Last month (March 4, 2014) the first unit train shipment of railbit blend bitumen crude from Southern Pacific Resources Western Canadian oil sands project arrived at Genesis Energy’s Natchez, MS terminal in the Eastern Gulf Coast region. This is the first railbit unit train to hit our radar screen. Railbit has less light hydrocarbon diluent blended with it than the 30 percent required for making heavy Canadian bitumen crude flow in pipelines. So using rail to ship railbit saves some of the “diluent penalty” that pipeline shippers incur by buying diluent for blending and shipping it with their crude. Today we look at the logistics behind this ground-breaking shipment.
This blog returns to a topic that we have covered several times in the past two years. That is the transport of heavy Canadian bitumen crude. This thick, viscous crude is extracted from oil sands in the Western Canadian Sedimentary Basin (WCSB - see We Are the Champions) and requires complex processing to extract valuable refined products. Some bitumen crude is upgraded close to the wellhead in Canada but growing volumes are being extracted and shipped to refineries closer to market – most in the United States. The largest refining market for Canadian bitumen in the US is the Gulf Coast region that houses 1.5 MMb/d of the complex coker unit capacity best suited to refining bitumen.
The challenge for WCSB producers is to get bitumen crude to refineries nearly 3000 miles away on the Gulf Coast. For a start bitumen does not flow at room temperature and has to be diluted with lighter hydrocarbons known as diluent to make a blended crude know as dilbit that can be shipped on pipelines (see Heat It). Depending on the density of the bitumen the diluent mix makes up as much as 30 percent of the volume. That means shippers are paying a “diluent penalty” to purchase and move extra product mixed in with their bitumen that adds little value once it reaches Gulf Coast refineries. Added to this “diluent penalty” is a lack of adequate pipeline capacity from Western Canada to the Gulf Coast. That lack of capacity means that over the past three years producers have had to swallow heavy price discounting for their barrels in Canada versus US prices such as the benchmark West Texas Intermediate (WTI) grade (see Storing Crude in Edmonton and Hardisty). In the circumstances a growing number of Canadian producers are looking seriously at crude-by-rail alternatives to get their crude to market.
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There are two advantages to moving bitumen crude by rail instead of by pipeline. The first is that rail can bypass pipeline congestion and deliver crude either directly to refineries or to marine terminals where it can be barged to refineries. When sold closer to market bitumen crude is worth more than the discounted prices on offer in Canada. The second advantage is that moving bitumen by rail requires less diluent than a pipeline – especially if specialized double hulled heated and coiled rail tank cars with steam tubes inside are used, that can heat up the crude for unloading (see the cutaway picture in Figure 1). Such specialized railcars can move bitumen with little or no diluent but are more typically used to ship bitumen with about 17 percent diluent – roughly half as much as pipelines require – saving the shipper money on the diluent penalty. The lower diluent bitumen mix is known as “railbit”. Offset against the savings are higher rail transport costs versus pipeline.
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