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The lack of pipeline capacity is prompting Canadian oil sands producers to boost their use of railroads to get their product to market, Cenovus CEO Alex Pourbaix told BNN in an interview Wednesday.
“I would expect to see over the coming quarters a real ramp-up in the volume of moving oil by rail,” said Pourbaix.
Alberta currently has capacity to ship about 600,000 barrels of oil per day by rail but is currently only sending about 100,000 barrels per day, he said. Boosting those shipments could help to reduce the current Canadian oil price discount, Pourbaix said.
Cenovus is also examining new technology that would help it boost the amount and cut the cost of shipping bitumen by rail, he said.
Cenovus is using the technology at its Bruderheim rail terminal near Edmonton. The process removes diluent from the bitumen to create solid bitumen that can be transported in railcars. The process increases the amount of bitumen that can be shipped and decreases the cost, said Pourbaix.
“You actually have more room for bitumen and you actually get a much more competitive transport cost. [It’s] very akin to the cost of long haul pipeline,” he said.
Cenovus reported a higher than expected loss of $914 million in the first quarter on Wednesday. Clogged export pipelines, a hedging strategy that backfired and refinery costs contributed to the loss.
Easing those shipping bottlenecks will help boost Cenovus profits, Pourbaix said.
“The solution in the short term is clearly going to be getting more oil-by-rail moving,” he said.
The lack of pipeline capacity has become an increasingly worrisome issue for Canadian energy producers. Political opposition in British Columbia to Kinder Morgan’s Trans Mountain pipeline expansion project prompted the company to cut all but essential expenditures on the pipeline project earlier this month.
Despite those options, pipelines remain the best way for oil producers to get their product to market, said Pourbaix.
The lack of pipeline capacity is a major contributor to the low price Canadian producers can charge for their oil and is costing the economy billions of dollars annually, he said.
“That is not just loss of profits to shareholders of Cenovus, that is lower royalty payments to the province of Alberta, it’s lower tax recovery for the federal government, it’s less jobs for Canadians. This is a really serious issue for the Canadian economy,” said Pourbaix.
This article first appeared on www.bnn.ca
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