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Cenovus Energy Inc. said it has leased 800 rail cars, including 300 general-purpose tank cars and 500 of the coiled and insulated cars needed for heavy oil. The leased tank cars begin arriving in late 2014. (ANDREW WALLACE/REUTERS)
Cenovus Energy Inc. said it has leased 800 rail cars, including 300 general-purpose tank cars and 500 of the coiled and insulated cars needed for heavy oil. The leased tank cars begin arriving in late 2014. (ANDREW WALLACE/REUTERS)

Cenovus ramps up oil-by-rail capacity Add to ...

In an increasing push to expand its rail transport options and reduce its reliance on yet-to-be-built pipeline projects, Cenovus Energy Inc. says it could be transporting 30,000 barrels of oil per day by train by the end of 2014, a three-fold increase from the end of this year.

It’s still a small part of the firm’s production of 180,000 barrels per day, including more than 100,000 barrels of bitumen. But Cenovus executives speaking at the company’s investor day said that with uncertainty hanging over a number of pipeline projects – including the Keystone XL project that would bring Alberta crude to the U.S. Gulf Coast – they don’t have the luxury of ignoring rail. For the first time, Cenovus will soon be using rail to transport heavy crude from its steam-assisted gravity drainage (SAGD) projects in Alberta’s oil sands.

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“Since mid-2012, markets and pipeline capacity have been tight, and rail has helped to fill the gap,” said Don Swystun, the Cenovus vice-president responsible for marketing and transportation.

On Tuesday, the company said it has leased 800 rail cars, including 300 general-purpose tank cars and 500 of the coiled and insulated cars needed for heavy oil. The leased tank cars begin arriving in late 2014.

Mr. Swystun said the oil giant is looking to jump into the business of rail terminals as well, and incorporate high-volume unit train shipments – where all the tank cars are carrying the same product, and are all going to the same destination.

All in all, the company plans to move up to 30,000 barrels of oil per day on rail by the end of 2014.

“Our strategy has been to participate in multiple pipeline opportunities, and rail, to manage the risk of some of the projects being delayed,” said Mr. Swystun, noting that Cenovus has entered into long-term deals to move 150,000 barrels of oil per day to the Gulf Coast on the proposed Keystone XL pipeline and on Enbridge Inc. lines. Cenovus is also a “funding partner” in the Enbridge-led proposed Northern Gateway pipeline to the West Coast.

But he said rail is a good option for getting around pipeline congestion, and for getting to oil markets not linked to Western Canada by pipeline. Also, rail allows producers to move bitumen using less diluents – the increasingly in-demand liquids needed to make sticky oil sands crude flow, much of which needs to be imported.

By the end of 2013, Cenovus expects to be shipping 10,000 barrels per day by rail. But most of the product moved by rail in the near term will continue to be light and medium oil from southern Saskatchewan and Alberta.

Follow on Twitter: @KellyCryderman

 
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