Gibson Energy, USD to build diluent recovery unit; CP, KCS to ship crude-oil product

US Development Group LLC (USD) and Gibson Energy Inc. this week announced an agreement to build and operate a diluent recovery unit (DRU) near Hardisty, Alberta. ConocoPhillips Canada has contracted to process the 50,000 barrels per day of inlet bitumen blend through the DRU to be shipped by Canadian Pacific and Kansas City Southern to the U.S. Gulf Coast.

USD and Gibson are in discussions with other potential producers and refiners to secure long-term, take-or-pay agreements for an additional 50,000 barrels per day at the proposed DRU, USD and Gibson officials said in a press release.

USD’s patented DRU technology separates the diluent that has been added to the raw bitumen in the production process, which meets two important market needs: It returns the recovered diluent for reuse in the Alberta market, reducing delivered costs for diluent; and it creates DRUbit™, a proprietary heavy Canadian crude oil specifically designed for rail transportation.

“Our DRU technology provides a sustainable, long-term solution for shipping Canadian crude oil to the U.S. Gulf Coast,” said USD Chief Executive Officer Dan Borgen.

Following separation at the DRU, the DRUbit™ owned by ConocoPhillips will be railed by CP and KCS from the existing Hardisty Rail Terminal to a new terminal in Port Arthur, Texas, under a long-term contract with CP, subject to standard conditions.

The Port Arthur terminal will be built, owned and operated solely by USD. It will have the capability for rail unloading, barge dock loading and unloading, tank storage and blending, and will be pipeline connected to Phillips 66’s Beaumont Terminal.

“From an innovation, sustainability and safety perspective, this is a game changer,” said CP President and CEO Keith Creel. “This process removes diluent from the crude-by-rail supply chain, and as a result, we end up moving a non-hazardous commodity. This will further increase the safety of crude-by-rail, to the benefit of the communities we operate in and through."

For KCS, the arrangement represents an opportunity to grow business in the Gulf Coast and "develop our Port Arthur asset," said KCS President and CEO Patrick Ottensmeyer.

The DRU's construction is expected to take 18 to 24 months, including regulatory approvals and other conditions that must be met. The DRU could be placed into service as early as second-quarter 2021.