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Varcoe: Alberta grows testy as Ottawa waves at oil-by-rail plan



Bill Morneau is not getting aboard Rachel Notley's oil-by-rail plan to boost crude shipments out of Alberta.

But the federal finance minister did not completely derail the idea on Tuesday as a short-term way of alleviating the price discount thrashing Canadian oil producers.

The province is growing testy waiting for an answer.

Alberta's premier recently asked the Trudeau government to consider helping railcars and locomotives in an attempt to increase the amount of crude oil by moving out of the province as existing pipelines are congested.

Morneau seemed to dismiss the idea last weekend, saying he would take at least nine months to execute such a plan.

Speaking during and after the Calgary Chamber of Commerce luncheon, Morneau was asked several times Tuesday if the federal government would pony up for money enhanced rail options.

Like Prime Minister Justin Trudeau during his visit to Calgary last week, the finance minister avoided a direct response, pivoting to the broader point that Ottawa wants to see its Trans Mountain pipeline expansion built.

"We do not want to divert our resources to ideas that will not really have an important impact," Morneau said at one point.

Talking to reporters later, the finance minister left the door open to considering the concept, but just barely.

"I know the industry here and the provincial government are talking about other ideas that could have a short-term or medium-term advantage," he said.

"We will be a team member trying to make sure we are considering all opportunities and what the appropriate federal role could be."

Well, team member, it's time to grab the checkbook if Ottawa really wants to tackle the price differential.

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At the provincial legislature, Alberta Energy Minister Marg McCuaig-Boyd criticized Morneau and his federal counterparts for not embracing the idea.

While both provincial and federal governments are pushing for Trans Mountain, the oil-price discount is creating a crisis and "we need some solutions," she told Clare Clancy's Postmedia.

"He does not seem to get it," said the energy minister.

"It's super disappointing and I think it's very tone deaf. I do not know what it's going to take to the issue that it's serious here in Alberta and we need help.

"But, at the end of the day, if the feds are going to forget about Alberta, our government is not."

That means the province will likely have to spend millions of dollars and buy rail cars and locomotives itself to move the plan forward.

Rail has emerged as a friction point between the federal and provincial governments as they both navigate the problem of Canada's inability to get its oil resources to market.

The differential price between Western Canadian Select and benchmark U.S. crude prices sat at US $ 38.19 a barrel on Monday.

The provincial government estimates the discount is costing the Canadian economy up to $ 80 million a day.

With no new pipelines expected until later next year – and the future of the Trans Mountain expansion and Keystone XL project up in the air – rail remains one of the few available options to boost transportation capacity, if additional locomotives and cars can be found.

Record amounts of crude exports are already moving by train, averaging 270,000 barrels per day in September.

The province's proposed business plan for Ottawa would see the partners spend $ 350 million on fixed capital costs, along with a cost operating estimate of about $ 2,6 billion over three years, starting in July next, according to one source government.

It projects revenue generated from shippers would be about $ 2 billion, while Ottawa would see increased federal revenue to the tune of $ 1 million a day from the improved price differential.

Two new unit trains, capable of moving about 120,000 barrels per day out of Alberta, could help the situation, although it would take time to order new locomotives.

Industry groups such as the Explorers and Producers Association of Canada (EPAC) back the province's proposal.

Buying new locomotives and rail cars is not a part-time short-term oil crisis, Ottawa says, because it would take at least a year to get the new train in place.

Elaine Thompson / Canadian Press / AP

While it would not come online for several months, it would still improve oil transportation options out of Western Canada over the mid-term.

"It's a fantastic idea and it's a serious option that should be considered, given the policy problems we have been putting in pipe," said EPAC President Tristan Goodman.

For producers that are not large enough to sign long-term shipping contracts, railway companies will not bring on more cars or locomotives unless they have some form of backstop or assistance.

The issue of rail cars is coming to a boil as the discount on Canadian oil creates chaos for government finances, and the revenues of petroleum producers.

Credit rating agency Moody's Investor Service said this week it expects the historically wide price differential to lead Alberta to post a deficit greater than expected deficit this year.

"Without successful government policy measures, (it) could delay its timeline to return to balance," said Adam Hardi, Moody's assistant vice president.

The Notley government projects this year's deficit will hit $ 7.8 billion, and insisted that it will return to a balanced budget by 2023-24.

Expect to hear more about the rail alternatives when the premier speaks Wednesday to the Canadian Club of Ottawa, and to the Toronto Region Board of Trade the following day.

The province's oil-by-rail plan is still chugging along, albeit slowly, with Alberta hoping to gain momentum for its proposal.

So far, however, Ottawa seems content to let this slow-moving train pass right on by.

Chris Varcoe is a Calgary Herald columnist.

cvarcoe@postmedia.com


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