The greenhouse gas intensity of western Canadian condensate—which averaged 35 kilograms of carbon dioxide equivalent per barrel (kgCO₂e/bbl) in 2021—is expected to decline in the coming years as domestic supply from unconventional production in western Canada, as well as recycling, increases, according to a new analysis by S&P Global Commodity Insights.

Condensate is typically produced as a byproduct of natural gas extraction and processing. It is a light hydrocarbon liquid that can be found in natural gas reservoirs alongside natural gas. The primary source of Western Canadian condensate is the Montney and Duvernay formations in Western Canada.

Condensate is the largest source of diluent, a product that is blended with oil sands bitumen—a thick, sticky form of crude oil—to make it suitable for transport via pipeline. Condensate accounted for more than 90% of Canadian heavy oil demand for diluent used in bitumen blends in 2021. Canadian supply of bitumen blends was 3 million b/d that year, with condensate in some instances accounting for up to a third of a barrel of blended crude.

The new analysis, drawing on the expertise from the Center for Emissions Excellence and the Oil Sands Dialogue at S&P Global Commodity Insights, found that the GHG intensity of different sources of condensate supply ranges from 8 kgCO₂e/bbl to 58 kgCO₂e/bbl, depending on factors that include upstream production, recycling and transportation to the western Canadian market.

In light of the new condensate analysis, S&P Global Commodity Insights estimates that the total decline in the GHG intensity of Canadian oil sands marketable product was 25% from 2009 to 2022, 2% lower than previously estimated.

The analysis examined four main categories of western Canadian condensate supply: domestic production; condensate imported from the United States; recycled condensate originating in western Canada; and recycled condensate originating from the United States.

Produced, and thus virgin, condensate accounted for nearly 90% of all western Canadian condensate in 2021. Condensate produced in western Canada made up nearly two thirds of supply, with just over a quarter imported from the United States.

Condensate produced in the United States had the highest GHG intensity (estimated at 58 kgCO₂/bbl of condensate), with transportation distance being the largest contributing factor. Despite its lower volumetric share, this higher GHG intensity of delivered US-produced condensate makes its share of emissions nearly equivalent to Canadian produced condensate. Recycled condensate was the least GHG intensive but also contributed the least volume (13%), muting its impact on the overall GHG intensity of western Canadian condensate.

The market dynamics (namely price premiums) that incentivize condensate imports from the United States also incentivize the domestic production of condensate, the analysis says. This increase in domestic production, along with modest increases in Canadian recycled condensate are expected to further reduce the GHG intensity of the condensate pool going forward.

Western Canadian condensate demand has long outstripped regional production. In order to incentivize the importation of condensate from the United States, the price of condensate obtains a price premium in the Alberta market. This price premium also incentivizes upstream activity in western Canada to target liquids-rich plays, which can yield a greater share of condensate. A greater share of domestically sourced condensate would lower the overall GHG intensity further, given that transportation distance is the largest contributing factor for emissions.

—Celina Hwang, Director, North American Crude Oil Markets, S&P Global Commodity Insights