The rapid surge in Western Canada's heavy-oil production is driving some major developments in the marketplace, according to Calgary-based investment-banking firm FirstEnergy Capital Corp. Heavy-oil output was less than 500,000 barrels per day in 1985; now it is more than 1 million per day and is expected to grow to more than 2 million per day by 2015. In response to growing output, several Calgary-based operators are launching a new heavy-oil stream, Western Canadian Select (WCS), as a benchmark. WCS is made up of existing Canadian heavy conventional and bitumen crude oil, blended with sweet synthetic and condensate diluents. EnCana Corp., Canadian Natural Resources Ltd., Petro-Canada and Talisman Energy Inc. will produce initial volumes of 250,000 barrels of WCS per day. The benchmark crude will address several issues that have been plaguing heavy-oil operators. In 2004, there were 19 heavy-oil streams marketed out of Western Canada; crude quality was not consistent and the demand for diluent was skyrocketing. Additionally, the large number of streams limited the market liquidity of individual streams. WCS is a blend of crudes that will reduce the number of streams and allow for more efficient use of the transportation options from Western Canada. It should minimize contamination between streams and improve the quality of the product delivered to buyers, according to EnCana, and it will reduce the industry's dependence on conventional diluent alone. It is also expected that the large volumes and consistent quality of WCS will increase market liquidity. At a recent Canadian crude-oil conference, EnCana forecasted that WCS volumes will grow rapidly as other crudes fold in, reaching 450,000 barrels per day in 2007. Meanwhile, EnCana is also working to improve its downstream integration in the heavy-crude sector. The Calgary-based firm and refiner Premcor Inc. are studying a potential upgrade of Premcor's refinery at Lima, Ohio, to process 200,000 barrels of heavy oil per day. The companies are looking at a 50/50 joint venture that would own and operate the upgraded refinery. EnCana currently produces some 35,000 barrels of bitumen per day from its in-situ projects in the Fort McMurray region of Alberta. "The joint venture would provide EnCana with a seamless value chain between our leading in-situ oil-sands resources position and the U.S. market's growing product demand," says Bill Oliver, president of EnCana Midstream & Marketing. "By partnering with Premcor we expect to build that value chain, and mitigate the impact of widely fluctuating price differences between Canadian heavy oil and the North American light-oil benchmarks." EnCana noted that the cost of converting an existing refinery to process heavy oil is estimated to be about half that of building a similar-sized upgrader in Alberta. EnCana and Premcor expect to complete the study this year; the converted refinery could come onstream in 2008. -Peggy Williams