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He Ain't Heavy, He's My (Diluent) - The Growing Need for Diluent in Alberta's Oil Sands

Bitumen, the heavy, viscous form of crude oil associated with Alberta’s oil sands, has been the workhorse behind Canada’s ascent to near the top of oil-producing nations. However, it is impossible to get raw, near-solid bitumen to refiners by pipeline without either upgrading it to a flowable crude oil or blending it with lighter hydrocarbon liquids, a.k.a. diluents, to form the more diluted version of the product, referred to as “dilbit.” As for moving bitumen by rail, there are two main options: using heated tank cars or blending it with diluent to form “railbit.” The rapid rise in bitumen production in the past decade — interrupted only by wildfires and the recent price crash — has generated a large parallel market for diluents, whose fortunes are closely tied to the oil sands. U.S.-sourced diluent currently meets a substantial portion of the demand. But with Alberta oil sands development poised for renewed growth and in-province condensate production rising, the Canadian diluent market could be in for some big shifts. Today, we start a blog series considering the unique role that this special form of hydrocarbon plays in the oil sands.

Alberta’s fast-growing production of bitumen in recent years was only made possible by increasing the supply and use of diluents, a variety of light liquids that when blended with bitumen allow it to flow in pipelines or be shipped in rail cars. This has resulted in the development of a sophisticated infrastructure for the delivery of the diluent to where it is needed. Things are in flux, though. For one, bitumen production has been set back the past few months by takeaway constraints, low prices and falling refinery demand, but is expected to rebound later this year. Also, Western Canadian sources of diluent have been growing the past few years and may reduce the need for imported diluent on pipelines from the U.S., opening the door to a possible repurposing of these import pipelines. In this series, we’ll take a closer look at how changes to Canada’s oil industry might affect diluent demand, sourcing and transportation. We’ll begin by considering why diluent is needed, what liquids can be used as diluent and where they come from. Later in the series, we’ll look more closely at infrastructure issues and the future of diluent use.

Crude production growth in Alberta — by far Canada’s largest energy-producing province — has been mostly powered by bitumen, a very heavy form of crude oil from Alberta’s oil sands. The province’s bitumen reserves are vast, but producing it involves either mining or in situ steam injection, and the end product is extremely viscous — typically close to a solid at ambient temperature. Moreover, before it can be transported, bitumen must be either processed or blended to meet pipeline or rail viscosity specifications. One option is to “lighten” or upgrade the bitumen (in terms of its API gravity) by passing it through what amount to immense chemistry sets known as upgraders. The resulting light crude, referred to as synthetic crude oil (SCO), can be easily transported by pipeline and is used extensively by refineries across Canada and in the U.S. Midwest.

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