Overview

Delays in building pipelines means we must take further action to increase our export capacity.

To address the pipeline bottleneck, we are investing about $3.7 billion to increase rail capacity so we can get our oil to markets where it can fetch top dollar. This includes leasing about 4,400 new rail cars to move up to 120,000 barrels per day by 2020, with shipments starting as early as July 2019.

Investing in rail service will help increase Alberta's overall export capacity while we continue to support the construction of new pipelines.

Benefits

When oil producers are able to ship more oil to more markets, they’re able to get a better price for their products. This means higher revenues for Albertans.

When pipeline access is limited, shipping by rail:

  • increases the volume of oil that can be shipped
  • increases the number of markets and refineries Alberta products can reach
  • supports smaller producers that may not have pipeline contracts

Costs

Our $3.7 billion investment to increase rail capacity is expected to generate about $5.9 billion in commercial revenue and increased royalty and tax revenue over the next three years.

Cost breakdown

The details and value of contracts with individual companies is confidential, however, overall the $3.7 billion cost of the program works out to:

  • $2.95 billion for rail service from rail companies including on-loading capacity, off-loading capacity, storage access and rail transportation.
  • $750 million for rail cars and other fees.

Revenue breakdown

This investment will result in total revenue of about $5.9 billion generated from additional royalties, net commercial revenues from selling Alberta crude oil in export markets, and provincial tax revenues. The revenue breakdown is based on internal estimates and forecasts and are subject to change depending on market dynamics.

  • $3.3 billion in increased Non-renewable Resource Royalty revenues when compared to the base case without the government's investment in additional crude-by-rail capacity.
  • $1.9 billion in net commercial revenues from selling Alberta crude oil in export markets.
  • $700 million in additional tax revenues for the province generated from the crude-by-rail program.

Currently, the cost of shipping a barrel of oil by rail to the Gulf Coast is about $9 to $12 US more than shipping by pipeline.

While crude by rail is a viable option, pipelines remain the most cost-effective way to transport Alberta oil.

Timeline

  • August 2018

    Government hosts meetings with industry to discuss increasing crude by rail shipments.

  • Fall 2018

    Value of Alberta oil drops against other crude oils as differential widens due to lack of export capacity.

  • November 2018

    Government announced it will invest in enough new rail capacity to increase oil shipments by 120,000 barrels per day.

  • December 2018

    Alberta Petroleum Marketing Commission leads negotiations for government to secure more rail capacity for export.

  • February 2019

    Government reaches leasing agreement for 4,400 rail cars.

  • July 2019

    Increased oil shipments by rail begin.

  • Mid 2020

    Increased rail shipments will reach 120,000 barrels per day.

How it's done

Crude oil will be purchased from producers and loaded onto rail tank cars at one of 21 on-loading facilities in the province. The crude oil will then be shipped to market, mostly in the U.S. as there is demand for Alberta's oil in refineries along the Gulf Coast, where it can be sold at higher prices.

Safety

Transport Canada introduced new safety standards for rail tank cars.

Under the new rules, only specifically designed tank cars can be used to transport crude oil. They are made of thicker steel and have several enhanced safety features that make them stronger and more resistant to damage.

Grain and other commodities

Alberta’s agriculture ad forestry sectors also rely on rail transportation to export from the province.

Grain shipments must continue to be a priority.

Most grain is shipped to the west coast so it can be sent overseas, while most crude oil is sent to the U.S. By increasing our rail capacity we will not be competing with agriculture and other shipments.

Overall, the rail companies have said the system can handle more traffic without affecting existing shipments.

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