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EXXON EXPOSURES HIGHLIGHTS

Secret Sauce and the Condensate Con Game

Figure 1 Condensate Supply and Demand

This paper will answer the questions Why did Exxon Pollute Mayflower, AR?

and Why Could My Neighborhood Be Next Unless We Stop the KXL Pipeline?

This is part of a continuing series that will investigate the unanswered questions

behind the Mayflower Tar Sands spill in March 2013. We will get to the bottom of

the controversies and discover surprising answers to the most avoided questions.

Part 2 will review the facts surrounding the origins of the Condensate, the Supply

and Demand of Diluent (see chart above) and the mixture with bitumen to form

Dilbit.

The Wabasca Heavy Dilbit which spilled in Mayflower, Arkansas at the end

of March 2013, is the worst of the worst, the dirtiest, most viscous, and

most biodegraded of the major producing Tar Sand bitumens in the world.

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To produce the solid, hockey puck hard, Wabasca Heavy, Canadian

companies require the addition of steam and chemicals.

To transport the highest viscosity bitumens requires the addition of high

levels of Condensates and toxic solvents including BTEXs and PAHs.

Canada does not have enough Condensate so it must be imported from the

United States at high prices.

The threat of asphaltene precipitation requires a selection of Condensate

with very high levels of carcinogenic Benzene and Toluene.

The Condensate most likely originates in the fracked, Eagle Ford Shale Gas

trend of South Texas where it is discounted in price relative to West Texas

Intermediate (WTI), the U.S. benchmark oil.

The dangerous Condensate is shipped in a vicious cycle by pipeline or rail

across America and sold at a premium price compared to WTI in Edmonton

Alberta. The round trip distance is about 5000 miles doubling the risks.

In or near Edmonton, Alberta this toxic Condensate is mixed with Wabasca

Bitumen to form Wabasca Heavy Dilbit which is transported by pipeline or

rail to Illinois by Canadian companies and sold at a discount price compared

to WTI. This is the same kind of Dilbit that would be shipped in KXL.

Production of Condensate and Dilbit will double by 2020 and triple by 2030

if the KXL pipeline is approved.

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In Illinois, Exxon purchased this cheap, dirty, highly toxic Dilbit and

transported it via their 65 year old pipeline which had reversed direction

and expanded capacity about 5 years before.

If the Exxon Pegasus pipeline hadnt burst on Good Friday, the Wabasca

Heavy Dilbit including the 35%-40% U.S. produced Condensate would have

gone to an Exxon Refinery in Texas.

At Exxons Refinery, the Condensate could have been boiled off and

recycled and again transported across the U.S, and again sold at a

premium to Canada in a vicious cycle of greed and increasing risks to the

public.

The remaining 60%-65% Wabasca heavy oil would have been refined and

sold as high value products.

The entire Canadian Tar Sands development depends on high International

oil prices and increasing U.S. Condensate imports. It is economically

marginal at todays prices and it is environmentally risky for Canada and the

US.

Those companies who benefit most participate in the entire Dilbit cycle

including Refiners like Exxon and Transporters like TransCanada and

Enbridge who can play margins and charge tariffs and fees in both

directions. Each of these companies has been responsible for major spills of

Dilbit already. It is nave to think they will not be responsible for future

spills.

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DILUENT

FAQs

1. Where is the Bitumen Combined with Diluent? Edmonton?

2. What is Condensate and How is it Used? Natural Gasoline Used in Dilbit!

3. What is Diluent and What is it Made Of? Condensate?

4. Which Condensate is Used in the Formation of Wabasca Heavy? CRW?

5. Where Does the Diluent Come From? South Texas!

6. Are There Health Concerns About Condensate? Yes!

7. What are the Components of Wabasca Heavy? C5+-C9 including BTEX

8. What is in the Suspected Source? Pump Station Sample incl. BTEX

9. What are the BTEX Health Risks? Cancer, Anemia, etc.

10. How Much is Diluent Worth? Over $100 per Barrel!

11. Who Gains from Rapid Tar Sands Production? Refiners and Transporters!

CONDENSATE CON GAME

Diluted Bitumen or Dilbit from Canada is the Tar Sands oil that catastrophically flowed

through the neighborhood of Mayflower, Arkansas from a ruptured Exxon pipeline on

March 29, 2013. It is also the type of Tar Sands oil which contaminated 35 miles of the

Kalamazoo River in Michigan from a burst Enbridge pipeline spilling close to a million gallons

of Dilbit in July 2010. This disaster was the largest on-land spill in American history and has

already cost more than a billion dollars in clean-up costs.

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Amazingly, neither of these pipeline spills would have been possible without the addition of

Diluent in the form of light oil/condensate. This Diluent was exported from the U.S. to

Canada and back which greatly benefited the very companies which are principally

responsible for these calamities. This is the untold story of where the Diluent poisons

originated and how the responsible parties profited most from this dangerous and

unnecessary trade practice.

What is Condensate and How is it Used? Natural Gasoline Used in DilBit!

As natural gas from drilled oil and gas wells reaches the surface, both pressures and

temperatures drop. Consequently, some of the gaseous content (wet gas) condenses

naturally and forms a type of light oil called Condensate. Condensate (Natural gasoline or

lease condensate) is composed of liquid hydrocarbons recovered from lease separator

pressure vessels or other field facilities.

Diluent is a light liquid hydrocarbon mixture of Condensate and Naphtha which contains

mostly pentanes and heavier (C5+). These are liquids at ambient temperature and pressure

and are used primarily to dilute bitumen called Dilbit.

How Much is Diluent Worth? Over $100 per

Barrel!

It turns out the real answer to this question depends on who you are and where you

purchase the Condensate. If you are a landowner who may have signed one of the early oil

and gas leases in the hot, new Eagle Ford Shale gas play in S. Texas you were likely swindled.

You probably werent told about the Condensate Bonanza unfolding and were happy to get

your token signature bonus and 1/16 (6.25%) or 1/8 (12.5%) royalty after costs on oil and

gas produced at the wellhead.

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Figure 2 S. Texas Eagle Ford Hydrocarbon Trends

You almost certainly were never told that most of the recent producing wells in the trend

were drilled in the Wet Gas/Condensate window (shown in yellow) on the EIA South Texas

Eagle Ford map above. By some estimates as much as half of all crude from some Eagle

Ford producers is actually Condensate. According to Kinder Morgan, who owns the crude

and condensate pipeline coming out of the Eagle Ford, nearly 100% of those shipments by

November 2013 were condensate amounting to nearly 200,000 barrels per day.

In fact, the Eagle Ford is now considered one of the few promising trends in the whole U.S.

Shale Gas picture. After ten years of production involving tens of thousands of wells some

scientists have concluded that the entire endeavor is a commercial failure with some

fields production declining by as much as 40% per year. Even in the Eagle Ford, drilling

rates as high as 3000 wells annually cannot be sustained in the sweet spots

They argue that while the use of hydraulic fracturing and horizontal drilling for "tight oil"

[Condensate] is an important contributor to U.S. energy supply, it is not going to result in

long-term sustainable production or allow the U.S. to become a net oil exporter.

The sad truth is at todays prices with gas at about $4.00 per Mcf and Oil at $100 per barrel,

a landowner might gross around 6 to 12 per barrel for oil and a mere 25 to 50 cents per Mcf

for gas. You may have been told that there might be Natural Gas Liquids (NGLs) and fed

some line about oil and gas heat equivalents (BTUs), so you could expect about 6 times the

value of natural gas for the gas liquids. NGLs sold for around $35 per barrel in mid-2013.

This means your gross share would be around $2 - $4 per barrel for NGLs.

Even if you were a savvy lessor and wrote in a separate clause for the value of Condensate

sold at the processing plant, youre probably still getting screwed. Due to the glut of

Condensate from Shale Gas plays and the transportation bottle necks, Condensate in the

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South sells at a discounted price of around $88 per barrel compared to about $100 per

barrel for West Texas Intermediate (WTI benchmark crude oil).

Figure 3 Canadian Diluent Supply and Demand

Meanwhile in Canada, which is desperate for diluent (see demand curve above in blue) to

make their Tar Sands flow, Condensate sells for a premium of around 15% over WTI or

about $115 U.S. per barrel. This explains why the US pipes 180,000 barrels per day of

condensate to Canada and that number is expected to double (see green curve above) in

the next couple of years if the KXL pipeline is completed.

Figure 4 Enbridge Southern Lights Pipeline Map

Currently, there is only one Condensate pipeline to Canada, the Southern Lights pipeline

from Illinois to Alberta owned by Enbridge (shown in blue on the border maps above). The

situation could change however if Kinder Morgan is allowed to cut off the gas from some of

its Minnesota customers and reverse its underutilized Cochin butane (black below) pipeline

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to move Condensate to Alberta. Other plans are also in the works (like Rainbow Pipeline II

shown in green below) to extend and expand the Diluent chain from Louisiana and Texas to

Canada.

Figure 5 North American Existing and Proposed Condensate Pipelines

But, that is literally only half the story. After the condensate is mixed about 30%-40% (by

volume) with the Tar Sands bitumen and synthetic oils, the resulting Dilbits and Synbits are

sold back to the US refiners for up to a 20% discount to WTI or about $80 U.S. per barrel.

Compare this with Canadian production costs of between $30 per barrel for Tar Sands oil

and $100 per barrel for synthetic oil blends plus transportation costs and it is clear that Tar

Sands crude is not a particularly good investment for Canadian producers. Additionally,

there is always the risk that if oil prices fell by just a little or the price of condensate rose

higher, the whole enterprise could collapse.

Furthermore, there are environmental risks in Canada where Tar Sands are mined and

processed and there are pollution risks and water contaminations risks wherever Dilbit is

transported. The Global impact of Tar Sands development on climate change is well-

established and the threat of disrupting the earths ability to repair our mistakes is

intolerable.

Of course, given that there are billions of barrels of tar sands still in the ground, even if Tar

Sands producers make only a few dollars per barrel, they would try to produce Dilbit.

Regardless of the environmental costs (which they dont pay) and the health impacts on the

indigenous populations (which they dont publicly acknowledge) they would continue on

this suicidal course at breakneck speed.

So, who benefits most by continued rapid tar sands development? Clearly, all this cross-

country movement of Dilbit and Condensate greatly benefits pipeline companies like Exxon,

Enbridge, Kinder Morgan and TransCanada which charge tariffs totaling in the range of

$7.50 to $9.00 per barrel. In the case of our precious Condensate, the pipeline and rail

companies can charge tolls in both directions with pure condensate shipped north from S.

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Texas to Canada. Moving southward, roughly 30% of every barrel of Dilbit consists of

Condensate coming back to U.S. refineries in the Gulf.

Finally, we come to which companies are the greatest beneficiaries of the Tar Sands boom

and bust cycles and how much Diluent is really worth. Condensate, the magic elixir which

keeps the Canadian Tar Sands flowing, has one more little trick and it is the gift that keeps

on giving to the Refiners. Companies like Exxon, Valero, Shell, BP and Phillips which own the

biggest refineries in the Gulf Coast know they can buy Dilbit cheap in Illinois, refine it in

Texas and Louisiana, sell the oil and its products at high prices and still recover most of the

recycled Condensate that was mixed with the bitumen in Canada by simply boiling it off

from the Dilbit stream and then condensing it. These petrochemical companies can then

put the same Condensate back into their own pipelines again and sell it back to Canada

again at a premium and keep the crazy merry-go-round going. This tragic development

cycle could continue as long as the Canadians are foolish enough to destroy Albertas

environment and fuel Global climate change to get at the marginally economic Tar Sands.

It is painful irony, that Americans are asked to permit fracking in their own back yards

across the South in order to produce shale gas containing highly toxic chemicals. These

poisons, in the form of Condensate and Dilbit, are then sent all the way across our beautiful

country and back to make a few transportation companies and petrochemical companies

filthy rich while they get away with poisoning us and our children. When the inevitable

leaks, spills and explosions occur, it is these same companies who are on the scene to

control the media and to assure us that our health is unaffected, everything will be put back

the way it was and we will be made whole again.

The reality is that these types of Tar Sands oil spills can never fully be cleaned up, our health

cannot be restored after exposure to these toxic chemicals and our drinking water cannot

be replaced. This insanity of Tar Sands development will not be prevented until we end the

indecent transfer of money to undemocratically influence our politicians to approve

unneeded and dangerous pipelines while simultaneously relaxing environmental

regulations. These very same petrochemical companies profit obscenely from the inevitable

misery they cause in places like Mayflower, Arkansas and Kalamazoo River, Michigan and

they will continue to lamely apologize for their future mistakes and negligence until we put

a stop to their greed and corruption.

David Lincoln

Environmental Consultant

March 5, 2014