Alberta’s delay in announcing the sale of its crude-by-rail contracts is hindering oil exports just when a pipeline shutdown has made train shipments vital.
Oil producers are leaning on rail capacity now that TC Energy Corp. shut its 590,000 barrel-a-day Keystone pipeline due to a leak in North Dakota. That caused Western Canadian oil inventories to build by almost 5 million barrels in a single week as shippers that would otherwise be ramping up rail cargoes in the face of the shutdown are instead holding off until the government announces the winners of several rail contracts, according to people familiar with the situation.
Premier Jason Kenney’s United Conservative government came into power earlier this year promising to divest to the private sector the $3.7 billion crude-by-rail plan established by his predecessor Rachel Notley. The program was intended to boost crude-by-rail shipments through government of leasing tank cars and rail-service purchases at a time when large Alberta oil producers were under production limits due to a shortage of pipelines.
The program was set to start in July with 20,000 barrels a day of crude cargoes but soon after Kenney was elected in April, he began the process of selling the rail contracts to private companies. Shipments were intended to ramp up to 120,000 barrels a day by 2020.
“We would’ve liked to have seen the government sort of move on its decisions with respect to the contracts for rail sooner rather than later,” Ben Brunnen, vice president of oil sands for the Canadian Association of Petroleum Producers, a trade organization representing oil producers, said in a phone interview. “Now we are at a place where we haven’t been shipping that incremental rail according to the schedule.”
A phone call and email to the energy ministry for comment weren’t returned.
Alberta Energy Minister Sonya Savage said on Monday that the winners would be announced “very soon” and that the contracts were “very complex.” She had previously indicated the winner would be announced in October.
“Anytime you have many contracts and the complexity is quite difficult, it’s never simple, whether it’s for a company or a government,” said Canadian Natural Resource Ltd. President Tim McKay, adding he does not see the delay as a serious hindrance to getting oil exported at the moment.
The rail contracts have become even more important now the Alberta has eased up on mandated production limits. The provincial government last week announced that oil companies would be allowed to produce above their output limits on the condition that any extra production be shipped by rail rather than pipeline, an idea first touted publicly by oil companies including Suncor Energy Inc. and Cenovus Energy Inc. back in July.