Alberta investing $3.7B to move oil by rail, leasing cars

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Alberta investing $3.7B to move oil by rail
WATCH ABOVE: Premier Rachel Notley has rolled out a multi-billion dollar plan to get more Alberta oil onto train cars and off to market. As provincial affairs reporter Tom Vernon explains, she's confident the decision will give Alberta's bottom line a big boost – Feb 19, 2019

Alberta Premier Rachel Notley says the province is spending $3.7 billion to move landlocked oil to market by rail _ and it isn’t counting on Ottawa to pitch in.

“We must take action today to provide more relief to our energy workers and the families who rely on these good jobs across this province and this country,” she said Tuesday.

“Albertans don’t just stand by. We take action.”

Notley said the best long-term solution is for new pipeline capacity to coastal ports, which would enable Alberta crude to be sold to overseas markets and ensure the best price.

Investing in rail is a medium-term stop-gap as pipeline projects such as the Trans Mountain expansion to the West Coast remain in limbo, she said.

The province aims to move up to 120,00 barrels of oil per day by rail by 2020 under deals with Canada’s two major railways, Canadian Pacific and Canadian National. Initial daily shipments of 20,000 barrels are expected to begin as early as July.

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READ MORE: Oil by rail shipments collapse amid Alberta government production cuts

Alberta is leasing 4,400 railway cars — more than three-quarters new and the rest retrofitted. It initially thought it would need 7,000 cars, but was able to lower that number because it found better routes to market.

Shipments of grain should not be disrupted by increased oil traffic on the railroads, Notley said.

When the premier first floated the oil-by-rail idea last fall, she urged the federal government to come on board.

She said Tuesday she’s not happy there has been no firm response, especially since an uplift in Alberta crude prices would boost Ottawa’s revenues, too.

“We’re not going to stop putting it to the federal government that they should be at the table, but we’re not going to wait on them either.”

The province estimates its rail plan will lead to a $5.9-billion increase in commercial, royalty and tax revenue for a net gain of $2.2 billion.

It also expects the plan will mean the discount for Western Canadian heavy oil versus U.S. light crude will shrink by US$4 a barrel from early 2020 to late 2021.

Last fall, the price gap exceeded US$50 at times, prompting Alberta to impose mandatory production cuts as a short-term measure to staunch the bleeding. The production cap was eased earlier this year, and Notley said Tuesday that it shouldn’t stay in place any longer than necessary.

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READ MORE: Alberta orders 8.7 per cent oil production cut to help deal with low prices

Oil brokerage Net Energy Exchange indicates the heavy oil discount is now at US$14.50.

Notley said she expects many of the leased railcars to be painted with Alberta’s logo, but details still need to be worked out.

The plan calls for the provincial government to buy oil from Alberta producers and then sell it wherever is most lucrative, though those details have yet to be worked out. Currently the U.S. Gulf Coast, home to numerous refineries well-suited for Canadian heavy crude, is an attractive destination because heavy oil shipments from Venezuela are declining, provincial officials said.

The NDP government announced the multibillion-dollar, three-year investment despite the possibility an election could be called any day.

“We plan to be government after the next election, but regardless we plan to ensure that outside of election cycles, the best interest of Albertans are taken care of,” Notley said.

Opposition Leader Jason Kenney said if his United Conservative Party forms the next government, it will rigorously review all deals signed during the legal campaign period to make sure they were done in good faith, are in the best interests of Albertans and are a good use of taxpayers’ money.

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He said the NDP government is committing taxpayer money to an investment that the private sector has indicated it would be willing to take on itself, given the right conditions.

“This is government-by-improvisation and I think it exposes us taxpayers to serious risk by a government trying to spend like drunken sailors while they’re probably on their way out the door.”

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