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



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

But the federal finance minister was completely derailed the idea on Tuesday as a short – term way of reducing the price of thrashing of Canadian oil producers.

The province is growing test waiting for an answer.

The Alberta premier recently asked the Trudeau Government to consider the purchase purchase railroad and the amount of crude moving out of the province as existing pipelines are congested.

Morneau had the idea last weekend, saying it would take at least nine months to execute such a plan.

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

Justin Trudeau's Like Prime Minister 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 don't want to convert our resources to ideas that 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 might have short and medium-term advantages," he said.

"We will be a member of the team trying to make sure we're considering all the opportunities and what the appropriate federal role might be."

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

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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 Postmedia's Clare Clancy.

"He doesn't seem to get it," the energy minister said.

"It's super disappointing and I think it's very tone deaf. I don't know what it's going to take to press 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 that the province will likely have to spend millions of dollars on cars and locomotives itself to move the plan forward.

Rail has a problem with the resources of the market and has been navigating the problem of Canada's oil resources to market.

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

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

With no new pipelines expected until next year – and the future of Trans Mountain expansion and Keystone XL project up in the air – rail, there are several available options to boost transportation capacity, and 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 an estimated operating cost of about $ 2.6 billion over three years, starting July, according to one government source.

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

Two new units of 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 a short-term fix to the oil crisis in parts, Ottawa said, because it would take at least a year to get the new trains in place.

Elaine Thompson / Canadian Press / AP

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

"It's a fantastic idea that we have had putting in pipe," EPAC president Tristan Goodman said.

For producers that aren't large enough to sign long-term shipping contracts, railway companies will bring more cars or locomotives unless they have some form of government back or assistance.

The issue of rail 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 Alberta's historically wide price differential will lead to a larger-than-forecast 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 has insisted it will return to a balanced budget by 2023-24.

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

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

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

Chris Varcoe is a Calgary Herald columnist.

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