March 16, 2020 [Freight Waves] – Energy logistics providers USD Partners and Gibson Energy expect construction of a diluent recovery unit (DRU) to begin next month at the Hardisty Terminal in Alberta, Canada. The unit will enable freight trains to transport a type of heavy crude oil from Alberta to the U.S. Gulf Coast.

Canadian Pacific, whose executives talked about the project during the railway’s fourth-quarter earnings call in January, and Kansas City Southern will be involved in the project.

The project calls for construction to begin in April, with the DRU in service sometime in the second quarter of 2021. A subsidiary of ConocoPhillips has agreed to process 50,000 barrels per day of inlet bitumen blend through the DRU, according to USD, a master limited partnership formed by USD Group, and Gibson, a Canadian crude oil-focused infrastructure company.

The DRU will produce DRUbit, which USD describes as “a proprietary heavy Canadian crude oil specifically designed for rail transportation.” The product enables the crude or bitumen to become a nonhazardous, nonflammable commodity, according to USD. The producers hope the project will serve as a way for heavy Canadian crude to get to the U.S. Gulf Coast in a manner that’s economically competitive to pipelines, in part because it can use the existing railcar fleet. CP has also said the product will allow 30% more crude to be loaded in each tank car, making the rail costs more competitive with the pipeline.

USD and Gibson received regulatory approvals from the Alberta government in February to construct the unit, and they have finalized their commercial agreements with the ConocoPhillips subsidiary. USD and Gibson are also in talks with other potential producer and refiner customers to secure long-term, take-or-pay agreements at the unit, which could expand the DRU’s capacity.

As USD and Gibson are constructing the DRU in Alberta, USD will also be constructing a new destination terminal in Port Arthur, Texas, where the product will be transloaded. The terminal will have capabilities for rail unloading, barge dock loading and unloading, tank storage, and blending. The terminal will also be connected via pipeline to Phillips 66’s Beaumont Terminal.

The completion of the DRU project will extend approximately 32% of the terminal’s current capacity through mid-2031, USD said. For now, virtually all of Hardisty’s capacity has been renewed or extended through mid-2022, with approximately 73% extended through mid-2023 through multiyear take-or-pay agreements.

USD’s rail facility at Hardisty, a joint venture between USD and Gibson, currently has the ability to load two 120-railcar unit trains per day, and it has a fixed loading rack with 30 railcar loading positions, a unit train staging area and loop tracks that can hold five unit trains simultaneously. CP serves the terminal.

The terminal itself is a major North American crude oil hub, serving as an origination point for various grades of Canadian crude to U.S.-bound export pipelines. Gibson has access to most of the major pipeline systems in the Hardisty hub, according to USD.

Gibson says it has 10 million barrels of storage capacity at Hardisty, with an additional 2 million barrels slated to come online by the end of this year.

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