CALGARY — As persistent pipeline delays choke Canadian oil exports, Cenovus Energy Inc. and other energy companies are investing in new technologies to squeeze more crude onto trains bound for refining markets in the U.S. Gulf and elsewhere.
This week, Cenovus applied for regulatory approvals to build a diluent recovery unit (DRU), a facility that separates the bitumen from a lighter fluid, also known as a diluent. The innovation will allow more undiluted, raw bitumen to be transported into train cars, improving the economics of shipping oil-by-rail out of the province.
The Calgary-based oilsands producer is planning to build a facility near Edmonton to process 180,000 barrels per day of diluted bitumen by 2023. It would be the second of its kind in Canada after Gibson Energy Inc. said earlier this month it would build a 50,000-bpd plant near Hardisty, Alta., with joint venture partner U.S. Development Group LLC.
The Cenovus facility would “recover” the diluent in the diluted bitumen, leaving 120,000 bpd of bitumen to fit onto railway cars at its adjacent oil-by-rail rail terminal immediately northeast of Edmonton. Cenovus is currently in the process of expanding the oil-by-rail terminal to handle 120,000 bpd.
Company spokesperson Sonja Franklin said the project is in the “very early stages” as it investigates the potential for such a facility, which would improve the economics of moving oil by rail.
“It would give us more capacity to put more oil on the rail cars,” Franklin said, adding that a decision to proceed with the project will not be made before regulatory approvals that are slated for the end of next year.
Diluent is a two-fold cost for oilsands producers as companies such as Cenovus often import the diluent to blend with their viscous bitumen, to create a dilbit blend that’s one-third diluent, two-thirds bitumen. The extra cost of transporting the diluent can further hurt rail economics because the blended oil product takes up more space on railway cars, which is particularly challenging since oil-by-rail is a more expensive transportation option than pipelines.
But once that diluted bitumen arrives, via pipeline, at an oil storage hub like Edmonton or Hardisty, Alta., and companies have the option to move the product on railway cars, the need for diluent shrinks.
As a result, the DRU would allow Cenovus to re-use diluent it has already purchased and use more of the rail car space it’s paying for to ship bitumen.
Amid delays to the 590,000-bpd Trans Mountain expansion project, Enbridge Inc.’s 370,000-bpd Line 3 project and TC Energy Corp.’s 830,000-bpd Keystone XL pipeline project, companies in Alberta have been looking for new ways to ship oil out of the province and clear a glut in storage.
Oil-by-rail exports have risen sharply and were sitting at 319,594 bpd in September, short of a record high volume set in Dec. 2018 when companies exported 353,789 bpd on rails, according to Canada Energy Regulator data.
Investment in DRUs is becoming popular among oil companies as the pipeline and rail capacity seems tight over the medium term.
Gibson expects to spend between $200 million and $250 million on its half of the 50,000-bpd project, which would imply a total project cost of as much as$500 million.
The project will give Gibson a “first mover advantage,” Raymond James analyst Chris Cox said in a research note, adding the head-start “could prove significant to the story if industry pursues more significant development of DRU capacity longer-term.”
Following the DRU deal, Gibson announced Wednesday that it would expand its oil storage terminal business at Hardisty by 1 million barrels of oil storage capacity in the east-central Alberta town by the end of 2020, bringing its total storage capacity there to 13.5 million barrels.
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