Lack of pipeline capacity has oil companies seeking new ways to move product to market
CALGARY—Cenovus Energy Inc. says some of its oilsands bitumen may soon be able to move to market by rail, adding to the roughly 6,000 barrels per day of conventional crude it is currently shipping by train.
Moving the heavy, tar-like bitumen by rail requires specialized cars that are heated and insulated, and CEO Brian Ferguson says the company has some of those on order.
“We haven’t actually yet moved bitumen, but we are absolutely looking at that and doing some tests on moving that,” he said in an interview.
“I do think that it’s going to prove to be very viable to do, so I think we’ll likely be in a position to start that in 2014.”
Cenovus is currently moving about 6,000 barrels of oil per day by rail, but those are light and medium crudes from areas such as the Bakken formation in Saskatchewan. That number is expected to increase to 10,000 barrels per day by year-end.
With existing pipelines full and the fate of pipeline expansion projects anything but certain, Cenovus and many other Canadian oil companies are looking at a variety of ways to get their products to the best-paying markets.
Rail is a costlier option than pipelines, but it’s seen as a good way to tide producers over until a more permanent infrastructure is built.
“Rail provides a nice supplement to moving volumes,” said Don Swystun, executive vice-president of refining, marketing, transportation and development.
“If we can move it on the pipeline, we do, because it’s lower cost and more value to us.”
In the first three months of the year, the price gap between Canadian heavy oil and U.S. light oil was at US$31.96 a barrel—49 per cent wider than at the beginning of 2012.
A price difference between light and heavy oil is not unusual, given that the latter is more difficult to process. But a dearth of pipeline infrastructure to get that crude to the most lucrative markets worsened the differential late last year and in early 2013.
More recently, the differential has narrowed to a more normal level at around $14, but Ferguson said he does not see that lasting long.
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