December 20, 2021 [SPGlobal] – A new diluent recovery unit in Alberta that is designed to process crude specifically for crude-by-rail exports to the Texas Gulf Coast is now ramped up and fully operational, USD Partners said.
The recovery unit at the Hardisty Energy Terminal is now processing more than 50,000 b/d — largely for anchor customer ConocoPhillips — and shipping crude to the new Port Arthur Terminal in Texas, which can move heavy Canadian barrels to Texas and Louisiana refiners and export hubs, USD Partners said Dec. 16.
Some initial, startup volumes began at the end of the summer and have now ramped up to capacity, USD Partners said. The goal is to eventually grow to 100,000 b/d and then consider additional expansions in both Alberta and Texas based on contractual demand.
The USD-Gibson Energy joint venture included building both the diluent recovery unit and the Port Arthur hub. The diluent recovery unit is designed to remove the diluent from the Canadian bitumen. The resulting crude is called DRUbit, a proprietary heavy Canadian crude oil specifically designed for safer rail transport.
The remaining diluent, which is mostly condensate, then goes back to the mining and processing facilities to be blended with the heavy oil sands to prepare crude for pipeline transport.
The process reduces crude-by-rail carbon emissions by about 20%, according to USD Partners, which is the publicly traded arm of US Development Group.
“We’re not only just delivering an egress out of Canada, but we’re delivering an entirely new market area,” said USD CEO Dan Borgen in the November earnings call. “So, not just in origination, but a destination, new refinery connections and that’s a wonderful thing for DRUbit coming out of Canada and helping to move more barrels out. We are progressing on the DRUbit by rail program and believe our strategically located terminals are well positioned to support a safe and sustainable growth story for transporting and creating new markets for the heavy crude out of Western Canada.”
USD also is expanding pipeline connectivity from its Stroud, Oklahoma terminal about 20 miles to the Cushing storage hub. The aim is to give more optionality for the Canadian barrels apart from the USGC. The expansion is slated for an early 2022 completion. Apart from the new Port Arthur terminal, crude volumes also can ship to USD’s existing Texas Deepwater hub in Houston.
However, Canadian crude-by-rail exports have faced headwinds from the ongoing pandemic to increasing pipeline capacity.
Canadian crude-by-rail exports plunged from a record high of 411,991 b/d in February 2020 down to a pandemic low of just 38,867 b/d in July 2020, according to the Canada Energy Regulator, Since then, crude-by-rail exports have rebounded to 164,180 b/d as of September 2021, but they remain well down from their previous highs and are not expected to recover to such levels.
And the pipeline competition against crude-by-rail exports picked up in October when Enbridge’s Line 3 replacement project came online, increasing the Canadian crude pipeline’s capacity into the US from 390,000 b/d to 760,000 b/d. That effectively ended the Canadian pipeline bottleneck into the US, but USD is counting on rising Canadian production and ongoing pipeline tightness.
Canadian crude and condensate production fell from about 4.9 million b/d before the pandemic to a low of 3.9 million b/d in May 2020. But Canadian volumes are back up to 5 million b/d in December and are projected to finish 2022 at about 5.3 million b/d, according to S&P Global Platts Analytics.
To some extent, the oil producers and refiners are taking a wait-and-see approach.
“Our startup transition is moving forward nicely from a commercialization standpoint. Naturally, the industry is poised to see how the kit performs, to see if the assumed values that come with the DRUbit solution in the Port Arthur destination are realized,” said USD Chief Commercial Officer Brad Sanders in November.
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