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A short piece on ‘Crude by Rail’ – Crude oil, railways, alberta oil sands, Pipelines

By Musabbir Mazhar

Crude by rail

Crude by rail

Canadian Oil Sands located in 3 locations: The Athabasca, Cold Lake and Peace River Oil Sands.


The product extracted from oil sands is bitumen which must be converted to Synthetic Crude Oil (SCO) or mixed with a diluent (which is expensive) so it can be transported via pipeline.

Generally, bitumen produced In Situ (Peace River, Cold Lake) are mixed with a diluent while mined bitumen is converted to SCO.

In Situ vs Mining?

In Situ: Extraction process where wells are drilled in Oil Sands Deposit, high pressure steam passed, so that it causes the bitumen to flow to a well and pumped to surface. In situ projects are less expensive to build and hence majority growth expected in this category.


Mining:

Oil Sand deposits are mined using trucks shovels, transported by trucks to plants where crushing, mixing with water is carried out; then transported to bitumen extraction plant.

Piplelines are desired/required to carry the product dominantly. Gathering lines collect the crude from wells to ‘oil batteries’ -> Feeder pipelines carry crude to nearby Refineries -> Transmission lines transport crude cross county..

There is no direct rail service into the oil sands, rather feeder pipelines carry them to locations from where Railway companies (CP, CN) come into action: There are rail service in Edmonton,  Alberta Industrial Heartland and Hardisty.


Existing transmission pipeline capacity estimated at 3.5M b/d – additional 2M b/d or more expected by 2035. But over longer term estimates say it will be about 8.3M b/d.


Let me mention the 3 types of major oil traded:

Crude Type Price
WTI 106.83 usd/bbl
Brent 114.81 usd/bbl
WCS Around 84.76 calculated from WTI/WCS differential of 22.07 $C/bbl

1. West Texas Intermediate (WTI):
WTI traded on NYMEX is a high quality light crude oil with API Gravity of 39.6 degress (a measure of how light or heavy in relation to water –  greater than 10 means lighter than water and will float on it, less than 10 means heavier than water and sinks). Contains 0.24% sulphur which makes it sweet. Majority of WTI refined in Midwest and Gulf Coast of US.

2. Brent:

Traded on ICE, a mixture of oil from about 15 fields in North Sea. API Gravity of 38.3 degrees which makes it a light crude oil but WTI is lighter than Brent. Contains 0.37% Sulphur which makes it a sweet crude oil but WTI is sweeter than Brent.

3. Western Canadian Select:

It’s a heavy crude oil from Western Canadian Sedimentary Basin oil sands. API Gravity 19-22 degrees, suphur 2.8-3.5%.

 

These price discounting began in 2011 due to product details, supply differentials, pipeline issues and producers trying to get favourable prices for their crude.

 

Transporting crude by Pipeline costs around $4-5 per barrel. Transporting crude by Railway costs around $8-10 per barrel.

 

Crude by rail growth spiked since there are inadequate pipelines. Also huge development of shale oil in Alberta as well as North Dakota where there are inadequate feeder pipeline system. In addition railway access across the continents and to many refineries is a cause. Other major causes being relatively small investment requirement into rail compared to pipelines; investment in rail having shorter time lengths as well in contrast to longer in pipeline.

 

Additional Comments:
As per current cost estimates, Crude transport by Pipeline definitely seems to be the primary method to go by in the future say 4-5 years from now…offcourse the pipeline projects have to roll out as planned or around..

Railway transport would probably be secondary…

Further thoughts – LNG by Railway?


Pipeline Update:
Enbridge Inc.’s Northern Gateway pipeline got approved on June 17, 2014, which would serve Edmonton, Alberta to Kitimat, BC region- carrying around 525,000 b/d.

 

I’m leaving out existing & upcoming pipeline details here…may be on another post..

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