Canadian Drillers To Boost Crude By Rail Shipments

  • Dec 02, 2019
  • Investing

Due to continued shortage of oil pipelines to take Canada’s oil to markets, Canadian producers plan to remove diluents from their oil sands production so they can load more of the heavy oil onto railcars than they would otherwise ship via pipelines.

Loading undiluted bitumen on rail cars would cut costs for transporting the heavy oil to the U.S. Gulf Coast refineries, because the removal of the condensate and light oil used as diluent would make the bitumen shipments via rail more cost competitive and even as nearly cost-effective as transporting the crude via pipelines, Dinara Millington, vice president of research at the Canadian Energy Research Institute (CERI), told Bloomberg.

Oil-rich Alberta has removed restrictions on production for volumes that will be transported by rail, and Canadian companies are looking to maximize this opportunity by boosting crude by rail shipments, and by removing diluents from bitumen to make such shipments cost-efficient.

Last month, Alberta’s government allowed energy firms to produce more oil despite the industry-wide production cuts, if those firms move the additional barrels by rail, as continued pipeline capacity shortages dampen the prospects of Alberta’s oil and gas sector. The special allowances for oil companies are set to come into effect as of December and the volumes will be based off an operator’s average rail shipments for Q1 2019.

One of Canada’s largest companies, Cenovus Energy, for example, is considering the construction of a diluent recovery unit (DRU) at its Bruderheim oil trans-loading facility northeast of Edmonton.

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“With the addition of a DRU to remove the diluent prior to rail loading, Cenovus has the opportunity to significantly increase its overall capacity to ship valuable bitumen to market, while also eliminating the cost of transporting the diluent to and from the company’s end markets,” Cenovus sayid. If the company approves the project, it will submit an application this quarter and expects the in-service date to be in late 2023.

Despite the fact that transporting undiluted bitumen is possible via rail cars—unlike via pipelines for which it needs diluents to flow—shipping the heavy oil by rail is also logistically challenging because it needs heating equipment and designated cars, Kevin Birn, IHS Markit’s director of North American crude oil markets, told Bloomberg.