Canada has an 'obligation' to step in and fund oil by rail, says industry advocate

Canada's inability to get oil and gas to global markets has put the country in crisisand the federal government has an "obligation" to intervene by investing in oil by rail, says the head of an industry lobby group.

"We have a crisis today in Canada, economically, in that we're losing $50 a barrel of oil every day that we're producing," saidTim McMillan, president and CEO of the Canadian Association of Petroleum Producers.

'Dramatically different volume'

Canada ships about 200,000 barrels of oil per day by rail, which McMillan saidis a "dramatically different volume"than stalled pipeline projects like the Trans Mountain pipeline expansion (300,000 barrels per day),Northern Gateway (525,000 barrels per day) and Energy East (1.1 million barrels per day) would have been able to transport.

"Because of the lack of volume, I think the federal government does have an obligation to step in and help make up that medium-term gap."

On Monday, after a meeting with energy industry officials, Alberta Premier Rachel Notley called on the federal government to get into the oil-by-rail business as pipelines aren't getting built.

Notleydescribed the price differential betweenWest Texas Intermediate and Western Canadian Select, which has vaulted above $50 US a barrel in recent weeks, as a "punishing" number that's costing Canadians millions daily.

Railways have struggled to keep up with exports this year, with reports of both grain and rail cars marooned on the Prairies.

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McMillansaid best scenario would be one where there the private sector handles transportation, but that's not the situation the industry finds itself in.

McMillan added that the federal government changed the regulatory process by stepping in to buy the Trans Mountain pipeline project,so it's not unprecedented for Ottawa to intervene when necessary.

Aim to reach more global markets

McMillan noted that investing in oil-by-rail is simplya stop-gap measure, because Canada should be trying to reach more global markets.

"Rail is important, we do need to see rail scale up as it's the fastest option we have, but it doesn't allow us to get to global markets that are the growing markets we want to tap into," McMillan said.

"We believe Canada should be the supplier of choice for the growing markets in China and India, but today China and India are getting supplied by Saudi Arabia, Nigeria and Venezuela. We think Canada should be competing for those markets and we can do that in a more responsible way."

McMillanalso welcomed Notley's criticism of Bill C-69, which if passed would overhaul how energy projects are approved.

Alberta Environment Minister Shannon Phillips is in Ottawa Wednesday to meet with senators and make a case against the bill in its current form.

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With files from FrancoisJoly.