Providing coverage of Alaska and northern Canada's oil and gas industry
February 2019

Vol. 24, No.8 Week of February 24, 2019

Alberta moves on rail transport solution

Government strikes deal to lease 4,400 tanker cars from two railroads; calculates it will pocket C$2.2 billion over three years

Gary Park

for Petroleum News

The Alberta government plans to lease 4,400 rail cars from Canada’s two largest railroads in a deal it estimates will generate a profit of C$2.2 billion.

The administration of Premier Rachel Notley said Feb. 19 that it expects to invest C$3.7 billion in the deal with Canadian Pacific and Canadian National railways, calculating that once the cars are in full service by 2020 it will gain C$5.9 billion in royalties, tax revenues and profits over three years.

The government expects the discount for Western Canada Select heavy crude and the value of West Texas Intermediate will shrink by US$4 a barrel.

The crude-by-rail program is part of a series of measures designed to reduce the glut of landlocked crude in Alberta and overcome the shortage of pipeline capacity out of Alberta.

Notley said in a statement that all Albertans “deserve to get the top dollar” for the resources they own.

120,000 bpd by rail

The government expects the extra 4,400 rail cars will transport 120,000 barrels per day when all are in service, compared with the current maximum of about 330,000 bpd.

The Alberta Petroleum Marketing Commission will buy crude from producers that already have access to rail-loading facilities, then market those volumes to customers in the United States and offshore markets.

Until contracts are signed, the commission will not know the destination for those exports.

Earlier, Notley had indicated Alberta was close to buying 7,000 cars.

Large-scale derailments

She is undeterred by two large-scale train derailments earlier in February, one of them taking the lives of all three crew members, and one spilling crude from 37 cars that derailed in Manitoba.

Notley has also expressed confidence that Canada’s National Energy Board will soon allow construction to resume on the Trans Mountain pipeline expansion, TMX, to 890,000 bpd.

The Federal Court of Appeal quashed the regulatory approval for TMX last summer, ordering the NEB to undertake additional consultation on the impact of tanker traffic on the marine environment off Canada’s Pacific Coast.

Notley told the Canadian Broadcasting Corp. that she believes TMX approval will be restored, opening the way to “get shovels back in the ground later this year.”

Calgary-based analyst Greg Stringham, who headed Alberta’s oil-by-rail committee, said rail is essential “until we get new pipelines in place. Rail becomes a really good insurance policy.”

Pipelines safer

The extreme risks of relying on rail have been driven home with force this month.

A Canadian Pacific train hauling 100 grain cars ran out of control in the Canadian Rockies on Feb. 5 after sitting for two hours at the top of the slope without handbrakes being deployed. It ended in a crumpled wreck after falling 200 feet from a bridge near the Alberta-British Columbia border. Two of the three crew were found dead near the locomotive and a third was still inside.

That was followed 11 days later when tanker cars on a Canadian National tankers train derailed 180 miles northwest of Winnipeg and leaked oil near a water lagoon. The extent of that damaged has yet to be assessed.

Asked whether rail accidents gave her pause about moving ahead with her government’s crude-by-rail plan, Notley emphasized that pipelines remain the safest transportation option.

But she said the inability of several federal governments to build a pipeline to the Pacific Coast has forced Alberta to curb crude production to restore oil prices.

“That is an unsustainable situation,” she said. “It has consequences.”

Hopes also remain pinned on a resumption of work on the Keystone XL line to the U.S. Gulf Coast and on Enbridge’s Line 3 from Alberta to Superior, Wisconsin.

The C$9 billion Line 3 project is designed to replace an aging pipeline and more than double capacity to 760,000 barrels per day from 370,000 bpd.

Enbridge Chief Executive Officer Al Monaco told analysts that Line 3 has “massive support” and is now in the final permitting and construction phase that should allow the line to come into service by late 2019.

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