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Spending more to save Cost of proposed rail-road network to oil sands region exceeds original estimates by C$800 million, but backers confident of estimate; others uneasy Gary Park Petroleum News Calgary Correspondent
It’s a common refrain in Alberta’s oil sands world — the project would cost C$2.6 billion, about C$800 million more than the initial guess.
But the Alberta government is expected to decide by December whether to proceed with a new rail and road link from Edmonton to north of Fort McMurray to lower current road transport costs by about 17 percent, or an average C$15 per metric ton, climbing to C$147 for oversized road freight, along with improving safety and lessening environmental damage.
The plan, released Sept. 7, says the project would be financed by C$2.3 billion in long-term debt raised in capital markets and C$300 million from the Alberta government’s bulging coffers.
The timetable outlined in the study calls for financial closing in April 2005 and construction completion in July 2009, with revenues from rail and road tariffs flowing by January 2010.
The parallel rail-road network would be owned by the government and operated by a not-for-profit corporation.
Alberta Economic Development Minister Mark Norris said in a statement that the government will be working with industry “to further explore the merits of the proposed solution and how they might be implemented.”
Brian Mason, leader of the opposition Alberta New Democrats, argued there is not enough technical and engineering data to commit taxpayers’ money to the scheme.
He said the C$2.5 million study, formally launched only six months ago, was “conceived in secret, largely carried out in secret and now most of the study is being kept secret.
“As soon as they took the wrapper off this thing, it smelled,” Mason said, expressing concern about the high proportion of debt needed to finance the project. Industry would like to see details Even the industry issued a cautionary note.
The Athabasca Regional Issues Working Group, an umbrella organization of 20 oil sands players, said the “devil is in the details and we need to fully evaluate this option before we take a formal position.”
Group Executive Director Mike Glennon said the six-volume study is a “bit vague right now. Until we can test some of the numbers, we can’t endorse it in its entirety.”
Jim Gray, an oil industry veteran and leading promoter of the venture, said the latest cost estimate includes C$360 million of contingency funding should construction costs soar.
However, he doubted the project would be sideswiped with unforeseen overruns because of the detailed cost calculations.
He said the initial forecast of C$1.8 billion had a 40 percent margin of error, whereas the new estimate is accurate within 20 percent of the final cost.
Marcel Coutu, chief executive officer of the Canadian Oil Sands Trust, a 35 percent owner of the Syncrude Canada consortium, is well acquainted with the ballooning costs that have hit major oil sands projects and expansions.
But he said the rail-road project does not involve the same volatile, high-technology components that go into oil sands undertakings.
Most of new transportation corridor would follow a separate right of way from a current rail link that carries a daily average of 25 cars of petroleum coke destined for British Columbia and eventual export to Japan, eight to 15 loads of sulfur for Southern California and 25 cars of logs for local mills.
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