all the way up Capline (the big crude system that runs from St. James, Louisiana, to Patoka, Illinois) into Southern Lights, then all the way to Edmonton., AB.

The cocktail of bitumen and diluent (70%/30% mix) is called Dilbit.  I’m not kidding.  No relation to Dilbert.

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