Understanding what diluent is and how it enables the transportation of oil sands bitumen is crucial for grasping the logistics, economics, and emissions impacts of Canadian energy markets.

The fifth part of a deep dive into Canada’s oil sands. This final look at the sands will explore the importance of diluent to the region.

Canada’s oil sands (Oil Sands 101) contain an incredible amount of oil. Energy companies (Oil Sands 103) can extract that oil through two completely different processes (Oil Sands 102), depending upon how close the oil is to the surface. That said, there are many environmental risks (Oil Sands 104) to the process that could impact future production from the oil sands.

For investors, numerous factors can impact an investment in an oil sands producer. One area that few investors likely consider is the importance of diluent to the oil sands production process. In this fifth and final part of our in-depth exploration of the oil sands, we’ll explore what diluent is and why it’s essential.

What is a diluent?

Diluent is a diluting or thinning agent, and it’s essential to the oil sands. That is because the bitumen that makes up Canada’s oil sands is too viscous or thick to be pumped through a pipeline. At cold temperatures, bitumen has a viscosity similar to that of molasses. By diluting the bitumen, it can more easily flow through pipelines to be refined and sold.

The typical diluent for the oil sands is natural gas condensate, though shippers also use refined naphtha or synthetic crude oil. Condensate is relatively plentiful in the United States, as drillers have focused on higher-value natural gas liquids such as ethane and propane. These wells also typically contain a significant amount of condensate, also known as natural gasoline.

Why is it important?

Without some diluent, Suncor Energy (TSX: SU) (NYSE: SU) and its oil sand-producing peers could not get their oil to market centres. That’s why, for example, we recently saw Suncor Energy team up with Enbridge (TSX: ENB) (NYSE: ENB) on two separate diluent-related pipeline projects after it and its partners gave the green light on the Fort Hills oil sands project.

Enbridge is investing $1.4 billion to build the Norlight Diluent Pipeline, which will supply the region with the diluent needed to transport the oil. Enbridge is following this project with its $1.6 billion Wood Buffalo Extension Pipeline, which will transport diluted bitumen from Fort Hill, as well as Suncor’s other oil sands projects in the region.

Enbridge isn’t the only company working to get diluent to the region. Earlier this year, Enterprise Products Partners (NYSE: EPD) announced it would develop a project to ship diluent-quality natural gasoline from Texas to Chicago, where it could then be shipped to Western Canada on either Enbridge’s Southern Lights pipeline or Kinder Morgan’s (NYSE: KMI) Cochin pipeline. The connections to those pipelines are expected to come online by early next year.

Bottom line, an ample supply of diluent is critical to getting Canada’s oil out via major pipelines. This includes current export pipelines such as those operated by TransCanada (TSX: TRP) (NYSE: TRP), which currently handles a third of Canadian oil exports, as well as future projects like its Keystone XL and Energy East, or Kinder Morgan’s Trans Mountain Pipeline expansion. Diluent coming into Canada means diluted bitumen can flow back out of the country.

Investor takeaway

Moving diluent will be a significant revenue generator for pipeline companies. Enterprise Products Partners and Kinder Morgan have both reversed the flow of underutilized pipelines to capitalize on the growing demand for diluent in Western Canada. Meanwhile, TransCanada and Enbridge will transport an ever-increasing amount of diluted bitumen produced by companies like Suncor and export it to the United States. It’s just one of the many interesting opportunities to profit from the development of Canada’s oil sands.

Learn more: 

• Part 1: Oil Sands 101: What Are the Oil Sands Anyway?
• Part 2: Oil Sands 102: How Does Oil Come from Sand?
• Part 3: Oil Sands 103: What Companies are Key to Developing Canada’s Oil Sands?
• Part 4: Oil Sands 104: Are the Environmental Concerns Worth the Risk?
• Part 5: Oil Sands 105: What is Diluent and Why is it Important?

Optimizing Bitumen Transport — What Role Does Diluent Play?

As global energy systems evolve, so does the need to understand core components, such as diluent, in oil sands operations. At Klean Industries, we support cleaner alternatives through advanced waste-to-fuel systems that complement existing hydrocarbon infrastructures.

Seeking ways to offset carbon emissions from oil sands or integrate circular fuels?

Our technologies convert waste plastics and tires into compatible low-carbon oils that reduce dependence on conventional diluent sources.

Talk to our Energy Transition Team and explore hybrid strategies for a cleaner energy future » GO.