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    Can Canadian railbit crude compete with pipelines?

    CORRECTION: On September 16, the article's author, Sandy Fielden, issued the following correction for a calculation used in this post.

    "In the first version of this post the diluent percentages required to accompany one Bbl of bitumen for pipeline (28%)  and for railbit (17%) were not calculated correctly. We used 0.28 Bbl of diluent per Bbl of bitumen for "dilbit" and 0.17 Bbl of diluent per Bbl of bitumen for railbit. The correct numbers are 1/72 =1.39 Bbl of dilbit - meaning 0.39 Bbl of diluent and 1/83 = 1.2048 Bbl of railbit - meaning 0.2048 Bbl of diluent. The tables and text have been corrected in the published version.

    The corrected numbers make a more compelling case for moving bitumen by rail with as little diluent as possible.

    Sandy Fielden, RBN Energy

    RBN Energy estimates that by 2015 rail terminal capacity to load heavy bitumen “dilbit” crude in Western Canada will be about 800 Mb/d. Unload terminals hoping to receive that crude on the Gulf Coast will have about 1 MMb/d capacity by 2015. Moving that crude by rail will compete directly with planned pipelines expected to be in service by 2015. Yet the details show only about 25% of Canadian rail terminals will be able to load railbit crude, which has less diluent. And the terminals that do handle railbit will not be handle larger unit trains. Today we continue our analysis of Canadian crude transport options.

    In the first episode in this series we attempted to answer two key questions that determine the fate of Canadian heavy crude shipments by rail (see Go Your Own Way – The Rail vs. Pipeline Bitumen Challenge). First - is rail capacity needed to supplant a shortfall in available pipelines now or in the future? Second can the cost of bitumen by rail transport compete against pipelines? We concluded that there is no clear answer to these questions yet. In the second and third episodes we surveyed the rail terminals currently being planned and built to load heavy crude in Western Canada (see Go Your Own Way Alberta Rail Load Terminals Part 1 and Part 2). In the fourth and fifth episodes we surveyed 8 rail terminals on the CN direct network that are able to handle heavy crude today or plan to be able to handle heavy crude in the future on the Mississippi Gulf Coast. Episode six covered operating or planned terminals on the Texas Gulf Coast. This time we summarize the rail capacity to load crude in Western Canada and unload it at the Gulf Coast.

    Bitumen transport options
    Before we begin our summary lets review the various transport options for heavy Canadian bitumen crude oil. Raw bitumen from oil sands is dense and treacle like, and it does not flow at room temperature. Bitumen is either mined at the surface or extracted “in-situ” by heating the well with injected steam so that the oil flows.  More than half of all extracted bitumen is then upgraded to synbit, or synthetic crude oil that can be transported just like any conventional crude. One hundred percent of mined bitumen is upgraded.  The percentage of synbit is falling because the economics of upgrading are not good. Most new production is in-situ – about 90% of which is not upgraded. Transporting this non-upgraded bitumen to market requires either mixing it with lighter hydrocarbon solvents such as natural gasoline or condensate  (known as diluents) or heating it until it reaches a temperature at which it flows easily (as high as 200o Fahrenheit). To move bitumen on a regular pipeline typically requires blending in 28 percent diluent to create a crude known as “dilbit”. Dilbit flows easily enough year round to allow it to be pumped through a pipeline. The trouble with dilbit is that refiners don’t like the resulting crude blend because it has too many light hydrocarbon components that they do not typically need (see Turner Mason and the Goblet of Light and Heavy). The result is that the diluent used to move bitumen is considered a “mule” that has to be procured – often from far away (see Fifty Shades of Eh?) and adds to the volume shipped without adding to the real payload.

    So both refiners and shippers would prefer to use less diluent to move bitumen to market if they could and rail shipment offers that possibility. Bitumen can be made to flow over shorter distances when mixed with less than 28% diluent but that flow may require a heated pipeline or railcar in winter temperatures. A common blend of bitumen and diluent used for rail transport is called “railbit”, which contains 17 percent or less diluent. Railbit can be transported by rail but shippers have to use rail tank cars with insulation and heated steam coils to keep the crude from freezing up in cold temperatures. A third alternative to dilbit or railbit is to move “raw” bitumen with very little or no diluent added. Since some diluent is typically added to bitumen to move it from the wellhead to a pipeline or to a terminal by truck, raw bitumen is not usually transported. However, it is possible to remove diluent from bitumen prior to transportation using a diluent recovery unit (DRU).

    If raw bitumen is shipped by rail it has to be heated to ~200o F to load onto an insulated rail tank car that has special heating coils. On arrival at the destination, the coils are heated for up to 24 hours by passing steam through them to enable the bitumen to flow out of the railcar. The bitumen than has to be moved by insulated pipeline to a heated storage tank. Onward shipment to refineries requires insulated pipelines or heated barges.

    Western Canada rail loading facility summary
    Two detailed tables in this episode summarize the current state of rail transport capacity from Western Canada to the US Gulf Coast. The tables represent the latest information that we have obtained from public sources. Please let us know at info@rbnenergy.com if you spot any errors or omissions and we will update the tables. The first Table #1 below lists terminals that are located in the heavy oil producing regions of Alberta and Saskatchewan provinces. The top 9 facilities in the table are shaded green to indicate that they have now or plan to have in the future, the ability to handle unit trains (that can load 100 cars or more). Otherwise the column titles at the top of the table are mostly self-explanatory. Column one is the operator and or owner of the facility. The two railroads are Canadian Pacific (CP) and Canadian National (CN). Location is a city or town close to the rail terminal. The “Facility Type” column indicates (where available) whether the terminal can handle unit trains and what type of crude can be loaded – dilbit or railbit. 


    Source: RBN Energy LLC

    Table #1 lists 9 current or planned rail terminals that will be able to handle unit trains. Today those terminals have the capacity to load about 100 Mb/d of crude. By the end of 2014 they will have another 560 Mb/d capacity for a total of 660 Mb/d. Today none of these terminals is able to load more than 30 Mb/d of crude but the Torq Transloading terminal at Kerrobert is expected to be able to load as much as 168 Mb/d when completed at the end of 3Q 2014. These larger terminals are mostly connected to gathering pipelines flowing from production regions in order to accumulate the volumes required to load a unit train. As a result the crude is either pipeline specification dilbit or railbit that has been shipped on a heated pipeline. Although many of the terminal operators talk about using a DRU to remove diluent prior to shipping, we do not know of any such unit that is currently operating. Bottom line – big rail loading terminals – for the minute at least - are either loading dilbit using conventional rail tank cars or loading railbit using coiled and insulated (C&I) rail tank cars. A current shortage of C&I tank cars means that dilbit is most often used although that is expected to change next year (2014) as producers and shippers take delivery of C&I tank cars currently on back order.

    Table #1 also lists eight smaller rail terminals that are being used to load crude in Alberta and Saskatchewan provinces (the ones not shaded green). We have only listed terminals that have now (or will have in the future) the capacity to load 10Mb/d or more of crude. There are a number of still smaller transload terminals in Alberta that load as little as 3 Mb/d but we have not listed all of these. The smaller terminals on our table are most likely loading railbit from trucks onto C&I rail tank cars. Adding the capacity of terminals that we believe to be loading railbit – including most of the smaller terminals as well as Altex Lashburn, we get a total for railbit loading today of 124 Mb/d with a future addition of 100 Mb/d (end of 2014).

    The total load capacity today for all the terminals listed is 197 Mb/d and based on announced plans, this will have increased by 607 Mb/d at the end of 2014 for a grand total of ~800 Mb/d. Railbit loading represents about 25 percent of that capacity.

    Gulf Coast unload terminals summary

    Table #2 below lists rail terminals built or announced that are targeting heavy oil delivered from Western Canada. Table #2 has the same column titles as Table #1. The railroads in column 2 include Kansas City Southern (KCS), Union Pacific (UP) and BNSF Class 1 railroads that serve Gulf Coast rail terminals in addition to CN and CP as well as short line railroads that connect the terminals to the Class 1 network. The facility type column indicates whether the rail terminal handles railbit (requiring heating equipment) or dilbit (no special equipment). The orange shaded rows are terminals that have today or will have by the end of 2013, steam heating equipment to handle C&I rail tank cars. These terminals have unloading capacity of ~200 Mb/d. The rows not shaded in Table #2 are currently receiving some Canadian heavy crude or are being planned with that purpose in mind. These terminals do not currently have heating equipment to handle railbit or bitumen with lower diluent levels. Some of the terminals have indicated their intent to add this capability. As with Table #1 we did not include smaller terminals in the list. Unloading capacity for all these terminals today is 510 Mb/d with expansion plans adding 496 Mb/d for a total of 1MMb/d expected online by the start of 2015. As we noted for the loading terminals in Canada, the larger unload terminals (unit trains) are mostly not equipped at present with heating equipment. 

     

    Source: RBN Energy LLC

    So steam heating capacity for unloading railbit at the Gulf Coast (~200 Mb/d) exceeds current load capacity in Western Canada (124 Mb/d) but new builds will add 100 Mb/d in Canada by the end of 2014. Overall the total load capacity in Western Canada by the end of 2014 will be 800 Mb/d, matched by 1MMb/d of unloading capacity by the start of 2015 at the Gulf Coast.

    Conclusion
    Our analysis shows that the rail load and unload capacities are roughly matched but two important points emerge from the detail. The first is that loading railbit or bitumen with low levels of diluent requiring heating equipment is limited to 25 percent of the rail capacity. The second conclusion is that unit train load and unload facilities do not generally have equipment to handle railbit. So while railbit reduces the cost of shipping bitumen on rail by lowering the diluent requirement, the shippers getting that discount appear not to be using unit trains – meaning that they do not benefit from the cost economies of scale that unit trains provide. That fact will have important consequences for the ability of rail shippers to lower their transport costs to compete with less expensive pipeline routes to market.

    And that is where we will head in the next episode of this series - to compare cost estimates for pipeline movements of dilbit with rail shipments of dilbit or railbit by unit or manifest train.

     

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