Oil tanker contracts renew grain delay debate

Despite concerns over Alberta’s $3.7 billion rail deal, the province and others believe it won’t affect grain movement

Debate is again surging over whether more oil by rail will affect grain movement, given the Alberta government plans to spend $3.7 billion to increase capacity by this summer.

Some farm leaders worry the plan could cause logjams, while others, including the provincial government, believe there won’t be impacts.

“Even with the additional crude on the rail now, we’ve already had some service issues with the two major railways,” said Tom Steve, general manager of the Alberta barley and wheat commissions, following the government’s oil-by-rail announcement Feb. 19.

“It’s not as simple as ordering up 4,000 rail cars and expecting that nothing will be impacted.”

Canadian National Railway and Canadian Pacific Railway have assured the province that grain won’t be affected because the bulk of the oil will be moving to the United States, Premier Rachel Notley said during the announcement.

Many transportation analysts have agreed with that sentiment, suggesting impacts will be minimal if oil moves south.

“That issue (of keeping grain a top priority) has been front and centre in all negotiations we’ve been having since we started talking about getting more takeaway capacity with rail,” Notley told reporters.

“There is capacity for both.”

Lynn Jacobson, president of the Alberta Federation of Agriculture, said farmers will have to wait and see until they know the impacts.

“Initially it sounds promising; it won’t disrupt the system,” he said, noting most grain goes to the West Coast.

“Any more traffic into that (Vancouver) corridor has the potential to really upset things, so maybe that’s why they are mostly going to go south.”

The province plans to spend $3.7 billion over three years to lease approximately 4,400 rail cars to move up to 120,000 barrels of oil per day by mid-2020, partnering with CN and CP.

Initial shipments are expected to begin in July 2019.

Final routes haven’t been determined, though Notley says most of the oil will be going to the U.S. It could also go to eastern and western ports in Canada.

Chris Vervaet, executive director of the Canadian Oilseed Processors Association, said most canola oil and meal is sent to the U.S., but members haven’t yet indicated the plan will be problematic.

“This issue has been on our radar, but there has been no feedback or confirmation that it would be something that would cause a great deal of heartburn,” he said.

Notley said the mid-term measures are needed because Alberta lacks pipeline capacity.

The province has been pushing for the construction of the Trans Mountain expansion, a multibillion-dollar project that has been delayed by the federal court.

At first it was expected the province would need upward of 7,000 cars and locomotives to move more oil, but Notley said fewer are needed now because more efficient routes have been found.

She said the province anticipates the new cars will generate about $5.9 billion in revenue over the next three years, expecting a profit of around $2.2 billion.

“The risk is in doing nothing,” she said, adding Alberta had to act to get more value for its resources.

United Conservative Party leader Jason Kenney said he will cancel the contracts if his party forms government this spring, telling reporters Feb. 20 he will let CP and CN know of his plans. 

Kenney initially said he would review the contracts but changed his mind after giving it more thought.

“The NDP has created a fiscal train wreck,” Kenney said, adding the plan will put the province further in debt.

He said the private sector has already invested in building more rail cars and that private industry should take on the risk rather than taxpayers.

He said farmers have legitimate concerns over potential backlogs.

“We have seen displacement of grain and other commodities in the western prairie provinces as more oil is moved by rail,” he said, although he added that CN and CP have made big investments in their operations to improve the movement of goods.

In separate emailed statements, CN and CP said they are committed to delivering for the entire economy, enabling growth in all commodity products.

CN president JJ Ruest said in the statement it’s his understanding the company will have 60 percent of the barrels.

The province said the rail companies will be investing in resources, infrastructure and locomotives to move the product.

Contracts have been signed, but no details are being disclosed.

About 23 percent of the cars will be retrofitted to meet new safety standards, while the remaining 77 percent will be newly built.

The Alberta Petroleum Marketing Commission, a crown corporation, will be buying oil from Alberta oil producers and selling it to export markets.

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