Alberta may buy rail cars to increase oil transport capacity

Alberta Premier Rachel Notley says her government is continuing to push Ottawa to do more to facilitate transporting a greater volume of oil-by-rail until pipeline capacity increases and is considering buying trains to do it.

Premier says move could add 120,000 to 140,000 barrels per day of oil export capacity

Rachel Notley takes questions from the media after speaking to an oilwell drilling group Thursday in Calgary. (CBC)

Alberta Premier Rachel Notley says her government is continuing to push Ottawa to do more to facilitate transporting a greater volume of oil-by-rail until pipeline capacity increases and is considering buying trains to do it.

"The bottom line, Ottawa needs to join Alberta to help ease the economic pain that Alberta played no part in causing but is, in fact, the same pain that is affecting the well-being of this entire province and, quite frankly, this entire country," she said Thursday. 

"And let me say, if Ottawa won't come to the table, then we'll get it done ourselves … and if it takes buying trains to do it, well then that's what we're going to do," she said.

Notley said the province is willing to go it alone to buy trains to add between 120,000 and 140,000 barrels per day of oil export capacity if the federal government isn't willing to help.

That capacity would be in addition to current record levels of crude-by-rail shipments, she added. The National Energy Board reported Wednesday exports reached about 270,000 bpd in September.

Federal finance ​Minister Bill Morneau told reporters Thursday in Ottawa that the Liberal government has no plans to introduce new measures to boost oil-by-rail shipments.

Notley added her government is close to finalizing investment deals on six projects for partial upgrading of oilsands bitumen that will be worth nearly $5 billion of new private sector investment and create hundreds of long-term jobs.

"For decades, Albertans have been talking about getting more for our oil by upgrading more here at home. We're taking action to make that a reality," Notley said in a release, shortly before repeating the message in Calgary Thursday at a meeting of the Canadian Association of Oilwell Drilling Contractors (CAODC).

"By supercharging energy upgrading in Alberta, we can create more jobs and open more markets to finally get top dollar for our resources," said Notley, a day after Morneau released a fiscal update that the Alberta government said contained no specific measures to address the impact the oil price differential is having on the national economy.

The projects are being pursued under the Energy Diversification Act, introduced in March 2018, which earmarked up to $1 billion in incentives to help leverage billions more in private investment to build partial upgrading facilities.

The government says it's still reviewing the short list of proposed projects for their economic viability. 

"We'll be sitting down with those companies very shortly and expect big investment decisions soon," Notley said.

Partial upgrading reduces the thickness of oilsands bitumen so it flows through pipelines more easily, without having to be blended with diluent.

It can increase pipeline capacity by up to 30 per cent, the province says.

Carbon levy exemption for drilling

Notley also announced — to one of the biggest rounds of applause in the room — that drillers will be exempt from the provincial carbon levy for clear fuel usage for on-site drilling. She said they would be also be eligible for rebates going back to when the carbon levy began at the start of 2017.

The premier's office says the government estimates the rebates to drillers will add up to between $775,000 and $1.5 million a year.

The Canadian Association of Oilwell Drilling Contractors released its drilling forecast for 2019 just ahead of the premier's speech.

The association is projecting that 6,962 wells will be drilled, an increase of just 51 from this year — a relatively flat year-over-year uptick, the association says.

The industry drilled about 13,000 wells in 2014 before global oil prices crashed.

The CAODC predicts the overall rig fleet to decrease by 58 next year, down to 522 actively drilling from 580.

"The lack of activity is not hard to understand," said CAODC president Mark Scholz. "The Canadian oil and gas industry is simply too dysfunctional to anticipate any kind of quick recovery."

Notley has been busy making announcements this week as part of her government's so-called made-in-Alberta strategy to get more value for the province's energy resources.

The price of Western Canadian Select crashed in September due, in part, to a backlog of oil in Alberta.

As oilsands production ramped up throughout the year, export pipelines reached full capacity. Making matters worse, several refineries in the U.S. that process heavy oil from Alberta shut down for maintenance.

The differential between West Texas Intermediate and Western Canadian Select averaged around $45 US per barrel last month. One estimate pegged the cost of the price differential to Alberta's energy sector at $100 million a day. 

Pipelines preferred over rail shipments

Asked about the rail request, Morneau said pipelines are his preference, vowing to continue to push to build the Trans Mountain expansion.

However, a government official speaking on background said if there were industry and government consensus on a new approach, Morneau would assess how to move forward.

Notley said Prime Minister Justin Trudeau would likely hear a great deal of frustration as he visited Calgary on Thursday to give a speech to the Calgary Chamber of Commerce and meet with oil and gas company CEOs.

"There are a lot of folks here who would be forgiven for saying, 'Gee, if there were this kind of economic crisis going on in the manufacturing sector in Ontario, we're pretty sure it would make its way into the first two paragraphs of the fiscal update.' Yet it didn't find its way into the first two paragraphs," she told reporters.

"I think that Ottawa needs to be seized of the matter and I suspect they will be by the end of the prime minister's day here today."

Cenovus CEO calls for production cuts

Alex Pourbaix, president and CEO of Cenovus Energy, told CBC News Network's Power & Politics host Vassy Kapelos that ramping up oil-by-rail is an important part of the solution to the crisis, but it's more complicated than some people realize.

"The cars are a bottleneck, but it's not just cars. It's crews, it's locomotives, it's the upgrades that CN and CP need to do to their tracks in order to accommodate these increased freight movements," he said Thursday.

Cenovus has been urging the Alberta government to implement "temporary" production cuts across the oil sector as Canadian crude prices continue to struggle.

Cenovus says there is a strong case for the government to temporarily mandate reduced production for the industry since the market can't fix a problem that is "inherently political."

"By any measure, this has become an extraordinarily serious situation. And we, our industry, Albertans and Canadians, are losing money or value every day that this issue is not resolved."

But he said the government seems to be moving with "pretty good speed" to address the crisis.

Pourbaix said that, assuming that the Enbridge Line 3 project comes about next year, and that rail ramps up, the current crisis will be alleviated and the government wouldn't need to curtail production for very long.

New provincial investments

On Tuesday, Notley unveiled a plan to boost its investment in two petrochemical upgrading programs by $1.1 billion, for a total of $2.1 billion.

She also announced a new "energy upgrading unit" in her office to prioritize the upgrading and refining of more of Alberta's energy resources within the province, and said funding announcements were expected within days.

On Monday, the premier said she has appointed three special envoys to work with energy sector experts and CEOs to find solutions for closing the oil-price differential.

The envoys are Robert Skinner from the University of Calgary's School of Public Policy, Brian Topp, Notley's former chief of staff, and deputy energy minister Coleen Volk.

With files from The Canadian Press


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