UPDATE 1-In boost for Canada oil-by-rail, MEG plans diluent recovery unit

Fri Dec 6, 2013 4:50pm EST
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* MEG Energy plans diluent recovery unit for late 2015

* Located next to Bruderheim, Alberta, train terminal

* Unit has potential to boost returns per barrel of crude

By Nia Williams

CALGARY, Alberta, Dec 6 (Reuters) - Canadian producer MEG Energy said on Friday it will build Western Canada's first diluent recovery unit, a C$75 million ($70.55 million) facility that could be a crucial step in the quest to ship raw oil sands bitumen by rail.

Diluent is a type of ultra-light oil that is blended with heavy bitumen crude from the Alberta oil sands to dilute it enough to flow through pipelines. The new recovery facility will allow MEG to extract the diluent from the heavy crude that it moves 250 miles (400 kilometres) by pipelines from its Christina Lake project in northern Alberta to a new rail terminal at Bruderheim, Alberta.

The diluent-free bitumen can then be loaded into special rail cars at the Bruderheim crude-by-rail terminal operated by Canexus Corp, the first terminal in the region capable of loading 100-plus-car unit trains. The terminal is due to begin shipping 50,000 barrels per day of crude later this month.

Logistics firms have raced this year to build new oil-by-rail facilities across Western Canada to capitalize on a looming shortage of export pipelines. But the lack of diluent recovery units has raised questions about whether the railway shipments will be economically feasible.

In the absence of any diluent recovery units in Western Canada, other than those used at oil sands production sites, producers such as Baytex Energy that want to ship raw bitumen by rail currently have to truck their product to the rail loading terminal, a more costly mode of transport.   Continued...