Diluent Central

Updates

November 28, 2014: TransCanada to increase diluent capacity to northwest Canada.

June 3, 2013: EPD to move diluent from Texas to Chicago area. 

February 4, 2013: decision to reverse the Capline, the nation's largest continental pipeline.

Original Post

The diluent story, start with the Reuters article posted March 29, 2012, previously posted and linked.

Two of the country's biggest pipelines, both now underutilized, are competing to pump a special type of ultralight oil from the Gulf Coast to the Midwest, betting on growing demand from Canadian producers for the "diluent" necessary to their heavy oil sands bitumen flowing to refiners.

Whether heavy oil sands bitumen is shipped by rail or through pipelines, diluent is required to thin it down for movement. One source said that rail used a third (33 percent) less diluent than pipeline.

Data points:

• oil sands demand for diluent last year (2011): 275,000 bpd
• by 2025, estimate: 1 million bpd diluent needed by Canadian oil sands
• Canadian condensate slipped to 130,000 bpd; was 165,000 in 2000
• US exports of one type of diluent: Pentanes Plus -- surged to 86,000 bpd, up from 11,000 bpd in the first seven months of this year (2012)
• last year estimate for total US exports of all diluents: 125,000 bpd
• US share of that million bpd diluent could be 385,000 bpd (3x today)

Because of low prices of natural gas, producers in Canada are cutting back on natural gas production, and imports of natural gas from the US to Canada are surging. This is also happening in Mexico, where US is exporting increased amounts of natural gas to Mexico because its producers there are also cutting back (the MDW posted/linked that story earlier).

Now, Canada needs that natural gas and/or diluent to ship its heavy oil.

Two pipelines: Capline and Explorer [Later: see map of these pipelines provided by RBN Energy.]

Capline:

• tracks the Mississippi River from Louisiana to Patoka, IL
• largest continental US pipeline
• at 1/6th capacity; only pumping every other day due to glut from north
• 1.2 million bbls/day; currently operated by Shell; will be operated by MRO starting September, 2013; MRO owns 32.6% of the pipeline
• if Utica shale pans out; under-utilization even worse
• shipping diluent back to Canada from as far away as the Eagle Ford
• Eagle Ford --> St James --> Capline --> Southern Lights (Enbridge)--> Alberta (Rusty Braziel, RBN Energy)
• considering increasing the flow of diluent to fill its empty pipes
• Capline had planned to reverse its north-south pipeline to south-north, BUT a reversal less likely now that Enbridge/EPD said they would double capacity of the competing Seaway Pipeline

Explorer:

• Houston to Chicago
• 850,000 bpd capacity at Houston; narrows to 380,000 at Chicago
• no longer needed for original function: to carry gasoline/diesel from Gulf Coast to the Midwest
• landlocked refiners expanding to tak in more Canadian crude
• some believe Explorer is already taking diluent north (company declined comment)

Diluent-by-Rail

• this issue is not covered in the Reuters article linked at the top
• starting to be reported in trade journals
• apparently BNSF is bringing diluent back in its otherwise empty rail cars; currently not charging to transport back north (previously posted; need to confirm; I could have misread that)

Some great links for further reading:

• RBN Energy: a primer on diluent -- perhaps the best place to start
• RBN energy primer on natural gas liquids
• Costs -- RBN Energy