Government policies that slow Canadian oil exports with pipeline stoppages and environmental quagmires are forcing bitumen producers to think outside traditional one-dimensional models about how they get their product to market these days.
Independent energy analyst Martin King says some believe that the current pipeline shortage will persist for years and years into the future. “We’ll need more pipelines like Keystone XL or the Trans Mountain expansion but that won’t be until late 2021-22, if at all,” he said.
While most industry players are looking to mode of transport for solutions, there are three players outside of oil and gas that are working on the chemistry and engineering to alter bitumen in a way that'll make it easier, safer and more cost effective to transport to tidewater and cash in on world prices. In short, these companies have developed processes that allow for cold shipment of bitumen via rail, either in pellets, pucks or in full shipping containers, to the West Coast for export.
The focus on heavy bitumen is a natural fit, says Cal Broder, the chairman and founder of BFH Corporation, because it’s semi-solid in its normal state. “What most people miss is there are two types of bitumen in Alberta, solid in Fort McMurray and liquid in places like Peace River, Cold Lake and Lloydminster," Broder said. "The perception is that it’s safer and most cost effective to move all crude by pipeline, but that’s not the case with Fort McMurray solids.”
The perception is that it’s safer and most cost effective to move all crude by pipeline, but that’s not the case with Fort McMurray solids. - Cal Broder, BFH Corporation
Broder was trying to figure out how to alter a product’s viscosity so it could be transported in semi-solid form in 2003 when he discovered he could use an electrical process to do so. The undiluted bitumen, dubbed BitCrude, ends up with a viscosity somewhere between peanut butter and firm butter. It is loaded into specially designed and approved shipping containers for cold transport by rail and container ships. At the customer end, an electrical device is attached to the containers to liquefy the bitumen for unloading.
CN Rail developed its CanaPux with Innotech Alberta to find a way to get bitumen to new markets that are not in the U.S., obtain greater value, and strengthen its environmental and safety response. Like Broder’s product, the bitumen is transported as a solid, but unlike BitCrude, CanaPux it is blended with recycled plastics to form a solid mixture about the size of a yogurt container that will hold its shape under the full range of outdoor temperatures. It is designed to be shipped by idle rail cars formerly used to transport coal to the West Coast for loading onto bulk ocean freighters for export.
The plastics to be blended with the bitumen will come from a manufacturing plant being developed by Wapahki Energy in Heart Lake First Nation, located about 70 km northeast of Lac La Biche, Alberta. Wapahki's chief executive, Jeff Paquin, says his group approached CN on behalf of small producers in the Heart Lake area who do not have the balance sheet or deep enough pockets to get their product to pipe to access global markets.
University of Calgary engineering professor Ian Gates and his team developed their pellets while researching methods to upgrade bitumen. They found a way to envelop the bitumen in self-sealing pellets, with a liquid core and super-viscous skin. Since then, the concept has been commercialized under the company name Solideum, which is now using a patented heat and manufacturing process to produce distillate oil and self-sealing pellets the size of Smarties or lentils. When the bitumen pellets reach their destination, heat is applied at 80 to 100 degrees Celsius and some light oil is added to reconvert them to heavy oil. The pellets can also be left as a solid and put into an asphalt refinery.
The benefits of these innovations going forward could be great or small depending on the results of various testing modalities planned for the next few months and the industry’s willingness to give them a chance. One up-front benefit is that the semi-solid nature of the bitumen means the hazardous goods regulations and ocean tanker moratoriums don’t apply. Apparently, the semi-solid bitumen presents no risk to the environment in the case of a spill on either land or water and, because it’s being transported minus diluent, the trains allegedly produce fewer greenhouse gases.
Broder claims the density of his BitCrude-produced product is lighter than saltwater and could stay afloat like an iceberg. It has also been found to have no effect on fish in toxicity tests and has already passed federal regulations to ensure it’s not hazardous to ship by boat, rail or air. CN’s CanaPux are not flammable or explosive, will float in water and can’t leak into the environment. Because they are encased in a recycled waste polymer, they only need to be picked up in the case of any spill. The rail company is currently performing a full greenhouse gas lifecycle emissions study, complete with an independent international review panel.
Gates echoes CN’s claim, saying if his pellets fall on the ground, they can be easily swept up and if they spill into water they can be caught with a net. “Even if there’s a flame it would be very difficult to light the pellets.” He says his product’s CO2 emissions are comparable with those emitted by a pipeline and about 30 per cent less, on a per barrel per kilometer basis, than the average liquid phase bitumen heated rail car.
Gwyn Morgan, the retired founding CEO of Encana, is skeptical about these prodcuts' greenhouse gas emission claims, though. In an email conversation he said these forms of rail transport would cause much higher emissions. “Think of it this way: Pipelines move only the oil, while rail transport requires the movement of both the oil and the whole train.”
Morgan was also unconvinced that these options could ship bitumen at the same cost or cheaper than a pipeline, making them unviable if pipelines finally come through. “Oil by rail is only a stop-gap to provide incremental relief pending new pipeline capacity,” he said. “Oil by rail is much higher cost and pelleting even costlier. Sort of a niche within a niche.”
There’s no doubt the jury is still out on the cost benefit of these methods, which is essential to survival should pipelines ever expand. Broder claims his process can get Bitcrude from Edmonton to China by rail via Prince Rupert up to $7 per barrels per day (bpd) cheaper than diluted bitumen via pipeline and up to $10 per bpd cheaper than from Edmonton to the Gulf Coast by pipe. Gates, on the other hand, feels pipeline will always win out budget-wise, but says Solideum can ship its pellets at about half the cost per barrel per kilometer of transporting liquid bitumen by heated rail cars.
CN Rail maintains it can ship its CanaPux at about the same cost as pipeline in gondola rail cars that can hold more product. In a recent ARC Energy Ideas podcast, CN’s Senior Vice-President of Rail Centric Supply Chain James Cairns said, “Even when you have a Trans Mountain expansion I still think there’s going to be room for CanaPux. We believe the economics of CanaPux landed in Asia is going to be in line or superior to the economics of new build, new construction Trans Mountain tolls.”
Understandably, as big oil industry players struggle with maintaining capital discipline and reducing debt, they are reluctant to invest in any facilities for solidification close to production and for reliquification near end use, even if the infrastructure is modular and relatively small. Cenovus senior media advisor Sonja Franklin would only say they’re looking at solid bitumen on rail, but “it’s very early days.”
Meanwhile, Broder says he’s assembling a diluent recovery unit and hoping to perform an asphalt and undiluted bitumen shipment test trial in June. Wapahki Energy is planning to have shovels in the ground for a $50 million joint project with government, industry and CN to build a 10,000 bpd pilot plant this year; CN claims its commercial partners could have CanaPux operational in mid-2021. Solideum, which has already conducted small lab tests, will perform a 200-bpd field pilot in Saskatchewan this summer with plans to ramp up quickly to a 1,000-bpd unit.
All three companies say there are international customers chomping at the bit to gain access to Canada’s quality bitumen, particularly China. Broder is talking to 14 Chinese "teapot" refineries that he says have an insatiable appetite for bitumen to the tune of 800,000 bpd. Cairns told ARC Energy Ideas, “If you think about the demand for asphalt in China it’s huge and our Alberta product is perfect for making asphalt.”
A recent Reuters article reported an 11 per cent increase in Chinese crude oil imports from March to April this year in anticipation of increased U.S. levies on $200 billion worth of Chinese goods that were announced May 10. Although the cold bitumen transport options are expected to obtain good prices for bitumen overseas, the Reuter’s article reports China’s domestic demand for transportation fuel is down, causing a growing domestic fuel surplus.
Nevertheless, Cairns told ARC’s Energy Ideas, “…if we keep on dreaming and hoping that pipelines are going to get built, we’re going to wake up tomorrow and find ourselves in the same problem. We need to look at other alternatives.”
King says these methods may appear to be stop-gap solutions, but they also avoid some of the inherent problems that come with moving a liquid through a pipeline and they’re trying to avoid a bigger environmental impact: “These are laudable goals.”