DRUbit Or Dilbit -- DRUbit-By-Rail -- DBR -- Game-Changer -- October 17, 2021

Note: in a long note like this there will be content and typographical errors. If this is important to you, go to the source.  

A reader alerted me to the story. Thank you.

Elections have consequences: this would not be a story had Resident Biden not canceled the Keystone XL. But here we go again. Assuming Biden's regulators don't stop the merger, and assuming the merger goes through, there will be a "new pipeline" running from western Canada to the US gulf coast.

The "new pipeline" will be above ground and run on two rails.

DBR, not CBR.

From The Star Tribune via Yahoo!Finance:

• the "new pipeline": Canadian Pacific - Kansas City Southern (one of many links here)
• new venture: USD Partners -- processes heavy oil with diluent and then loads it on rail tank cars;
  
• the "pipeline" bisects the Twin Cities
• could add as many as 15 to 20 oil trains through Minnesota each month
• would begin as early as 3Q21
• destination: Port Arthur, TX
• I don't know where this stands with regard to approval by US regulators, but it seems it would be difficult to halt the deal when Resident Biden said his administration is looking for additional ways to move "energy" around the nation -- LOL -- in addition:
  
• while remaining the smallest of six U.S. Class 1 railroads by revenue, the combined company will be a much larger and more competitive network, operating approximately 20,000 miles of rail, employing close to 20,000 people and generating total revenues of approximately $8.7 billion based on 2020 actual revenues. 
• so we'll see
• CP is already the largest rail shipper of oil in the state
• volume varies considerably: anywhere from five to nineteen "hazardous" trains per month
• but get this:The new oil trains running from USD's terminal aren't likely to be tallied in those state counts. USD said the oil is not hazardous cargo as defined under U.S. and Canadian transportation regulations.
• folks can correct me but this is my understanding:
• Houston-based USD Partners will process / load the diluent-bitumen at their facilities in Hardisty, east-central Alberta, Canada unto the CP-KCS railroad
• the diluent - bitumen slurry is abbreviated to "dilbit" but DB Partners refers to this as DRUbit-by-rail (DBR) 
• the DRU facility in Hardisty is, apparently near completion, if not already completed
  

Folks will argue about this for quite some time, but one wonders whether DBR through the Twin Cities would even be an issue if the Keystone XL had not been canceled and had other pipelines not been delayed, deferred, or canceled (see Liberty Pipeline).

RBN Energy Tells Us How Huge The Canadian Oil Sands Really Is, A Must Read -- November 26, 204

Active Rigs:

	11/26/2014	11/26/2013	11/26/2012	11/26/2011	11/26/2010
Active Rigs	184	193	185	202	163

RBN Energy: the diluent transportation story in Canada; building enough pipeline to reach 1 million bopd by 2017, more than enough through 2030; part 6 in the series.

Some data points from the article:

• Total Canadian demand for diluent in 2014 is expected to average 380 Mb/d – meaning that with 160 Mb/d of local supply about 220 Mb/d will be imported – mostly from the U.S. By 2019 total Canadian diluent demand is expected to increase to 685 Mb/d and some of that will be supplied by imports from the U.S.
• TransCanada is a major pipeline system owner and operator in North America with extensive storage and outbound pipelines in Hardisty and an expanding presence in Edmonton. The company is currently constructing the TC Terminal in the Heartland region of Fort Saskatchewan, north of Edmonton together with the125 mile, 900 Mb/d capacity Heartland pipeline to Hardisty. Both these projects are planned to be in service during 2H 2015. 
• TransCanada has also just received regulatory approval (in October 2014) to begin construction of the 300 mile Grand Rapids pipeline from the Heartland terminal to Fort McKay, northwest of Fort McMurray in the oil sands production region. Grand Rapids will carry up to 900 Mb/d of blended bitumen and diluent from Fort McMurray to Edmonton and up to 330 Mb/d of diluent in the opposite direction. The pipeline is planned to come online in stages starting in mid-2016 with completion expected in 2017 and includes approximately 1 MMBbl of storage capacity.
• TransCanada is partnering with Phoenix Energy Holdings Limited to develop the $3-billion Grand Rapids Pipeline that will be a 50/50 joint venture between the companies. Phoenix is a wholly owned subsidiary of PetroChina that owns the Dover and Mackay oil sands fields that the pipeline will initially serve. Bitumen production from Dover and McKay is expected to ultimately reach 520 Mb/d.  

Much, much more at the linked article including great graphics as usual.

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Update On Devils Lake Refinery Proposal

It is being reported at The Dickinson Press.  I'm not aware of anything new that hasn't beer reported earlier:
Data points:

• officials from Eagles Ledge Energy, based in Vancouver, B.C
• $200 million, 20,000-barrel-a-day clean fuels oil refinery
• could be built near Devils Lake
• American Dakota Refinery could be open by 2017
• would process oil from the Bakken Oil Patch of western North Dakota into low-sulfur diesel fuel, which would be converted to off-road diesel fue
• similar to the one in Dickinson 

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Ferguson, Final Observations

As mentioned yesterday, I stayed up all night Monday/Tuesday listening to radio reports on Ferguson. These were the things the stood out for me:

• I was most disillusioned when the stepfather said, "burn this bitch down." (Rodney King: "Can't we all just get along?")
• the side-by-side video of America burning; Nero asking for calm
• although the burning was bad for business owners in Ferguson, it was nowhere near as bad as I thought it was going to be; it sounds like it was limited to a small area
• I was amazed that some Ferguson business owners did not think there would be any violence or looting (what were they smoking?)
• on-scene reporters noted police tactics: let the agitators burn a few "gimmes" -- a few police cars (probably those with lots of mileage were left unattended); but nothing really important burned; no federal buildings (post office, court houses, etc., burned (hardly occupied); that would have been REALLY SERIOUS; someone might have gotten arrested
• I was the only one who thought making the announcement after dark was brilliant (whether planned or not)
• I learned a lot about the reporters on the scene (dishonest reporting; hidden agendas; naive; uneducated)
• it certainly seemed the press was hoping for more
• based on early events, this story has no legs at the national level (though Rev Al will milk it for all it's worth); but it will be the beginning of the end for Ferguson as an urban area where people want to live
• by the end of the week, outside agitators will be moving on
• most impressive: the military/law enforcement held their fire -- no injuries or deaths due to gunfire (by LE/NG)
• the mayor was upset the National Guard did not arrive earlier; the National Guard did it just right; I think the response by all LE/NG was brilliant, considering
• no reports of any police harassment; no FBI stories of note
• I don't recall any Eric Holder public announcements Tuesday morning or even anything from Nero

And then this: along with Martin Luther King, I am judging the agitators in Ferguson on the basis of their character (actions), and not on their skin color. 

Putting things into perspective. This from CBS-StLouis-Local :

Barnes-Jewish Hospital in St. Louis says it admitted two injured people and treated and released five others. It didn’t disclose the nature of the injuries.

Years ago, in another life, I worked in the emergency room of Los Angeles County hospital during the height of the gang wars. My surgical rotation had emergency room call every Saturday, 8:00 a.m. through Sunday morning, 8:00 a.m., and we stayed with our patients until Sunday evening, 5:00 p.m. when we were finally relieved after 33 hours of being in a virtual war zone from a casualty perspective. When I think back on that now, it really was incredible how good the nurses and technicians were at triaging and performing life-saving procedures, freeing the surgeons up for cases in the operating room. I never recall an administrator or a "clip-board nurse" getting in our way. It's amazing how much one can do with a) intubation and artificial respiration; b) stopping bleeding with relatively simple procedures; c) infusing liters of clear fluids.

The surgeons "fought" for this shift -- the busiest surgical night of the week. When casualties from gang fights started rolling in, our first question to the combatants was, "how many more are coming in?" We needed that data to start triaging.

Saturday nights were so busy with gang wars that folks presenting with non-traumatic medical / surgical emergencies were stabilized, often with huge doses of antibiotics and placed in holding areas (usually hallways) waiting to be admitted or taken to the operating room the next day.

So when I see "two were admitted" and five were released in that story above it really puts things into perspective. I doubt more than four or five LA police cruisers responded to any given gang war, and yet, here in Ferguson, thousands of law enforcement and national guard, and no "police state" killings reported in the early going. Pretty impressive.

Unfortunately, it seemed the press and a few others were hoping for more.

Catching Up On Enbridge; The Diluent Story Is Fascinating

I was out of the loop earlier this week due to traveling. Catching up on Enbridge, some recent stories:

Enbridge updates regional oil sands system status, press release. 

The release on Line 37, which connects the Long Lake Oil sands project to Enbridge's Cheecham Terminal, is believed to have resulted from ground movement on the right-of-way as a result of recent unprecedented precipitation levels which exceeded a 1 in 100 year event. Enbridge shut down all pipelines in the area as a precaution.

The southern segment of the Athabasca Pipeline (Line 19) between Cheecham and Hardisty was subsequently returned to service on June 23rd and on June 25th, the Alberta Energy Regulator approved the restart of the Waupisoo Pipeline between Cheecham and Edmonton.

However, the Athabasca and Wood Buffalo pipelines between Fort McMurray and Cheecham and Line 37 remain shut down as Enbridge completes data gathering and engineering analysis of the lines.

Canadian pipeline operator Enbridge said it restored service to one of three major pipelines it shut down over the weekend, but was still working to repair and return to service a 100,000 barrel-per-day line that leaked crude oil.

Motley Fool on the Keystone XL:

June 25, 2013:

"In conclusion, I think betting on Keystone to be approved is pretty sound. In all likelihood the pipeline will get approved sometime going forward. In fact, it's already completed in some locations, so it's just a matter of pressing forward and finishing the job."

June 27, 2013:

"The future looks bleak for the Keystone XL. .... That casts serious doubts on TransCanada's ability to extend the major project from Canada to southern United States. However, the State Department still has a say about whether the project will go through, and their report is expected to determine whether the project would benefit America.

However, the President's speech cast serious doubts on TransCanada's ability to execute the pipeline, and that should have shareholders concerned. The pipeline extension would cost about CAD$7.6 billion, and the firm is counting on the project for major revenue expansion.

Motley Fool: a looming diluent shortage for the Canadian sands.

Canadian oil sand producers face a new challenge - a looming shortage of pipeline diluent. And the problem threatens the industry's development.

Bitumen - the sticky, tar-like substance mined from the oil sands - is too thick to flow by itself. Rather it must be blended with lighter hydrocarbons, super-light oil called condensate and other natural gas liquids, in order to be shipped by pipeline. These products are called diluent.

Costs are rising. Alberta condensate prices averaged $108/b during the first three months of 2013, up $11/b from the fourth quarter of 2012. But demand for diluent is poised to increase further for two reasons.

First is rapidly growing oil sands production. Three barrels of bitumen require one barrel of condensate to flow freely. Oil sands output is expected to double to 3.8 million b/d by 2022.

Second, oil sand players are balking at building expensive upgrade plants which convert bitumen into refinery ready oil.
Both of these factors could push the demand for diluent from 330,000 b/d today to 935,000 b/d in ten years.

Earlier this week, RBN Energy had a story on increased diluent shipments from the Eagle Ford up to Canada.  That was in my Wednesday morning news and links post.

InPlay Today -- Diluent From Texas To Illinois

Enterprise Products announces results of successful open commitment period: Co announced it will proceed with development of a project to transport diluent-quality natural gasoline from the partnership's Mont Belvieu, Texas, liquids storage complex to several potential delivery points in and around the Chicago area. The positive response from shippers during the recent open commitment period soliciting long-term transportation agreements supported Enterprise's proposed plans to provide access to both the Southern Lights and Cochin pipelines. The new connections are expected to begin service during the fourth quarter of 2013 and the second quarter of 2014, respectively.

MDW tracks advances in diluent transport here.

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

Friday Morning Potpourri -- Some Bakken May Be Interspersed With Non-Bakken Stories

A random note on the iPhone 5. Apparently one can surf the 'net while talking on the iPhone on some carriers, such as ATT, but not on others, such as Verizon. It's a carrier-specific issue. Technologically, it doesn't make sense, according to at least one source. Buyer beware. [Full disclosure: I have huge investments with ATT; none with Verizon. "Huge" in this case may be less than the value of a used car, but then I'm a small retail investor. Bear with me. I also don't have an iPhone and won't be getting one. I have a Samsung non-smart clam-shell phone with almost no battery life with Sprint; I've been with Sprint for ten years or longer and no plans to switch.]

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A reader sent me the following link to a Reuters article this morning. I am embarrassed that I missed this when it first came out. I haven't had chance to read full article:

Even as big U.S. oil pipelines invest billions of dollars to ship booming oil production south from Canada and North Dakota, a new race is underway in the opposite direction.  

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 get their heavy oil sands bitumen flowing to refiners.  

The race between the Capline and Explorer lines, which may play out over years rather than months, is the latest example of how fast-growing inland oil production has roiled the U.S. market, forcing key parts of the nation's oil infrastructure to adapt -- or face obsolescence. It is fueled by forecasts that demand for diluent from Canadian oil producers will quadruple in just over a decade.

More to follow, I'm sure.

Back-Haul of Diluent on CBR Cars to Mix With Heavy Oil: Question?

Updates

September 12, 2012: wow, some folks are good at finding things and reading quickly. "Anon 1" found this bit of information regarding a new public-private project at the Port of Beaumont, paid for in part by Hurricane Ike funds, see comments. The description of the project is on page 5. As part of the project:

The Company anticipates that the Project will provide shippers, traders and refineries theopportunity to transport diesel fuel received by truck and barge for shipment by unit trains headed north, thereby creating a demand for emptied rail cars headed north. Diesel is used to provide power to drilling operations at the exporting oil fields. Likewise, crude oil from Canada is very heavy and does not flow through the pipeline without first being diluted. Diluents, which are essentially raw naphtha and comprise about 30% of the crude barrel assay, can be transloaded from truck or barge to the unit trains and delivered to the producers in the Canadian oil fields. Management does note that pipelines are one-directional, north to south, and do not present competition to rail for this part of the Business Plan. This comes from a pdf file, and this might be the link but if it doesn't work, google beaumont trainload; the pdf link will be near the top.

Later, 9:20 pm: I haven't seen a specific answer to "anon 1's" question on whether Bakken CBR trains are returning with diluent, but it certainly sounds like it is very likely. 

Later, 9:20 pm: here's a long press release; posted July 9, 2012; buried in the press release is this one-liner:

In addition, Southern Pacific has the opportunity to utilize its empty rail cars to transport lower priced diluent from the Gulf Coast on their return to Canada.

And another press release here:

Rail shipment requires about 33% less process diluent than what is necessary to meet pipeline specifications, Southern Pacific said. And return-trip rail cars can supply the project with low-cost Gulf Coast diluent. 

Later, 6:30 pm: comments are starting to come in. Here is one. And then there is one below in the comments.

I'm in a hurry; can't comment much, but I remember the comment that said "railroads were the method of last resort for shipping oil." Isn't this an interesting turn of events; whether you ship oil south and then bring diluent north, or bring diluent north and then ship oil south, the results are the same. This is very, very interesting. I love capitalism; no central planning on this one.

Original Post

"anon 1" posted this as a comment, but in case folks don't read the comments:

Comment at Peters: http://extras.newswire.ca/peters20120911/

Crude-by-rail cars return with condensate - free backhaul for diluent to mix with heavy oil.
That is important. A very big deal.

Does anyone know: How much is happening? Is Bakken CBR involved?