Thermal oilsands heavyweight Cenovus Energy is prepared to increase the amount of oil it ships by rail in expectation of a coming widening of the price spread between Canadian heavy oil and US light benchmark WTI.
The spread between WCS and WTI, which is currently about about US$13/bbl, has tightened over recent months on stronger demand for Canadian heavy, but Cenovus does not expect this to last as production from Alberta grows.
A key factor will be the start up of Suncor Energy’s new Fort Hills oilsands mine, which will come onstream before year-end and is expected to be operating at 90 percent of its 194,000 bbl/d capacity by October 2018.
“We have seen some strength in WCS heavy crude due to activity on a larger global sale, but as production comes online we do expect a widening of WCS-WTI over time until more pipe comes on,” Bob Pease, Cenovus’s president, downstream told an analyst call on Thursday.
He added that there is likely to be an increase in crude-by-rail traffic as a result, including from Cenovus by way of its terminal at Bruderheim, Alta.
“Cenovus is very well positioned in the event that it does take longer than we would certainly like, and the industry needs, for pipelines to come on board. At the current differentials we are moving volume out of our Bruderheim terminal, and we are staffed for fairly significant growth if we see a really robust opportunity. At this point we haven’t seen an uptick...but we do see that day coming.”
Cenovus acquired the Bruderheim terminal from Canexus Corporation in September 2015 for $75 million.
Located about 50 kilometres northeast of Edmonton, the terminal offers strategic value due to its connections to the Cold Lake and Access pipeline systems, as well as its links to the rail lines of both Canadian Pacific Railway Limited and Canadian National Railway Co. Cenovus started moving oil through the facility in 2014.
Canadian crude by rail volumes averaged about 127,000 bbls/d from January to July 2017, according to the latest data from the National Energy Board. Traffic peaked in September 2014 at 178,000 bbls/d; at the time, the WTI-WCS differential averaged about US$16/bbl.
The NEB estimates there is approximately one million bbls/d of crude by rail transloading capacity in Canada.
Image: Joey Podlubny/JWN