Alberta announces deal with CN, CP to ship crude by rail

The Alberta government has signed contracts with Canadian National and Canadian Pacific to lease 4,400 rail cars to take oilsands crude to American and international markets.

The first shipments of 20,000 barrels per day are expected to start by July. Full capacity is expected by mid-2020 when up to 120,000 barrels per day will be shipped by rail.

The oil-by-rail plan is a medium-term strategy for getting crude to market. The Trans Mountain Pipeline expansion, if approved, isn't expected to be operating for at least three years.

Provincial officials say the program will cost $3.7 billion over three years and result in $5.9 billion in revenues over the same period. The anticipated net revenue is $2.2 billion over the same period.

The government is projecting a $4 US a barrel narrowing of the price differential between Western Canadian Select crude and the baseline West Texas Intermediate price from early 2020 to late 2022.

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The province decided to lease the cars and locomotives because it was deemed more economical than buying them. Alberta was originally looking at leasing or buying 7,000 cars but officials involved in negotiations determined that amount wasn't required to ship 120,000 barrels a day thanks to routing.

Premier Rachel Notley said in a news conference that about every 10 or 11 cars will be repainted with an Alberta logo. She tried to reassure those who are concerned about the safety of her plan.

"We are treating the safety of these rail cars as though they are traveling through our own backyards," Notley said.

"The cars we will be using will be the safest cars on the tracks. They include the safest technology and meet the highest standards including all recent changes to safety standards."

Conservatives promise review

The rail cars are a combination of new and retrofitted models that meet government of Canada regulations: 3,400 are the new DOT 117J cars while the remaining 1,000 are the DOT 117R retrofitted models.

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Albertansare expected to go to the polls between March 1 and May 31. JasonKenney, leader of Alberta's Official Opposition UnitedConservativeParty, has vowed to review all contracts signed after Feb. 1to preventNotley'sNDP government from inking"sweetheart deals" in the lead-up to the campaign.

He told reporters at a news conference Tuesday afternoon that rail contractswill go under the microscope.

"If elected,a United Conservative government will subject today's proposal to that value-for-money review,"Kenneysaid.

By interfering in the market, the UCP leadersaid thegovernment will make rail shipments more expensive for the private sector and shift risk onto the taxpayer. KenneysaidNotleyis adding to the province's debt by financing a plan that will have little impact on oil shipments.

"We will not allow the NDP to write a multi-billion dollar cheque that taxpayers cannot afford," he said.

The Alberta Petroleum Marketing Commission (APMC) has signed contracts with CN and CP for service, staff and track capacity. It has also signed contracts for rail tank cars and capacity to load oil into the cars.

Contracts to unload oil at the railways' destinations, and exactly where the oil will go, are still under negotiation.

'Best interests of Albertans'

The government plans to buy crude from Alberta producers and then sell different grades to various destinations including the U.S. Gulf Coast, which is seeking heavy oil for its refineries.

Agricultural producers will still have capacity for grain shipments, officials say. That's because rail companies have an obligation to fulfil contracts they have already signed.

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Notley was asked if the crude by rail contracts could have waited particularly with an election coming up.

"We plan to be government after the next election," Notley said. "We plan to ensure outside of election cycles the best interests of Albertans are taken care of."

Notley said the crude by rail plan is key to ensuring Albertans get the best return for their resources.