Alberta Premier Rachel Notley says the province is planning to buy two new train units to move an additional 120,000 barrels of oil per day as it continues to get hit by steep oil price discounts.
Speaking at the Canadian Club of Ottawa today, Notley said the province has already been engaged with a third party to negotiate a train contract. She recently called on the federal government to join Alberta’s business case.
“I am here to tell you today that Alberta will buy the rail cars ourselves to move this oil, and we’re not wasting any time,” Notley said of the train plan during her speech.
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While the impacts of new trains on the rail network aren’t entirely known, Notley has said grain shipments would still get priority.
It’s not clear how those priorities would be met, though new regulations in the Transportation Modernization Act (Bill C-49) are designed to improve rail service for grain.
Alberta has recently been hammered by a steep discount to oil prices due to an oversupply in product and not enough pipeline capacity to move it out. Alberta prices have been as low as $11 a barrel, even though U.S. prices are hovering around $50 a barrel.
One of the solutions to the discount, Notley said, is to see the Trans Mountain pipeline expansion move forward.
However, the pipeline has been delayed by the courts and the only other way to move more oil out is by rail or truck.
“Buying these new trains, in the current, constrained situation we find ourselves in, would have many benefits,” she said in her speech. “It would provide our smaller producers with a more affordable option to move their oil to market.”
Notley said the two new train units would narrow the oil price gap by around $4 per barrel, which she says would generate an additional $1 million per day in federal revenues.
She said the plan would also raise royalty revenue and would increase commercial revenue through the sale of rail capacity.
She said there is value to investing in rail cars.
She said with the current pipeline construction schedule, this investment would be revenue neutral. If pipeline construction delays continue, she said Alberta and Canada would end up in a net-positive position.
“The federal government should be at the table on this,” she said. “There is no excuse for their absence.”
Notley said she anticipates the deal on new trains will conclude within weeks. She said costs will be recovered though royalty revenue and the selling of shipping capacity.
Contact jeremy.simes@producer.com
