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Closer to Home, Part 2 - Gibson and USD Open a New Avenue for Alberta Bitumen to the Gulf Coast

With Alberta’s bitumen production rising to record levels of late, finding more ways to export this molasses-like heavy oil has become more important than ever. In early 2020, Gibson Energy and US Development Group embarked on the construction of a diluent recovery unit in Hardisty, AB, to greatly reduce the need for diluent and retain more of it for reuse. With the unit’s commercial start-up at the end of 2021, another unique pathway for transporting Canadian bitumen to the U.S. Gulf Coast — and, possibly, overseas markets — has become a reality. In today’s RBN blog, we provide an update on this venture and discuss where it might lead next.

The production of bitumen in Alberta’s vast oil sands continues to increase. Shipping all of that high-viscosity material requires blending with diluent, an extra-light hydrocarbon, with the resulting mix shipped in pipelines (usually referred to as dilbit) or transported in rail cars (called railbit). With Alberta’s production of bitumen reaching a record high of just over 2 MMb/d in November 2021, demand for diluent simply keeps rising and there never seems to be enough of the stuff.

In Part 1, which we posted just over a year ago, we took a closer look at diluent and concluded that demand for it was going to rebound off 2020 COVID lows of about 550 Mb/d (dashed red oval in Figure 1) to more than 800 Mb/d by the end of 2021 (dashed green oval), as bitumen production recovered along with oil prices and oil demand. With Western Canada’s native supply of diluent in the form of field condensate and pentanes-plus (natural gasoline) only in the 400-Mb/d range and expected to grow only modestly, increasing volumes of imported diluent were going to be needed. U.S. exports of diluent to Canada are shipped north on the Pembina Pipelines-owned Cochin Pipeline and the Enbridge-owned Southern Lights Pipeline, both of which originate in the Chicago area. Upon arrival in Alberta these imports are added to local diluent supplies and then shipped on separate pipelines to the oil sands for blending with bitumen.

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