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Alberta Spends $3.7 Billion for Three-Year Tanker Car Lease

Timur Mamedrzaev/wikimedia commons

Alberta will spend C$3.7 billion over three years to lease 4,400 tanker cars from CN and CP Rail, in order to ship up to 120,000 barrels of oil per day by rail, Premier Rachel Notley announced Tuesday.

One out of every 10 or 11 rail cars will be repainted with the Alberta logo, CBC reports.

“Pipelines will always be the best, most efficient, most economical long-term solution,” Notley said [1]. But “we must take action today to provide more relief to our energy workers and the families who rely on these good jobs across this province and this country.”

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CBC says 3,400 of the rail cars will be the new DOT 117J models that meet up-to-date federal safety regulations. The other 1,000 will be retrofits.

“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.”

In a separate analysis, CBC describes [3] the tanker cars as an “expensive insurance policy” against the oil price crash that hit Alberta last year, but cites one industry observer who thinks the effort may be unnecessary.

In 2018, demand for crude-by-rail surged and the private sector didn’t have the capacity to boost shipments fast enough. As a result, there was a backlog of oil in the province and prices plunged, costing the industry and the government a hefty amount of potential revenue,” CBC explains.

But “by the time the majority of the government’s rail cars arrive in 2020, Alberta should have more pipeline capacity to export oil, and the private sector will likely also continue to ramp up its ability to move oil by rail,” the national broadcaster states. “That’s why industry experts say the government’s commitment to spend billions of dollars on crude by rail is a gamble. In fact, it may prove to be an unnecessary investment and put a significant amount of taxpayer money at risk.”

“There’s no reason why private sector companies couldn’t have done this on their own—and, in fact, they have been doing it on their own,” said Robert Cooper of Calgary-based Acumen Capital Partners. “What the government has basically done is bolster CN and CP’s oil-by-rail profits for the next three years.”

But CBC says the deal may benefit smaller fossils that can’t afford to sign their own long-term agreements for rail access. “It’s not without risk,” said IHS Market analyst Kevin Birn. “We are putting taxpayer dollars on the line here.” But “this is to help ensure smaller producers are not left out of the system over the next few years.”