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Competing for condensate markets
Diluent has emerged as a prized commodity in Canada, with pipeline companies Enbridge and a partnership of Terasen and Pembina in a race to deliver offshore condensate to the oil sands of Alberta.
The Terasen-Pembina partnership unveiled their new team Oct. 20, with plans for a link from Kitimat in northern British Columbia, to Edmonton, targeting a late-2008 start-up for the C$1 billion, 100,000 barrels-per-day Spirit project.
That would put them almost two years ahead of Enbridge’s proposal to import 150,000 bpd over the same route, paralleling its planned 400,000 bpd Gateway oil sands pipeline from Alberta to the deepwater port at Kitimat.
Enbridge and Terasen are already immersed in a battle to move oil sands output to the British Columbia coast for possible delivery to Asian and California markets. Diluent mixed with bitumen Diluent is a very light oil derived from the “wet” part of natural gas. It can be mixed with heavy oil or bitumen to make a blend that flows more easily through pipelines to refineries. But the condensate is in scarce supply in Alberta.
About one barrel of diluent is needed to move two barrels of bitumen through a pipeline.
When diluent prices climb — as they have by 9.6 percent in the past year — they can even make bitumen production unprofitable.
Current production in Western Canada is about 200,000 bpd, but EnCana estimates that within 10 years that demand could have soared to 500,000 bpd.
Current diluent producers in Western Canada include Shell Canada and BP, as well as Calgary-based Keyera Facilities Income Fund. Kitimat terminal will import In addition to the rival pipelines, EnCana also intends to use Methanex’s Kitimat shipping terminal to import up to 25,000 bpd of diluent, which it will then ship by rail to a pipeline entry point in Central Alberta for distribution at its oil sands operations, which are expected to eventually produce 200,000 bpd.
That deal will help offset the cost of closing Methanex’s methanol plant in Kitimat, which is due to be shut down early next year at a cost of US$35 million.
It is not known how much EnCana’s five-year agreement with Methanex will reduce that figure.
In a joint news release Terasen and Pembina said preliminary design for the Spirit line has been “under way for several months and the partnership is now conducting discussions with potential shippers.”
Terasen believes it will need a handful of key shippers to make the project viable and is confident it will meet that goal.
—Gary Park
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