Canada: CBR Vs Pipeline

During 2011, it was all about "approving the Keystone." Most of us had the feeling, including me, that the world, as we knew it, would come to an end if the Keystone was not approved.

During 2012, there were many, many articles, pro and con on the Keystone.

During early 2013, things seemed to be quieting down; not a lot of press; things seemed to be in a holding pattern, but in the past week or so, the logjam on news stories about moving Canadian oil seems to have broken.

This is at least the third story I've posted in the past week on moving Canadian oil. One almost gets the feeling everyone now knows how this will play out. 

RBN Energy:  Canadian rail vs pipeline.

New pipeline capacity from Cushing to the US Gulf Coast, expected online at the end of 2013 and early in 2014, will ease the congestion that has stranded a lot of Western Canadian crude in the Midwest. There will subsequently be more opportunity for Canadian oil sands crude to reach Gulf Coast refineries by pipeline. Yet at the same time Canadian bitumen producers, rail terminal operators and railroad companies are jointly developing unit train loading terminals in Alberta - including one announced yesterday by Kyera Corp and Kinder Morgan Energy Partners. These terminals plan to load Canadian crude for delivery to the Gulf by rail. Today we ask how rail can compete with pipelines on this route.

We have previously described growing Western Canadian heavy crude “bitumen” production and the challenges of getting it to market .  Bitumen production from oil sands is expected to increase from about 1.8 MMbd/ in 2012 to 3.6 MMbd/d in 2020 (source: Canadian Association of Petroleum Producers – CAPP). Oil sands crude is thick like treacle and difficult to move by pipeline because it doesn’t flow well. Yet the largest market for this heavy crude is over 2 thousand miles away from the production areas at US Gulf Coast refineries configured to process similar grades from Mexico and Venezuela . Travelling that kind of distance is most efficiently accomplished by pipeline. But to get heavy crude moving in a pipeline it has to be diluted with roughly 30 percent natural gasoline or condensate diluent to make “dilbit” crude. Diluent adds to the cost of pipeline transportation because it has to be hauled to the bitumen production site and  does not have the yield characteristics that heavy crude refiners need.

This is what RBN Energy suggests:

Our analysis suggests that producers believe that bitumen transport by rail could compete with pipelines on cost – provided that the most efficient rail movements are used. And that means using unit train loading and unloading terminals. It also means removing most of the diluent from the bitumen for rail transport to increase the payload of crude being transported. As we will see in the next episode in this series, Canadian producers are also working with railroads and terminal developers to minimize the cost of bitumen transportation from the wellhead to the rail terminal. The chart below from terminal operator Canexus’ Annual General Meeting presentation this past May (2013) indicates the comparative economics that can be achieved. 

The series will continue.