ALBERTA GROWS TESTY AS FEDS REJECT RAIL IDEA
Ramping up oil by tanker car will take time but it’s an option amid pipeline problems
Bill Morneau isn’t getting aboard Rachel Notley’s oil-by-rail plan to boost crude shipments out of Alberta.
But the federal finance minister didn’t completely derail the idea on Tuesday as a shortterm way of alleviating the price discount thrashing Canadian oil producers.
The province is growing testy waiting for an answer.
Alberta’s premier recently asked the Trudeau government to consider helping purchase rail cars and locomotives in an attempt to increase the amount of crude moving out of the province by train as existing pipelines are congested.
Morneau seemed to dismiss the idea last weekend, saying it would take at least nine months to execute such a plan.
Speaking during and after a Calgary Chamber of Commerce luncheon, Morneau was asked several times Tuesday if the federal government would pony up money for enhanced rail options.
Like Prime Minister Justin Trudeau during his visit to Calgary last week, the finance minister avoided a direct response, pivoting to the broader point that Ottawa wants to see its Trans Mountain pipeline expansion built. “We don’t want to divert our resources to ideas that won’t actually have an important impact,” Morneau said at one point.
Talking to reporters later, the finance minister left the door open to considering the concept, but just barely.
“I know the industry here and the provincial government are talking about other ideas that might have short- and mediumterm advantage,” he said.
“We will be a team member in trying to make sure we’re considering all opportunities and what the appropriate federal role might be.”
Well, team member, it’s time to grab the chequebook if Ottawa truly wants to tackle the price differential.
At the provincial legislature, Alberta Energy Minister Marg McCuaig-Boyd criticized Morneau and his federal counterparts for not embracing the idea.
While both provincial and federal governments are pushing for Trans Mountain, the oil-price discount is creating a crisis and “we need some solutions,” she told Postmedia’s Clare Clancy.
“He doesn’t seem to get it,” the energy minister said.
“It’s super disappointing and I think it’s very tone deaf. I don’t know what it’s going to take to press the issue that it’s serious here in Alberta and we need help.
“But, at the end of the day, if the feds are going to forget about Alberta, our government is not.”
That means the province will likely have to spend millions of dollars and buy rail cars and locomotives itself to move the plan forward.
Rail has emerged as a friction point between the federal and provincial governments as they both navigate the problem of Canada’s inability to get its oil resources to market.
The price differential between Western Canadian Select and benchmark U.S. crude prices sat at US$38.19 a barrel on Monday.
The provincial government estimates the discount is costing the Canadian economy up to $80 million a day.
With no new pipelines expected until later next year — and the future of the Trans Mountain expansion and Keystone XL project up in the air — rail remains one of the few available options to boost transportation capacity, if additional locomotives and cars can be found.
Record amounts of crude exports are already moving by train, averaging 270,000 barrels per day in September.
The province’s proposed business plan for Ottawa would see the partners spend $350 million on fixed capital costs, along with an estimated operating cost of about $2.6 billion over three years, starting next July, according to one government source.
It projects revenue generated from shippers would be about $2 billion, while Ottawa would see increased federal revenues to the tune of $1 million a day from the improved price differential.
Two new unit trains, capable of moving about 120,000 barrels per day out of Alberta, could help the situation, although it would take time to order new locomotives.
Industry groups such as the Explorers and Producers Association of Canada (EPAC) back the province’s proposal.
While it wouldn’t come online for several months, it would still improve oil transportation options out of Western Canada over the mid-term.
“It’s a fantastic idea and is a serious option that should be considered, given the policy problems we have been having putting in pipe,” said EPAC president Tristan Goodman.
For producers that aren’t large enough to sign long-term shipping contracts, railway companies won’t bring on more cars or locomotives unless they have some form of government backstop or assistance.
The issue of rail cars is coming to a boil as the discount on Canadian oil creates chaos for government finances, and the revenues of petroleum producers.
Credit rating agency Moody’s Investor Service said this week it expects the historically wide price differential will lead Alberta to post a larger-than-forecast deficit this year.
“Without successful government policy measures, (it) could delay its timeline to return to balance,” said Adam Hardi, Moody’s assistant vice-president.
The Notley government projects this year’s deficit will hit $7.8 billion, and has insisted it will return to a balanced budget by 2023-24.
Expect to hear more about the rail alternatives when the premier speaks Wednesday to the Canadian Club of Ottawa, and to the Toronto Region Board of Trade the following day.
The province’s oil-by-rail plan is still chugging along, albeit slowly, with Alberta hoping to gain momentum for its proposal.
So far, however, Ottawa seems content to let this slow-moving train pass right on by.