• 6 minutes U.S. Shale Oil Debt: Deep the Denial
  • 12 minutes Knoema: Crude Oil Price Forecast: 2018, 2019 and Long Term to 2030
  • 17 minutes WTI @ $75.75, headed for $64 - 67
  • 9 hours Satellite Moons to Replace Streetlamps?!
  • 3 hours Trump vs. MbS
  • 1 min Nucelar Pact/Cold War: Moscow Wants U.S. To Explain Planned Exit From Arms Treaty
  • 3 hours Why I Think Natural Gas is the Logical Future of Energy
  • 2 days EU to Splash Billions on Battery Factories
  • 1 day The Dirt on Clean Electric Cars
  • 8 hours Can “Renewables” Dent the World’s need for Electricity?
  • 3 hours Get on Those Bicycles to Save the World
  • 22 hours Owning stocks long-term low risk?
  • 2 days 47 Oil & Gas Projects Expected to Start in SE Asia between 2018 & 2025
  • 2 days The Balkans Are Coming Apart at the Seams Again
  • 2 days The end of "King Coal" in the Wales
  • 2 hours Can the World Survive without Saudi Oil?
Alt Text

Oil Market Loses Its Bullish Edge

Bullish sentiment has dominated oil…

Alt Text

Hurricane Michael’s Impact On Gasoline Demand

Hurricane Michael had a significant…

Alt Text

The Dark Horse Of The Oil Price Rally

Vietnam is set to break…

Rory Johnston

Rory Johnston

Rory Johnston is a Master of Global Affairs student at the University of Toronto’s Munk School of Global Affairs where he focuses primarily on the…

More Info

Trending Discussions

The Problem With Condensates

The Problem With Condensates

Propelled by the boom in oil sands and tight oil production, condensates, an ultra-light oil, are emerging as an ever more important element of the energy industry. The increasing prevalence of condensates may be a point of concern, however, as they are at least partially responsible for the increasing volatility of North American crude, particularly as it travels by rail. Additionally, they represent a significant cost to oil sands producers that require condensates to dilute bitumen for pipeline transport.

Hydrocarbons are measured on a carbon number scale to reflect the number of carbon atoms contained in each molecule, with lower numbers signifying lighter, gassier, and more volatile carbon molecules. Condensates typically fall between C4 and C12—raw bitumen, on the other hand, has a carbon number of C35 or higher.

Oil sourced from recent shale plays in the United States (often referred to as “light, tight crude”) is naturally composed of more of these lighter carbon molecules. This has created problems for oil transport, as crude from plays like North Dakota’s Bakken shale has turned out to be more explosive than originally anticipated. While accidents involving traditional crude resulted in environmentally damaging oil spills and fire, this ultra-light crude can detonate like a bomb. This was experienced first hand last summer when a train carrying Bakken crude derailed in Lac-Mégantic, Quebec, decimating the town’s core and leaving 47 dead.

Related Article: Oil Market Forecast & Review 14th February 2014

Meanwhile, extra heavy crude like Albertan bitumen is too thick to flow through pipelines and must be diluted, with condensates serving as the diluent of choice for most producers. Bitumen is typically mixed with approximately 30 percent condensate before being shipped by pipeline. However, condensates tend to sell at a premium to the West Texas Intermediate benchmark, so this practice is expensive and adding condensates to bitumen cuts into producer profit margins. As oil is moved from pipeline to railcar, the diluent is no longer required and only serves to increase volume, which reduces the efficacy of bitumen rail transport. Oil companies are forced to pay a double cost for condensates—first purchasing the diluent, and then paying the opportunity cost of lost bitumen volume transported by rail.

To address the latter problem, some companies are attempting to extract the diluent before transferring the mixture from pipeline to railcar. Calgary-based Cenovus Energy Inc. is investigating the viability of a so-called diluent recovery unit to do just that. “We are looking at that and how that enhances economics, including the economics of unit train capacity,” said CEO Brian Ferguson. MEG Energy Corp. is also pursuing this option, spending $75 million to construct a diluent recovery facility next to a loading facility in Bruderheim, Alberta.

Related Article: Big Oil Sheds Assets to Fix Balance Sheets

Shipping raw bitumen by rail without the presence of a diluent cuts cost significantly. According to the energy consultancy IHS CERA, using this method to transport bitumen between Alberta and the U.S. Gulf Coast refining hub shrinks the cost differential to $6 per barrel when compared to pipeline transport.

The Canadian Association of Petroleum Producers forecasts that oil sands production will increase to 4.45 million barrels per day by 2025 from 1.8 million barrels per day in 2012. Absent diluent recovery technology, this means that condensate as diluent demand will more than double over the next decade, putting further upward pressure on prices and increasing transport costs for oil sands producers.

Expensive and explosive, these condensates are proving a thorn in the side of producers, transporters, and regulators alike. However, as both oil sands and tight oil production are likely to continue rising, North America is going to see more and more of this ultra-light oil transiting the continent. Government must recognize both the peril and potential these hydrocarbons represent and act accordingly.

By Rory Johnston of Oilprice.com


Back to homepage

Trending Discussions

Leave a comment
  • Mike Priaro on February 19 2014 said:
    The condensate diluent costs are understated because most dilbit is exported by pipeline, not rail car.

    1. There is a premium above WTI to buy condensate on the Gulf Coast.
    2. It has to be pipelined from the Gulf Coast to northern Alberta.
    3. Thirty percent more pipeline capacity and costs are required to export dilbit which is 30 percent condensate/70 percent raw bitumen.
    4. There is a loss selling the condensate as dilbit which sells at a discount to WTI.

    Total cost per barrel raw bitumen to use condensate approaches $25/barrel bitumen.

    That, plus jobs, profits and taxes makes upgrading, refining and adding even more value through petro-chemicals is why doing all of that is economic to do in Canada.

    Don't believe oil companies like ExxonMobilwho say it isn't profitable to do that in Canada.

    They want all the benefits of cheap, raw bitumen on the Gulf Coast for export as high-value diesel from duty-free and tax-free Free-Trade Zones to Latin America.

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News