December 6, 2013 / 5:47 PM / 4 years ago

MEG Energy plans diluent recovery unit in Western Canada

CALGARY, Alberta, Dec 6 (Reuters) - Candian producer MEG Energy plans to build a C$75 million unit to extract diluent from heavy crude oil in Bruderheim, Alberta, enabling the company to ship raw bitumen from the oil sands by rail and boost returns on each barrel.

The plant will be the first diluent recovery unit, outside those used at oil sands production sites, for Western Canada and will be located next to the region’s first crude-by-rail unit train terminal, built by Canexus Corp.

Canexus’ Bruderheim terminal is due to start shipping 50,000 barrels per day of crude this month, expanding to 100,000 bpd by the second half of next year.

MEG’s new facility is expected to be operational by late 2015 and will allow the company to extract condensate from blended bitumen that is delivered by pipeline from its Christina Lake site.

Oil sands bitumen is too viscous to flow on pipelines unless it is blended with around 30 percent condensate per barrel. Condensate, or diluent, usually trades at a premium to the West Texas Intermediate benchmark however, meaning adding it to a barrel of bitumen eats into producers’ returns.

“We would be looking at shipping undiluted bitumen. That increases our shipping capacity and the value of each barrel,” said MEG Energy spokesman Brad Bellows.

Analysts at RBN Energy in Texas have previously published research suggesting the netbacks on shipping raw bitumen by unit train from Alberta to the Gulf Coast could be greater than shipping diluted bitumen by pipeline.

“This initiative is the first tangible move toward diluent recovery in the industry, which we expect will be followed by other producers, and should continue to further improve MEG’s industry leading cost structure, in our view,” RBC Capital Markets analyst Mark Friesen said in a note.

MEG Energy shares were last up 3.3 percent on the Toronto Stock Exchange at C$30.64.

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