CALGARY – Protests and blockades rolling across the country threaten to “gum up” the Canadian economy and could potentially derail recent improvements in Alberta’s oil industry, according to Alex Pourbaix, chief executive officer of Cenovus Energy Inc.
The arrest and removal of protestors hindering work on a natural gas pipeline in British Columbia in the past week has sparked a wave of protests and blockades by Indigenous and environmental groups across the country, which have forced some ports to close and railway companies to stop running trains across busy corridors.
The timing of the protests and the blockades has created a potential risk for major Alberta oil producers, which have been ramping up oil-by-rail shipments in recent months because all existing export pipelines are full and the economic case for using the railways has improved.
“If these protests continue to block up ports, this isn’t just going to disrupt the flow of energy, it’s going to disrupt everything – grain, potash, chlorine, you name it,” Pourbaix told the Financial Post on Wednesday. The company told investors at its first-quarter earnings that it had shipped an average of 106,000 barrels of oil per day on railway cars at the end of 2019.
“I think it’s really incumbent on the various levels of government to get together to find a solution because it’s going to really gum up the Canadian economy if (the protests) are allowed to continue for any length of time,” he said.
Pourbaix said the company had the option to ship even more oil on rail and moved 120,000 bpd on trains in January. The company has been steadily ramping up its shipments by rail, which has allowed the company to get allowances to surpass the Alberta government’s mandatory production limits.
“In a world where we aren’t able to move oil by rail, that would eventually affect our ability to utilize (government credits) to maximize our production,” Pourbaix said. “We haven’t seen a significant impact on our rail movements yet.”
Still, the risk of a fall in oil-by-rail shipments to Alberta’s economy is significant.
Total oil shipments by rail out of Canada reached 297,000 bpd in November, the last data available from the Canadian Energy Regulator.
We’re going to be cautious and we’re going to keep the rail program available
Alex Pourbaix, CEO, Cenovus Energy
National Bank Financial analyst Travis Wood said in a research note Wednesday that total crude by rail movements out of Canada have now reached 345,000 bpd and “continues to play a meaningful role in the (Western Canadian Sedimentary Basin) egress strategy.”
He noted that Cenovus – as well as companies such as Gibson Energy Inc. – have proposed building diluent recovery units, which would allow oil producers to fit more bitumen onto trains with less blending agents, effectively boosting the efficiency of trains moving oilsands crude.
A final investment decision by Cenovus on that project could come later this year, which would entrench oil-by-rail shipments for the future.
Regardless of whether that project is built, crude-by-rail export numbers could jump by a third after the Alberta government announced late Tuesday it had sold off contracts to move 120,000 bpd on railway cars.
As a result of the transaction, the government incurred a loss of $1.3 billion. The UCP government said the loss is smaller than the $1.8 billion it had estimated earlier.
Given protests this week and civil disobedience planned for under-construction pipelines, Pourbaix said he’s encouraged by recent progress on Enbridge Inc.’s Line 3, the Crown-owned Trans Mountain project and TC Energy Corp.’s Keystone XL pipeline, but doesn’t count recent court decisions as a total victory.
“We’re not going to count those chickens before they hatch. We’re going to be cautious and we’re going to keep the rail program available,” he said.
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