So far, 2020 has been another bad year for bitumen producers in Alberta’s oil sands. For the second year in a row, they have been forced to endure production curtailments, this time in response to COVID impacts on demand and the resulting record-low heavy oil prices. Still, there are at least glimmers of hope that the bitumen market will soon enter at least a modest recovery mode, and that further gains will be possible in 2021 and beyond. Moving all of that bitumen to market in pipelines and in rail cars is going to require even more diluent than the record amounts already consumed in late 2019 and early 2020. Today, we consider the outlook for bitumen production, what that outlook means for future diluent demand, and if that demand can — or cannot — be met by the various sources of diluent supply.
Over the course of this series, we have been taking a closer look at diluent, the light liquid hydrocarbons that are blended with bitumen — the extremely heavy and viscous form of crude oil from Alberta’s oil sands — to create a more fluid form that can flow in pipelines or be shipped in rail cars. With bitumen production on the rise since the start of the century and pushing Canada into the top ranks of global oil producers, an entire side industry has arisen to gather and distribute diluent to the oil sands regions of Alberta.
In Part 1, we began our analysis with a look at the shifting diluent supply and demand in Western Canada. Using a relationship known as the blend ratio — or the amount of diluent required per barrel of bitumen — we estimated that diluent demand more than doubled in the past decade or so, rising from about 300 Mb/d in 2010 to more than 750 Mb/d as of early 2020. In-region diluent supply also climbed in that time, but the homegrown sources of diluent are insufficient to meet all of the demand, necessitating imports via two dedicated import pipelines from the U.S. Midwest.
Canadian crude output is rising, requiring new export routes. As traditional pathways face constraints, the U.S. Rockies—especially the Guernsey, WY hub—are emerging as key corridors for moving Canadian heavy crude to downstream markets, including the Gulf Coast.
Part 2 looked more closely at the sources of diluent supply in Western Canada and the various pipeline gathering systems that move those liquids to the Edmonton/Fort Saskatchewan and Hardisty trading hubs. To sum up, a large share is sourced from mixed NGLs (referred to as y-grade) in the form of condensate (also known as natural gasoline), which is extracted from the NGLs at gas and fractionation plants. Significant volumes of diluent also come from simple processing of the liquids directly from the wellhead (called field condensate, but also called condensate in Canada, to keep it confusing). And finally, a small portion of diluent demand is met by using Alberta-sourced butane (or normal butane) as a blending agent. The biggest of the liquids pipelines facilitating movement of diluent supply out of the supply regions is the Peace Pipeline system operated by Pembina Pipeline Corp., but there are also a number of smaller pipeline gathering networks in the region operated by Keyera Energy and Plains Midstream Canada.
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About the song
"He Ain't Heavy, He's My Brother" was written by Bobby Scott and Bob Russell. The song was originally released by Kelly Gordon in early 1969, but it was The Hollies’ release of the song as a single in September 1969 that made it a worldwide hit. “He Ain’t Heavy” was the second song on side two of the U.S. release of The Hollies’ ninth studio album of the same name. The song was recorded at Abbey Road Studios in London between June and August 1969, with Ron Richards producing. It went to #7 on the Billboard Hot 100 Singles chart. Personnel on the record were: Allan Clarke (lead vocal, harmonica), Tony Hicks (lead guitar, backing vocals), Terry Sylvester (rhythm guitar, backing vocals), Bernie Calvert (bass, keyboards), Bobby Elliott (drums), and Elton John (piano).
The album He Ain't Heavy, He's My Brother was released in the U.S. in December 1969. It was released in the UK one month prior, under the title Hollies Sing Hollies. The re-named U.S. version included the hit single, which was not included on Hollies Sing Hollies. It would be the first Hollies album released since the departure of Graham Nash in late 1968. The album went to #32 on the Billboard Top 200 Albums chart.
The Hollies are a British rock band formed in Manchester in 1962 by Allan Clarke and Graham Nash. They have released 21 studio albums, 22 compilation albums, seven EPs, and 67 singles. They have had 21 singles chart in the Billboard Hot 100 and 13 albums chart in the Billboard Top 200. They are members of The Rock and Roll Hall of Fame and Vocal Group Hall of Fame. The band still tours with founding members Tony Hicks and Bobby Elliot, joined by touring musicians.
Comments
The basis of your article is a 50% increase in non upgraded bitumen supply in the next five years. How likely is that to happen? Not very likely I'd have to say since the oil sands is supply of last resort in terms of attracting capital. I'd also say that there have been continual calls for huge levels of diluent for many years now that have never materialized. BP took a bath on their take or pay commimtent to Southern Lights for many years by believing these forecasts. So the AER might a forecast that says that, but it ain't going to happen.
The forecast diluent requirment numbers in today's blog seem high. I would be happy to chat with you about what Martin may be overlooking.