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With Pipeline Stalled, Alberta Considers Buying Rail Cars to Move Oil

The province of Alberta is considering buying two trains worth of oil-carrying capacity, as a temporary solution to get its oil to market despite continued pipeline construction delays.

According to a plan just announced by Alberta's Premier Notley, tanker cars may help carry the surplus oil out of Alberta starting about a year from now. (Photo: Photo by Ethan Cull on Unsplash.com, CC0)

The Premier of Alberta announced on November 28 that the province may end up buying two trains at a cost of about CAN $350 million (U.S. $263.7 million). They will be used at least through 2020 and possibly into 2021. The contract agreement currently being negotiated for the trains will be for a three-year term.

The reason for the purchase is the delay in Enbridge Inc.’s Line 3 export pipeline out of the region. Without the pipeline or some other means of shipping crude out of the region, Alberta is producing around 250,000 barrels per day (bpd) more than the existing rail and pipeline systems can handle.

Premier Rachel Notley of Alberta was not happy the Federal government was refusing to help with the train purchases, but felt it was necessary to do it despite the lack of assistance. As she said in a speech announcing the decision to buy the trains, “Alberta will buy the rail cars ourselves to move this oil. We have already engaged a third party to negotiate and work is well under way. We anticipate conclusion of the deal within weeks.”

After ordering the trains, schedules suggest the first 15,000 bpd of capacity from the trains will be available in December 2019. The full capacity of 120,000 bpd through this route will be up and available by August 2020.

The Alberta government says the Canadian crude discount rates should go up by about $4 during the three-year term of the contract.

Unfortunately, even getting the rail cars up and running at full capacity will take long enough that the full rail car output will happen at just about the same time the Enbridge Line 3 pipeline will be ready. Premier Notley says the rail capacity would still be needed anyway, but recognizes the lag in getting rail capacity available is part of the reason the Federal government is not interesting in funding the plan.