Cenovus mulling diluent recovery unit at Alberta rail terminal

By Nia Williams

CALGARY, Alberta (Reuters) - Cenovus Energy is looking into building a diluent recovery unit at its Bruderheim crude-by-rail terminal near Edmonton, Alberta, which would allow the company to ship raw bitumen in tank cars and save on condensate costs.

Speaking to reporters after Cenovus's annual general meeting in Calgary on Wednesday, chief executive Brian Ferguson said stripping out condensate could improve margins by $2-$4 a barrel, depending on market conditions.

Although Canadian crude-by-rail volumes slipped in 2015, rail is still seen as a necessity for many landlocked oil sands producers given growing production and a lack of progress on export pipeline proposals like TransCanada Corp's Keystone XL and Enbridge Inc's Northern Gateway.

"This would allow us to tiptoe into the midstream part of the business," Ferguson said. "Anything we can do along the value chain to change or improve the product, or change or improve the market is a good thing."

Raw bitumen from Alberta's oil sands is the consistency of asphalt at room temperature and each barrel needs to be diluted with one third condensate, which typically trades at a premium to crude, in order to flow through pipelines.

A diluent recovery unit at Bruderheim would remove the blended condensate from each barrel before they are loaded onto rail cars, increasing the volume of bitumen that can be shipped and keeping the condensate in Alberta to be reused.

Earlier on Wednesday Cenovus reported a first quarter loss and said bitumen realizations from its oil sands projects took a hit from high condensate prices.

Ferguson said nothing had been budgeted yet, and building a diluent recovery unit would take two or three years and require permits. However, he also said if Cenovus does go ahead with the plan it may fit in with the Federal government's aim of encouraging innovation and be eligible for incentives.

(Editing by Andrew Hay)