Sunday , October 24 2021

Varcoe: Notley says Alberta will move ahead with buying oil rail cars



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Bill Morneau is not getting off Rachel Notley's oil-by-rail plan to boost crude shipments out of Alberta.

But the federal finance minister did not completely derail the idea on Tuesday as a short-term way of reducing the price discount thrashing Canadian oil producers.

The province is growing testy waiting for an answer, and the premier signalled Wednesday, its government is now moving forward on its plan to buy rail cars to move more oil out of Alberta.

Alberta's Prime Minister recently asked the Trudeau government to consider buying 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 pioneer money for improved 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 do not want to divert our resources to ideas that will not have a significant impact," Morneau said at one point.

Talking to reporters later, the finance minister left the door open to consider the concept, but just barely.

"I know the industry here and the provincial government are talking about other ideas that may have a short and medium-term advantage," he said.

"We want a team member 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 really wants to tackle the price differential.

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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 does not seem to get it," said the Energy Minister.

"It's super disappointing and I think it's very tone deaf. I do not 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 probably have to spend millions of dollars and buy rail cars and locomotives themselves to move the plan ahead.

In a speech in Ottawa on Wednesday, Notley again called on Ottawa to join Alberta in buying more rail cars and locomotives, saying the investment would be revenue neutral and serve as a hedge against future pipeline delays.

"Alberta wants to buy rail cars to move this oil and we're not wasting any time," she said according to the text of her speech to the Canadian Club of Ottawa.

"We have already engaged a third party to negotiate and work is well underway. We anticipate the conclusion of the deal within weeks. "

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 Tuesday.

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 proposed business plan for Ottawa would see the partners spend $ 350 million on fixed capital costs, along with estimated estimated cost of about $ 2.6 billion over three years, starting next July, according to one government source.

The project revenues generated from shippers would be about $ 2 billion, while Ottawa would see increased federal earnings 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.

Buying new locomotives and rail cars is not a short-term fix to the oil crisis in part, Ottawa says, because it would take at least a year to get the new train in place.

Elaine Thompson / Canadian Press / AP

While it would not come online for several months, it would still improve oil transportation options from 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've had in piping," said EPAC president Tristan Goodman.

For producers that are not large enough to sign long-term shipping contracts, railway companies will not bring 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 yields 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 plans 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, although slowly, with Alberta hoping to gain momentum for its proposal.

So far, Ottawa seems content to let this slow-moving train pass right on by.

Chris Varcoe is a Calgary Herald columnist.

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