Cenovus vows to build crude-by-rail capacity
CALGARY — The CEO of Cenovus Energy Inc. says the company is going ahead with plans to raise its crude-by-rail shipments to 100,000 barrels per day this year, despite criticism from other major producers that Alberta’s forced production cuts have destroyed rail’s profitability.
The Calgary-based company is confident that the province will encourage growth in crude-by-rail as an alternative to delayed new export pipelines going forward, Alex Pourbaix said Wednesday on a conference call.
“I remind everybody that although we are in a very low differential (price) period right now, we are literally six weeks into this curtailment initiative,” he said.
“I think there’s been a lot of noise... but I do expect that the government is going to act to continue to look at those volumes to ensure they’re at the right level to incent rail to get on.”
Pourbaix’s comments are in sharp contrast to criticism of the provincial program’s affect on rail economics by Steve Williams, CEO of Suncor Energy Inc., and Rich Kruger, CEO of Imperial Oil Ltd.
Kruger said Imperial would reduce its rail shipments of crude to “near zero” this month from about 168,000 bpd in December because the difference between western Canadian and U.S. benchmark oil prices had narrowed to the point that it didn’t cover the additional cost of using rail to send oil to the U.S. Gulf Coast refining complex.
Pourbaix said in an interview that Cenovus isn’t making much, but it isn’t losing money on the 20,000 bpd of oil it is now shipping by rail into the U.S. and he expects profitability to improve as the company begins receiving and filling about 4,000 newly built rail tankers in the next few weeks.
He pointed out Western Canadian Select bitumen-blend oil is at times fetching a premium to New York-traded West Texas Intermediate prices at Gulf Coast refineries because of a shortage of competing crude from Venezuela and Mexico.
Cenovus also announced Wednesday it has increased its shipping commitment on the proposed Keystone XL pipeline from Alberta to the Gulf Coast from 50,000 to 150,000 bpd.
Pourbaix said part of the increase is being provided at no cost by the Alberta government.
When the province committed a year ago with builder TransCanada Corp. to take 50,000 bpd on the pipeline, it agreed that it would stand aside if there was private sector demand, Premier Rachel Notley said later at an event in Calgary.
“Not surprisingly, (TransCanada) discovered there’s tremendous demand within the private sector... so we were pleased to be able to do that with Cenovus,” she said.
Alberta Energy later confirmed that Cenovus is assuming the entire 50,000-bpd commitment, along with the 20-year toll agreement.