Private sector prepared to take on crude-by-rail contracts
April 29, 2019
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Executives at some of Canada’s biggest oil producers say the private sector could potentially step in to take over Alberta government crude-by-rail contracts that the province’s new premier has vowed to scrap.
Alberta signed contracts to lease 4,400 rail cars and ship up to 120,000 barrels per day of crude by rail to help ease congestion on overcrowded oil export pipelines.
The $4-billion plan was formulated last year by Rachel Notley’s New Democratic Party government, which lost the April 16 provincial election and will make way for Jason Kenney’s United Conservative Party when he is sworn in as premier next week.
Kenney said his government will seek to cancel those contracts, arguing that Alberta taxpayers should not shoulder the risk or the cost of crude-by-rail. Some industry players have expressed doubts about his ability to do that.
Now a number of Canada’s major oil producers have told Reuters that the industry could take over those contracts.
The chief executive of Husky Energy, Rob Peabody, asked on Friday if the company would be interested if government crude-by-rail contracts came up for grabs, said Husky would consider it.
“We look at any commercial arrangements if we think we can make money on them,” Peabody said on an earnings call. “We’d be looking to make money on them, not doing it out of some charity or something to our fellow producers.”
The CEO of Cenovus Energy Alex Pourbaix, told Reuters on Wednesday that there were “lots of opportunities” to do something with rail to get it out of government hands, and Cenovus would be willing to participate in those discussions as a facilitator.
Suncor Energy Inc Chief Executive Steve Williams told Reuters on Thursday that the government should consider letting the private sector take over the contracts. “I would say let the conversations take place and I don’t think it’s a difficult-to-resolve issue,” he said.
One difficulty for the government is that rail shipments are uneconomic at current Canadian crude prices. A number of oil companies including Suncor have deals in place to move crude by rail but are not using them fully.
Prices surged last year from record lows after the Alberta government imposed production curtailments to ease a glut of crude in storage, resulting in a dive in rail shipments.
Imperial Oil was ramping up shipments toward full capacity at its 210,000 barrel per day Edmonton rail terminal late last year, but is now only moving 25,000 barrels per day.
Imperial’s CEO, Rich Kruger, said on Friday the industry should utilize existing spare rail capacity before adding more.
“It seems odd to me that we are talking about building more capacity when we have several hundred thousand barrels a day of idle capacity today,” Kruger told investors on an earnings call.