Railbit

Fifteen years ago, just before the dawn of the Shale Era, more than 1.8 MMb/d of Gulf Coast and imported crude oil was being piped and barged north from PADD 3 to refineries in the Midwest. By 2019, those northbound flows had fallen by half, to less than 930 Mb/d, and in the first nine months of  this year they averaged only 550 Mb/d. Refineries in PADD 2, many now equipped with cokers and other hardware that enables them to break down heavy, sour crude into valuable refined products, have replaced those barrels — and more — with piped- and railed-in imports of favorably priced crude from Western Canada, including a lot of dilbit and railbit from Alberta’s oil sands. Today, we discuss the evolution of feedstock supply to the Midwest refinery sector.

Producers in Alberta’s oil sands have been through good times and bad times the past few years. Sure, there’s been a lot of growth in output since 2010. But they’ve also seen wildfires that forced one-third of production offline. And pipeline takeaway constraints that sent prices tumbling and spurred government-imposed production cutbacks. And lately, they’ve been struggling through a global pandemic that slashed crude-oil demand and led to further curtailments. Despite it all, producers and the province of Alberta are hopeful about an oil sands rebound, and shippers are optimistic that they can source an increasing share of the diluent they would need to transport bitumen from Western Canada. There’s good news on that front: there appears to be plenty of diluent pipeline capacity already in place between Alberta’s diluent hubs and its oil sands production areas. Today, we continue our series by exploring the major pipeline systems that distribute diluent supply to the 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.

Our analysis shows that about 1.7 MMb/d of crude-by-rail (CBR) unload capacity has been built out and is operating in the Gulf Coast region today. According to Energy Information Administration (EIA) data for January 2016 an average of only 142 Mb/d was shipped into the region by rail in January 2016 down from a peak of just under 450 Mb/d in 2013 and an average of 235 Mb/d in 2015. In other words, the current unload capacity represents a whopping 12 times January 2016 shipments – a massive overbuild that is continuing today as new terminals are still planned. Today we look at the fate of Gulf Coast CBR terminal unload capacity.

Data from the new Energy Information Administration (EIA) monthly report on crude-by-rail (CBR) shows that shipments from Canada increased from less than 10 Mb/d two years ago in January 2012 to over 130 Mb/d in January 2015. The increase in CBR movements mirrors increasing Canadian crude exports to the U.S. – the majority of which are still pipeline movements. Today we look at the destination markets for Canadian CBR in the light of congested pipeline capacity out of Western Canada.

Canadian producers trying to get their crude to market have come under pressure from two directions at once. US regulators have extended the deadline to make a decision on the Keystone pipeline that would relieve ongoing pipeline congestion out of Western Canada. Canadian regulators have increased pressure on crude by rail development plans, designed to bypass pipelines, by implementing new standards for rail tank cars. With no other apparent alternatives and despite some delays, rail terminal development plans in Canada are proceeding. Today we detail the progress of rail unloading terminals that can handle heavy Canadian crude at the US Gulf Coast.

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.