Demand for diluent range light hydrocarbon materials such as natural gasoline and condensate that are used to reduce the viscosity of heavy Canadian bitumen crude so that it can flow in pipelines, is forecast to increase from 380 Mb/d in 2014 to 685 Mb/d by 2019. Increasing bitumen crude production in the Western Canadian oil sands region drives that demand. New large scale bitumen projects in Alberta requires two pipelines – one to ship crude production to market and one to ship in diluent for blending. Today we start a new series detailing the expanding western Canadian diluent distribution network.
RBN has frequently detailed the challenges that producers in the Western Canadian sedimentary basin (WCSB) have faced transporting heavy bitumen crude from the Alberta oil sands formations to market. Bitumen crude that is not first upgraded by partial refining (to make light synthetic crude oil or SCO) cannot flow in pipelines unless it is diluted by blending with as much as 30 percent of lighter hydrocarbons (known as diluent) or heated up. Heating is used infrequently for short distances but diluent blending is the preferred method for most Canadian producers that ship such heavy crude by pipeline. Our analysis to date has mostly focused on the longest part of the bitumen crude journey – from pipeline hubs in Edmonton and Hardisty (see Edmonton and Hardisty – Storing Crude Oil in Harmony) to refineries in the U.S. Midwest and on the Gulf Coast (see Go Your Own Way).
Delays in the build out of pipeline infrastructure from Alberta to the U.S. and in plans to build pipelines to tidal water on Canada’s West Coast have encouraged producers to use expensive rail transport to by-pass congestion and crude price discounts in Edmonton. However, even though some crude by rail movements of bitumen require less diluent material for transport, most all of the current production of WCSB heavy crude is still blended with diluent for its journey to market. Since - as we shall see - WCSB production of diluent materials only meets about 40 percent of current demand, significant quantities of these light hydrocarbons have to be imported into Canada (mostly from the U.S.) and transported to the production regions. We have previously covered the routes that two types of diluent – natural gasoline and condensate – take from the U.S. to Canada – see for example “Utica Condensate Routes to Canada” and the earlier “It’s A Kinder Magic” and “Plains, Trains and Diluent Deals”.