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Alberta eyes $2.2 billion profit in crude by rail

February 20, 2019   Don Horne




Alberta is preparing a giant crude-by-rail operation to help its oil sands industry cope with a pipeline crunch, and it expects a big profit from the venture.

The Canadian province, which holds the world’s third-largest crude reserves, plans to net $2.2 billion after investing $3.7 billion to lease tank cars and buy service from rail providers, generating $5.9 billion from sales and increased royalty and tax revenue, according to a statement to Bloomberg News.

The rail plan is one of Alberta Premier Rachel Notley’s signature moves to help the province’s oil producers, who have been hurt by pipeline shortages that have made it difficult to ship their crude to refiners on the U.S. Gulf Coast, weighing on prices. The plan also comes after Notley mandated production cuts to ease the strain on shipping capacity and work down a glut of oil that had built up in storage.

Not all oil companies have the capital to invest in crude by rail, Notley said at a press conference explaining why government intervention was necessary.

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“That’s why it was important to step up,” she said.

The deal reached with Canadian Pacific Railway Ltd. and Canadian National Railway Co. entails leasing 4,400 rail cars over three years, buying crude from the province’s producers, and then shipping the oil to various markets throughout North America. The province expects to generate revenue from the profit it turns on selling crude to refiners, as well as from the higher oil prices that the additional shipping capacity will support.

Highlights:

  • Add 120,000 barrels a day of crude-by-rail capacity over three years;
  • Lease 4,400 rail cars for three years; and
  • Shrink Canadian crude discount by $4 a barrel over two years.

Alberta’s investment in rail comes as companies struggle to get new oil pipelines built to get Alberta’s crude to markets even as production rose and pipeline bottlenecks developed, causing heavy Canadian crude’s discount to West Texas Intermediate futures to widen to $50 a barrel in October.

“The investment in crude by rail and the elevation of the amount of crude going by rail comes as a result of successive federal government failings” to get new pipelines approved and built, Notley said.

(Bloomberg News)


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