Canadian Pacific Railway is asking crude-by-rail shippers to sign multi-year, take-or-pay contracts that guarantee minimum volumes before it will assign locomotives and crews to help move a backlog of oilsands crude out of Western Canada.
Chief financial officer Nadeem Velani says the railway wants its customers to have significant “skin in the game” before it commits to the costs involved in scaling up its oil-shipping capacity.
He told a CIBC World Markets conference webcast from Whistler, B.C., on Friday that the railroad fears the oil-shipping surge will last for only a year or two before new pipelines open up, giving oilsands companies cheaper transport options to market and leaving the railway with an overcapacity in that part of its business.
At an earlier session of the same conference, Cenovus Energy Inc. CEO Alex Pourbaix said he’s confident Canadian railroads will get on board over the next few months to increase the movement of heavy oil.
Cenovus is expected to produce about 370,000 barrels per day of non-upgraded bitumen this year and has been hit hard by higher discounts being paid for Western Canadian Select crude, a blend of bitumen and lighter crudes.
Prices paid for WCS have failed to follow the rally in benchmark New York-traded West Texas Intermediate to three-year highs, in part because of pipeline capacity constraints out of Western Canada.