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NGLs on the Move in Western Canada

While natural gas prices and production languish in Western Canada, demand for liquid byproducts has made drilling and building extraction plant and pipeline capacity into a growth specialty.

Pembina Pipeline Corp. alone is working on two gas-liquids processing and delivery projects, worth a combined C$225 million ($202 million), in northern and central Alberta. Also in central Alberta, Devon Canada Corp. is developing the first new gas-processing plant to be constructed in the province in memory, largely for profitable extraction of liquids from shale production.

Keyera Corp., a senior western Canadian midstream services firm, has set a target date of as early as 2015 for completing a northwestern Alberta pipeline and processing network. The firm embarked last summer on canvassing the industry for guidance on capacity and routing.

The Pembina, Devon and Keyera plans are regional variations on a growth theme that has developed international overtones.

Enbridge Inc. has built gas-liquids conduits into features of its two biggest long-distance oil pipeline developments: the Alberta Clipper route to the U.S. Midwest, and the proposed Northern Gateway conduit across Alberta and British Columbia for tanker exports from the Pacific coast (see Daily GPI, Dec. 20, 2013).

When Alberta Clipper started southbound oil deliveries of 450,000 b/d in 2010, a parallel northbound route began Canadian imports of 180,000 b/d of natural gas liquids (NGL) from U.S. suppliers at Chicago area trading points.

At the same time as expansions are underway to increase Alberta Clipper’s oil export capacity to 570,000 b/d then again to almost 1 million b/d, NGL import traffic is poised to grow on Southern Lights. Enbridge is working on a C$700 million ($630 million) plan to increase capacity on Southern Lights by about 50% to 275,000 b/d.

The Northern Gateway project includes a 193,000 b/d eastbound line for imports of gas liquids as well as the main, westbound conduit for oil exports starting at 525,000 b/d. Enbridge has also declared intentions to devise plans forecast to cost C$1-1.4 billion ($900 million to $1.3 billion) for a new connection to the driving force of all the NGL demand growth.

The scheme, titled Norlite, calls for a jumbo NGL line between the pipeline, storage and refining hub at Edmonton and the Fort McMurray heart of the oilsands region, about 450 kilometers (270 miles) farther north. The driver of all the action is growing production and shipping of Alberta’s crudest energy product, bitumen.

Fully upgraded into synthetic crude, oilsands production is a high-grade item that fetches price premiums. But the initial oilsands product -- a low-grade, heavy oil -- flows like molasses at best or not at all at worst, and sells for at times steeply discounted prices.

On average, non-upgraded bitumen only flows in pipelines if about 30% of the delivery batches are light NGLs, or diluent. The resulting blend is informally branded “dilbit,” short for diluted bitumen.

The favorite NGL for the purpose is condensate, or natural gasoline. But diluent increasingly includes upgraded synthetic crude from the oilsands.
In Alberta, NGLs have been highly prized and priced at a premium since the 1980s. A landmark refinery, midway along the freeway between Edmonton and Calgary, reminds commuters of the special status of gas liquids in Alberta.

The plant has been mothballed for decades because it made gasoline from gas liquids instead of oil, and rising prices for its raw material rendered it uneconomic. The underlying trend of a tight NGL market predates the current oilsands production growth and initially resulted from a combination of petrochemical plant and heavy crude development.

Current Alberta use of NGLs for bitumen diluent is about 275,000 b/d, exceeding the provincial industry’s productive capacity of about 145,000 b/d and sustaining demand for service by Enbridge’s Southern Lights import line.

Demand should grow in step with oilsands production, say numerous forecasters, including the Canadian Association of Petroleum Producers (CAPP) and National Energy Board (NEB). As bitumen output about doubles to an estimated 3.7 million b/d by 2025, demand for gas-liquids diluent is expected to top 1 million b/d.

In the 2030s, oilsands production is forecast to hit 5.2 million b/d, generating corresponding growth in demand for NGLs.

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