Dilbit not Dilbert

February 09, 2013

The largest single deposit of oil in the world lies in Alberta—the oil sands. While the location of the deposit(s) of around 2 trillion barrels are known, it takes considerable technology and expertise to extract the bitumen from the oil sands. Dilbit, or diluted bitumen, is the product sent to refineries for processing.

Canada’s oil sands production is expected to increase from 1.3 M barrels per day to more than 2 M barrels of oil by 2020, mostly due to the oil sands. Yet pipeline capacity is maxed out. Canada is losing $70 M per day from its inability to sell at market prices, according to a Government of Saskatchewan initiated study.

Consider these recent developments:

• MEG Energy Corp. has announced a plan to transport dilbit by rail from Edmonton to Chicago, then by barge down the Mississippi River to Gulf refineries. Valero Energy is considering a similar plan.
• Suncor Energy (ticker SU in TSX), the largest producer in the oil sands, has taken a write-down of $1.5 B on its Voyageur Upgrader, after the future returns for the project have dwindled.
• US oil production has increased to levels unseen for more than 15 years, due to new discoveries, notably from shale oil.
• At the NEB hearings on the Northern Gateway Pipeline, six First Nations and environmental groups question the proponent over how dilbit would behave in case of an oil spill in the ocean. The suggestion is that dilbit would sink and essentially be impossible to clean up, ergo there should be no shipping from the north coast.
• Serious consideration is being given to building a railway to Alaska from the oil sands to transport dilbit by rail, then to the Alaska pipeline, to Valdez, then to market.

Commentary

There is something Dilbert-like when by far the safest way to transport dilbit, that is by pipeline, is being blocked for political reasons. The economics are such that the oil sands is a huge supply source for oil and the markets for this commodity demand more dilbit.

The environmental concerns surrounding shipping dilbit by ocean tanker are very real. Since the Exxon Valdez catastrophe however double hulled tankers and advanced nav-aids have made shipping a lot safer. Additionally, dilbit has been shipped out of Vancouver for 25 years with no spills.

Sources

• a)http://en.wikipedia.org/wiki/Oil_sands



• b)Kelly Cryderman, "MEG looks to barge bitumen to the Gulf", Globe and Mail, 1-Feb-2013, p.B3.



• c)David Parkinson, "Suncor woes are a harbinger of a wider crisis in the oil sands", Globe and Mail, 7-Feb-2013, p.B2.



• d)Dene Moore,"Behaviour of diluted bitumen in dispute", Globe and Mail, 7-Feb-2013, P.S2.



• e)http://business.financialpost.com/2013/02/07/each-stalled-pipeline-project-costing-canada-30m-70m-a-day/?__lsa=cb02-38c5